Dodgy deals to come out in the wash

A task force wants lawyers and agents to verify sources of overseas funds used to buy property. Photo / Michael Craig

The Government's pre-Budget announcement of its two-year "bright line" tax on capital gains surprised a few people and captured headlines.

But the accompanying news that non-residents buying property would first have to open a bank account here, get an IRD number and declare their own passport and home tax details may have a bigger impact.

The Government is pointing to this measure as having the most potential to reduce foreign demand for Auckland properties and Prime Minister John Key has indicated information on non-resident buying would be gathered and published.

He said New Zealand tax authorities would also share these details with foreign tax authorities.

The elephant in the room of Auckland's property debate is whether some of the money pouring into Auckland, from China in particular, is money laundering of ill-gotten funds.

Without any data, the debate is fuelled by anecdote and rumour, but the issue is capturing global attention.

In November, China's President Xi Jinping asked for Key's help to track down a number of Chinese nationals who had fled to New Zealand with allegedly corruptly obtained funds. This was part of Xi's campaign to crack down on the "tigers and flies" officials and their cronies. Chinese authorities say New Zealand is the third most popular destination for such fugitives.

The issue of money laundering from China is heating up in Australia, too, where data on how much property is bought by non-residents is collected.

More than 25 per cent of all new and existing homes sold last year in Sydney and Melbourne were sold to non-residents, leaving many across the Tasman asking where the money came from.

The investments have sparked calls for tougher laws governing money laundering.

This is where the money laundering issue becomes more topical and direct for New Zealanders, and in particular the real estate agents, solicitors and accountants who handle money flowing out of China and into New Zealand.

New Zealand introduced anti-money laundering rules for banks, insurers, finance companies, share brokers, fund managers and even loan sharks in 2013 that requires them to ask tougher questions about who they open accounts for and where the money comes from.

It cost tens of millions to retrain staff and rebuild systems, and is part of an international effort led by the G7, which developed a Financial Action Task Force to push the measures along.

But a second phase of the anti-money laundering crackdown has stalled.

It was designed to pull real estate agents, solicitors, auctioneers and accountants into the net so they would also have to verify the source of the funds being used to buy property here.

Initial talk was that it would be introduced last year, but the Ministry of Justice is still only talking about policy work on the options for phase two.

The Government needs to crack on with the second part of its reforms to follow up the good work of forcing non-resident property buyers to say who they are and to obtain an IRD number.

It's another great way of reducing demand without having to tax non-residents.

And it makes us a better global citizen in the eyes of the G7's taskforce, which has already hurried us along once for being too slow to introduce the first phase of our anti-money laundering rules.