It is hoped a raft of reforms to New Zealand's anti-money laundering regime will reduce regulation and beat stringent new requirements under international agreements. Photo / NZME
It is hoped a raft of reforms to New Zealand's anti-money laundering regime will reduce regulation and beat stringent new requirements under international agreements. Photo / NZME
Reforms to the anti-money-laundering regime could risk grey-listing and affecting capital inflows, officials warn.
Minister Nicole McKee aims to balance international requirements with regulatory relief, shifting oversight to the Department of Internal Affairs.
Funding will be through a risk-based levy, potentially impacting high-risk sectors such as cryptocurrencies.
Reforms to New Zealand’s anti-money-laundering regime, pitched as business-friendly “regulatory relief”, carry a risk of the country being placed on a “grey list” that would crimp capital inflows, officials have warned.
Reforms driven by Associate Minister of Justice and Act Party MP Nicole McKee attempt to meet more stringent rulesmandated by international agreements while delivering on her party’s campaign pledge to bring “regulatory relief”.
Details of the proposals, and concerns from officials, were released last week under the Official Information Act and will mean New Zealand’s anti-money laundering regime sits solely under the Department of Internal Affairs (DIA).
Previously, responsibility was shared with the Reserve Bank and the Financial Markets Authority.
The new regime would no longer be part-funded by the Crown, with costs instead met by a “risk-based” industry levy.
New Zealand is part of the Financial Action Task Force (FATF), an intergovernmental grouping to combat money laundering that has member states regularly assessed as to their success in achieving policy goals.
Officials said the size of the black economy was difficult to quantify, but “conservative estimates suggest $1.35 billion is generated annually for laundering in New Zealand, excluding transnational laundering of overseas proceeds”.
New Zealand’s next FATF assessment comes in 2028-29. A pass mark to avoid grey-listing now requires 26 out of 40 technical criteria to be met, up from 20.
One of these new requirements explicitly requires a register of beneficial ownership that Cabinet last year decided was not a priority. But reforms McKee has flagged do include the creation of a non-public register for trusts.
Associate Justice Minister Nicole McKee defended her reforms as "pragmatic". Photo / Mark Mitchell
McKee defended her actions, saying they went far enough to avoid grey-listing.
“I have taken a pragmatic approach to complying with the FATF standards and have targeted those initiatives which both aim to address FATF deficiencies and also meet coalition goals of providing regulatory relief and supporting tackling organised crime. I have prioritised initiatives that serve a dual purpose,” she said.
According to the documents, the minister opted to avoid larger-scale reforms because they conflicted with, or took away focus from, promises made during the election campaign.
“Further reprioritisation would require trade-offs against other priority projects in the justice portfolio, which I consider to be undesirable as it risks undermining coalition commitments and policy priorities.”
Officials said the FATF might still deem reforms insufficient. Members Iceland, Turkey and South Africa were recently grey-listed.
“Grey-listing is a significant step, which will trigger other jurisdictions to impose restrictions on financial dealings with the grey-listed country.”
Compliance specialist Adam Hunt says the risk of New Zealand being grey-listed is real and the consequences would be significant. Photo / Nick Reed
Compliance specialist Adam Hunt said the last time New Zealand flirted with making the grey list, in 2009, it spurred rapid legislative reform.
“The last time we nearly got put on the grey list, we passed the Anti-Money-Laundering and Countering Financing of Terrorism Act within six months,” he said.
Hunt said grey-listing would mean offshore counterparties to New Zealand-based businesses would have to conduct more due diligence in the absence of mutual recognition of our own anti-money-laundering processes.
A 2021 International Monetary Fund working paper examining the effects of grey-listing on economies found a “large, significant negative effect” on capital flows.
The reforms, with legislation expected to be introduced in the middle of the year, will no longer require mandatory address verification for most customers, or subject all trusts to customer due diligence.
Parallel structural changes will have the DIA take over as the single agency responsible for supervising the anti-money laundering regime.
The Reserve Bank handles banks and non-bank deposit takers while the FMA oversees financial advisers, fund managers and derivative issuers.
Funding the beefed-up DIA effort, expected to cost $23 million a year, would be met by an industry levy, which McKee signalled would be “risk-based”.
Officials anticipated this would mean some sectors bearing heavier costs.
“There may be an outsized impact on investors in speculative virtual assets (eg cryptocurrencies) and very high-risk sub-sectors that are comprised of small and medium-sized enterprises.”
Matt Nippert is an Auckland-based investigations reporter covering white-collar and transnational crimes and the intersection of politics and business. He has won more than a dozen awards for his journalism – including twice being named Reporter of the Year – and joined the Herald in 2014 after having spent the previous decade reporting from business newspapers and national magazines.
