Tackling money laundering and terrorist financing

The Government has decided to overhaul the system to make it more agile and responsive to industry and community needs and to take a more risk-based approach.

The main initiatives are:

  • Introducing a single supervisor replacing the existing three;
  • Introducing a new funding model;
  • Subsequent legislative change

Read the announcement by the Associate Minister of Justice, Hon Nicole McKee:

Government to overhaul anti-money laundering regime(external link)

On this page:

What is money laundering and terrorist financing?

Money laundering is the process criminals use to ‘clean’ the money they make from illegal activities such as fraud, drugs, and tax evasion. They do this by buying, selling, and channelling funds through things such as property, luxury goods and financial services.  Criminals launder money so it looks like it comes from a legitimate source, to cover their tracks and avoid being detected. They then spend the money or use it to fund criminal activities.  People who finance terrorism use similar methods to channel funds to violent causes. For more information, see:

What is money laundering and terrorist financing?

How does the AML/CFT system currently work?

The foundation of New Zealand’s system to tackle money laundering is the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act 2009 and associated regulations.

Three government agencies are responsible for supervising and providing guidance to the various businesses and industries the AML/CFT Act apples to:

  • Reserve Bank – supervising banks, life insurers and non-bank deposit takers. Anti-money laundering and countering terrorism financing(external link)
  • Financial Markets Authority – supervising derivatives issuers, brokers and custodians, equity crowd funding platforms, financial advisers, managed investment scheme managers, peer-to-peer lending providers, discretionary investment management services, licensed supervisors, and issuers of securities. AML/CFT(external link)
  • Department of Internal Affairs – supervising casinos, lawyers, conveyancers, accountants, real estate agents, sports and racing betting agencies, businesses that provide trust and company services, or trade in high value goods, and other financial service providers that are not covered by the Reserve Bank or Financial Markets Authority. AML-CFT Homepage(external link)

Other government agencies involved in the regime include:

  • The Ministry of Justice which is responsible for policy development and administration of the law. It also handles all matters related to exemptions from the Act.
  • The New Zealand Police financial intelligence unit receives and analyses suspicious transaction reports.  It also issues guidance to reporting agencies and the three supervisors about reporting obligations under the Act and provides information on money laundering and terrorism trends and methods. Financial Intelligence Unit (FIU)(external link)
  • The New Zealand Customs Service enforces the Act’s cross-border cash reporting scheme.  Border Cash Reports review(external link)

Why is a single-supervisor model being implemented?

Establishing a single AML/CFT supervisor will support industry and consumers by providing consistent and up-to-date guidance and support, reducing compliance costs, and realising opportunities (such as digital identity and open banking). The guidance will enable proportionate implementation and enforcement of AML/CFT obligations for all reporting entities, that are based on the risks inherent in their business rather than a one size fits all approach.

A multi-agency statutory review of the Act, conducted in partnership with industry, identified that the existing supervisor model:

  • does not allocate resources to areas that represent the highest risks,
  • results in duplication of spending and requires additional resources for coordination,
  • can lead to inconsistencies between each supervisor’s interpretation of the Act and the guidance they provide, and
  • results in reporting entities receiving insufficient support, leading to overly prescriptive measures that increase costs and raise barriers for business and consumers.

The AML/CFT system requires the supervisors to work together to meet the objectives of the legislation and implement a system-wide approach to supervision. The review found that, as each supervisor is funded differently, resources are not effectively shared, and emerging issues are not always adequately prioritised.

Why are the supervisory model and levy changes being progressed now?

Changes to the system structure and funding model must be progressed before substantial legislative changes implemented. Moving to a single supervisor structure provides necessary agility that will enable successful implementation of the regulatory reforms.

For example, moving to a single decision-making organisation will ensure the supervisory system can be more agile in providing guidance and support to businesses.  This is particularly important, as many of the aspects of the AML/CFT work programme (such as improving Customer Due Diligence (CDD) requirements) require the updating of guidance and codes of practice.  Making these changes now will mean the single supervisor will be established two years before New Zealand’s next mutual evaluation by the Financial Action Taskforce (FATF).

What legislative changes are being progressed?

As well as these structural changes, the Government is progressing the Anti-Money Laundering and Countering Financing of Terrorism Amendment Bill improve New Zealand’s anti-money laundering and terrorism financing regime to make the system more risk-based, efficient, and effective.

The Anti-Money Laundering and Countering Financing of Terrorism Amendment Bill(external link)

Read the announcement of the Associate Minister of Justice, Hon Nicole McKee:

More AML relief on the way for Kiwi businesses(external link)

Briefings, Cabinet papers and other proactive release material

Cabinet papers, minutes and Regulatory Impact Statements: Proposals for an AML/CFT legislative work programme [PDF, 7.5 MB]

 

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