Stephen Drain: Latest financial rules throw obstacles in criminals' way

Banks, casinos, finance companies, lenders and other private companies whose activities fall within the Anti-Money Laundering and Countering Financing of Terrorism Act have been given their marching orders: invest and comply with the new rules. So, what's happening now?

Financial and some non-financial organisations now have more in common: they have to show they're assessing and mitigating their organisation's money laundering and terrorist financing risk. And it has cost the banks alone an estimated $70 million to $90 million in new systems and processes. Even for smaller businesses, it is costing $20,000 to comply.

But, why such an act? Based on data from Transparency International, New Zealand has the world's lowest perceived rates of corruption, jointly ranked with Denmark and Finland. Our country is therefore seen as a great place to do business. And we're concerned to maintain our good reputation and trust in our banking system and capital markets. As such, the act will help by making businesses responsible for identifying and closing weak points that could be exploited.

For example, a criminal who may wish to wash their ill-gotten gains through a bank or casino should find this much harder to do. We must remember, New Zealand trades and connects with the world in the same way as everyone else and we are as vulnerable to organised crime as anyone. It's important we pull our weight and contribute to international efforts that make it less likely crime will pay.

So, what are the changes companies and customers can expect? Most noticeably, we will see a little more rigour around our banking relationship, such as when opening a bank account or getting a loan. Whereas a driver's licence would have once been sufficient for identification, customers may now be asked for other identifying documents. Or, when making a deposit we may now be asked where we got our money from.

In the background, organisations covered by the act are putting a lot of resource into carrying out risk assessments and getting to know their customers. Staff are being trained to be more risk alert to suspicious transactions and dedicated teams have been put in place to ensure organisations are compliant.

As easygoing Kiwis, we are not typically used to such robust levels of scrutiny, yet for the majority it will be business as usual with just a few extra boxes to tick and questions to answer. Consider, isn't it reassuring to know it will now be harder for someone to open a bank account in your name?

Yet, as welcoming and assuring as this act is, it should not be viewed as a panacea for crime: it can only be successful as part of integrated actions making it harder for money to be laundered clean. Would be money launderers will continue to find ways to dispose of their loot. One fear is the black market will get bigger and so authorities ought to increase their vigilance to counter this risk.

There are also some lesser known consequences of the act and all businesses, even non-financial entities, should take care to confirm their activities aren't covered by it. For example, hotels offering foreign currency exchange facilities and energy companies providing pre-paid electricity cards will all be affected.

Why? Because under the act, these business activities are considered financial instruments that could be abused.

While some of the effects of the act may add a few complexities to daily business, it is in all our interests to minimise exposure to money laundering.

Stephen Drain is a director within PwC's forensic services practice, as well as director at non-profit organisation Transparency International New Zealand.