A police surveillance image of Yinghui Zhang handing cash to a customer in the first money laundering investigation of its kind in New Zealand. Photo / Supplied
A professional money launderer has avoided prison after the first covert investigation of its kind in New Zealand.
About $8.4 million flowed through the bank accounts of Yinghui Zhang over a 20-month period, during which time his importing business was a front to avoid detection from financial authorities.
Zhang, 40, was able to shift money between New Zealand and China without any electronic transfer taking place, known as the Hawala system, leaving no record of the transaction.
Customers would put Chinese Renminbi into his account in China and Zhang would hand back the equivalent in New Zealand cash at pre-arranged money drops around Auckland.
Or Zhang would receive cash in New Zealand and transfer the same amount from his business' Westpac account to the customer's account in China.
Zhang would also launder money by using false names to deposit cash on behalf of customers, often several times a day at different banks across Auckland.
The deposits were always less than the $10,000 limit that triggers a "suspicious transaction report" from the bank to the police.
In return for his illegal services, Zhang would take a small percentage of each transaction.
The dirty money helped him buy two homes in Remuera, now worth a combined $9m, as well as Mercedes-Benz and Bentley vehicles, bought for $120,000 and $280,000 respectively.
These assets were seized by police in August 2019, along with $250,000 and $750,000 in a bank account, when Zhang was arrested as the principal target in Operation Menelaus.
He pleaded guilty to providing unregistered financial services, money laundering, structuring transactions to avoid anti-money laundering requirements and obtaining by deception in regard to a $2.4m loan.
Zhang was sentenced in the Auckland District Court on Friday to 12 months' home detention by Judge Claire Ryan, who also ordered judicial monitoring.
Operation Menelaus was the first of its kind in New Zealand as part of a strategic shift by police to focus on professional money launderers.
An audit in 2012 by the Financial Action Taskforce (FATF), a global body that audits the anti-money laundering performance of member countries, had noted New Zealand had a poor rate of prosecuting money laundering.
At that time, investigations into financial affairs were more likely to support asset recovery cases, or focus on the crime generating the funds to be laundered - usually drug manufacture or supply.
As a result, there had been a lack of attention on identifying "high risk" money laundering targets such as lawyers and accountants, who help criminals hide their money through companies and trusts, or money remittance firms taking dirty cash and wiring funds overseas.
The FATF criticism led police to establish specialist money laundering teams with a deliberate focus on professional money launderers.
The so-called "third party" launderers are not involved in making money through criminal activity, most often drug dealing in New Zealand, but are engaged as contractors solely to disguise the origins of dirty cash or get it out of the country.
Instead of reconstructing the financial transactions through forensic accounting alone, the money laundering teams use investigative techniques more commonly found in covert drug operations.
Operation Menelaus was the first of these "live" money laundering investigations when detectives were tipped off about Yinghui Zhang's underground banking services.
Hidden cameras, physical surveillance and the interception of his private conversations were used to gather evidence against him, including two occasions where large sums of cash were dropped off while police were following him.
On June 5, 2019, a man named Shaobin Zhang delivered $300,000 to Yinghui Zhang who, in turn, transferred the same amount from his business account in New Zealand to a customer's account in China.
On July 15, 2019, Shaobin Zhang handed over another $280,000 and Yinghui Zhang again transferred the money to China. He gave a false description of the reason for each bank transfer.
"We had surveillance of the money being handed over, which coincided with a particular phone call, which coincided with the bank transfer of funds," said Detective Sergeant Richard Trushell.
"That's how we could tie all the evidence together."
When Shaobin Zhang was arrested in August 2019, police found a .227 bolt action rifle with ammunition and a document titled "30 best ways of laundering money".
He told the detectives that his role was to simply collect cash from customers and deliver the money to Yinghui Zhang.
Although he had no evidence, Shaobin Zhang admitted that he suspected the money was the proceeds of drug dealing.
He pleaded guilty to two counts of money laundering and unlawful possession of a firearm and was sentenced to six months' community detention by Judge Ryan in January.
Shaobin Zhang's lawyer Dale Dufty argued his client was "willfully blind" about where the cash had come from.
Judge Ryan said he also had spent a month in prison on remand "among people you've never met before and never want to meet again".
"You described it as a humbling experience.
"You haven't got name suppression, people are going to know who you are and what you've done. I never want to see you in this court again," she told him.
Operation Menelaus was followed by a trilogy of linked investigations - codenamed Brookings, Martinez and Ida - in 2020 and 2021.
Others charged as part of Operation Menelaus, however, have had their charges dropped, the Herald earlier revealed.
They included a woman in her 40s who was accused of laundering $6.17m through property, home loans and deposits, bank accounts and luxury vehicles.
And a man and woman in their 30s, each had a single money laundering charge against them withdrawn.
A woman in her 60s was also initially charged with six counts of money laundering and of structuring transactions under the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT).
More than $21m in assets were restrained across the three operations and 28 people were charged with 103 counts of money laundering, structuring to avoid the anti-money laundering reporting requirements, fraud, drugs and firearms.
The focus on professional money launderers comes when police are now able to use AI-driven software to analyse millions of suspicious financial transactions reported each year by banks, lawyers, accountants, casinos and real estate agents.
The new technology is a response to criticism in last year's FATF report, which noted relatively few money-laundering investigations in New Zealand were triggered by the police Financial Intelligence Unit (FIU).
"The FIU does not fully exploit the potential of financial intelligence to detect criminal activity by persons not already known to law enforcement," the report concluded, recommending the police buy more sophisticated software to analyse millions of financial transactions reported to them each year.
"This would significantly enhance the FIU's ability to identify new targets and trends."
The same FATF report described the police use of the Criminal Proceeds Recovery Act, where assets belonging to suspected criminals are frozen with court orders, as "impressive" and among the best in the world.
More than $1 billion in alleged criminal wealth has been frozen in New Zealand since the powerful legislation came into effect just over a decade ago.
The 19-year-old disappeared without her wallet or mobile phone.