Law Talk: Money laundering - yes, it happens here too

Anti-money laundering and counter financing of terrorism measures are ramping up all around New Zealand.

The second phase of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) is progressively being rolled out among the professions of New Zealand over the past and coming few months.

While most of us have become accustomed to our banks asking us for photo identification and proof of our residential address each time we interact with them, a process known as customer due diligence — having your lawyer, accountant or real estate agent ask for the same information — is likely to be a new experience.

Changes to New Zealand law came into effect under the AML/CFT Act from 2013, and banks and other financial institutions were the first to be caught.

Now the government has turned its attention to the business sector, with lawyers being the first group to come under phase 2 from July 1, 2018.

So what is money laundering and why is it such a big deal?

Money laundering is the process criminals use to "clean" money. Typically the money comes from crimes such as fraud, dealing in illegal drugs and tax evasion.

By laundering the money through legitimate sources they can cover their tracks and avoid detection. They do this by buying, selling and channelling funds through things such as property, expensive goods and companies such as banks, lawyers and accountants.

Money laundering makes it harder for authorities to find out where "dirty" money comes from, harder to stop crime, prosecute criminals, and seize illegally earned money and assets.

Does it really happen in New Zealand? Absolutely.

The Ministry of Justice estimates about $1.35 billion from fraud and illegal drugs is laundered through legitimate businesses in New Zealand each year.

However, the true cost and impact is likely to be many times greater than that figure when you factor in all the additional crime that "dirty" money causes.

So how does provision of my ID and address help in the prevention of money laundering? The following case illustrates ...

A client of a New Zealand law firm had their email hacked by a fraudster. The fraudulent "client" instructed the firm to pay money to a New Zealand bank account.

After the money had already been paid to the fraudster, the real client rang the firm and asked for the money to be paid elsewhere, and the law firm realised they had been duped.

Because customer due diligence had been carried out by the bank when the account to which the funds were paid was opened, the police were quickly able to identify the fraudster and where he lived. He was apprehended within 45 minutes of the police being notified.

As the regime is implemented through more and more industries, it is going to become increasingly more important for us all to be prepared to produce photo ID and proof of address to prove who we are.

Simon Badger is a partner with Treadwell Gordon