https://www.1news.co.nz/2024/07/18/obscene-money-race-against-time-to-stop-the-money-launderers/

The illegal drug trade, and the money-laundering that comes with it, has changed dramatically in New Zealand in recent years. And now we face a new deadline to get our house in order, reports Yvonne Tahana in the final part of her investigation into an illicit industry worth $1.35 billion a year.

The “FATF”. It’s an acronym that sounds more like diet-industry lyra-legwarmers from the 1980s than anything to do with fighting money laundering.

But it’s probably one of the most powerful financial global groups that no one knows anything about.

Andrew Hill from the Ministry of Justice isn’t quite deadpan when he describes it as a very technical body.

“It’s potentially not that exciting to everyday people. Even those of us involved in it might not actually find it that exciting on a day-to-day basis.”

Over at Internal Affairs Mike Stone is affably affronted.

“Well, we think we're quite sexy, Yvonne, to be honest.

"So it may not be commonly known by New Zealanders that we are talking hundreds of millions of dollars in transactions - quite obscene volumes of money that would be unfamiliar to most people."

The FATF stands for the Financial Action Taskforce, an international watchdog that New Zealand has been a member of since its establishment in 1987. Both Internal Affairs and Justice have responsibilities related to our membership.

The drug scene was a little simpler in New Zealand 40 years ago, facing none of the big problems that the big nations were challenged by at the time with Mexican cartels trying to make their cash legit.

We do have problems now though.

Drug trade changes

Market forces between 2014 and 2016 changed everything. Global production of methamphetamine ramped up and price-gouging criminals realised this.

Transnational Organised Crime calls New Zealand the "golden nugget" because users pay some of the highest prices in the world for meth and other illegal drugs.

And we know roughly what the size of the money laundering pool is in New Zealand - $1.35 billion. That’s all cash at the gate proceeds from our illegal drugs trade.

Hill doesn't really like that figure - he believes the dollar amount doesn't really matter.

"Where we can see what the real scale of money laundering is, is every time we see a news story about drug offending, about organised crime, about gang violence, that's all fuelled by dirty money and the incentives."

Anyway, the FATF is important because it sets the broad global regulatory rules for attacking money laundering which links to the drugs trade. Member nations have versions of this law, New Zealand’s is called the Anti-Money Laundering and Countering of Financing of Terrorism Act.

The aim of the law is to target businesses that are either doing the wrong thing purposefully or are susceptible to manipulation from criminals.

Internal Affairs is one of the domestic regulators responsible for monitoring the act in relation to 20-odd sectors, from casinos to financial and non-financial service businesses, money transfer operations, real estate and those who set up trust and company services.

Police have told 1News that nail salons, barbershops and increasingly construction companies also pose money laundering risks while banks have vulnerabilities too as targets of money launderers.

This matters because the FATF doesn't just set the global rules. It also evaluates countries to see how compliant they are with the global regime.

Our wider investigation, which you can watch on TVNZ+, hasn't touched on the terrorism financing side, but NZ's last global assessment in 2021 and a follow up in 2022 found that we're generally "delivering good results".

However, we do have some work to do. Especially around understanding who is controlling trusts and companies. As it stands it can be a murky area, says Hill, our man from Justice who is patiently taking me through his work.

"Now, bearing in mind, there's nothing inherently wrong with a shell company, but a shell company is a classic way of laundering money."

So, we need a Beneficial Owners Register which would make it easier for law enforcement and the financial system to look below the surface of who owns what.

Stone, his counterpart at Internal Affairs, picks up the thread.

"Some countries have taken more advanced steps than New Zealand and New Zealand is looking at a register like that.

"So the goal here is about having a really robust and transparent, where it needs to be, system to make sure that criminals can't use complex structures to hide their identity and enable them to keep making huge profits from crime.

"It is a complex and difficult piece of work and it is taking time and it ultimately hopes to achieve some transparency over who has the ultimate benefactor in those complex legal arrangements.

"I can't give you any kind of timeframe as to when that might be successful."

Fix the issue

What we do know is we have to get the issue fixed before our next evaluation is done in 2029.

Hill said: "Our evaluation sounds a long way off, but in actual fact that means we need to have laws in place about a year before that at the very latest and, working closely with industry co-designing the settings, making sure they're right. That takes a long time."

That programme is a good way of Justice to get out of its "ivory tower", he reckons.

If countries don't do the work, they end up on what's known as the Grey List.

As the name suggests, it's not good.

It means states are seen as high risk and being on it can cost economies. International Monetary Fund research puts it at as much of seven per cent of GDP in payments to and from a country.

Police National Organised Crime boss Detective Superintendent Greg Williams has stressed to 1News repeatedly that, because New Zealand is taking a systems approach across government to address money laundering, criminal enterprises are feeling the pressure. Change as he puts it, in police-speak, "is being affected" and he's proud of it.

Major investigations into multimillion dollar money-launders have had good results and it’s resulted in criminals changing behaviours away from banks, he said.

He also points to an important law change - the Criminal Activity Intervention Legislation Act 2023 - which means it’s no longer possible to buy certain goods above $10,000 with cash.

"Drugs drives the money. Way back in the day, in the 80s and 90s you could virtually buy a house with cash.

"Well, as of May last year, the legislation has changed so that you can't even use cash to buy more than $10,000 worth of cars or watches or jewellery or the like."

All three of these major players say a systemic all-of-government response to money laundering must continue.

Hill will keep chipping away at the problem, with a hidden army of what he calls "really passionate anti-money laundering professionals" in industry and government.

Maybe, as he said, not exciting work on a day-to-day basis but key to our economic wellbeing and international obligations.