'Impressive': Global watchdog rates NZ police efforts at seizing criminal wealth, advises software upgrade to identify money launderers

Nearly $1m seized from a senior Head Hunter gang member involved in drug manufacture. The cash was hidden inside his bed. Photo / Supplied

An international evaluation of New Zealand's ability to prevent and investigate money laundering says company and trust structures are a major vulnerability, but ranks the police efforts to seize suspected criminal wealth as among the best in the world.

The New Zealand police force is among the world's best at seizing criminal profits but needs more sophisticated technology to analyse financial transactions and find new targets to investigate, according to an international report on money laundering.

Yesterday, the Herald revealed that more than $1 billion in alleged criminal wealth has been frozen in New Zealand since a powerful law targeting organised crime came into effect just over a decade ago.

Expensive real estate, luxury cars and cash are among the assets restrained from drug dealers, gangs and other criminal groups since the Criminal Proceeds (Recovery) Act was passed into legislation in late 2009.

The new data was obtained under the Official Information Act and illustrates the force of the powers that were handed to the police amid concerns that prominent criminals were enjoying lavish lifestyles.

The success of the police in enforcing the law was "impressive", according to a new report published yesterday by the Financial Action Task Force (FATF), an intergovernmental body based in Paris.

According to the police's risk analysis, around $1.3 billion is generated every year in New Zealand from criminal activity, mostly from the supply and distribution of methamphetamine and cocaine.

On those figures, New Zealand is estimated to be restraining around 8 per cent of criminal proceeds annually, according to the FATF report, a rate that the taskforce described as "impressive".

The global average is around 2.2 per cent.

The report, published on Thursday night, said that New Zealand was one of only four countries to achieve a "high level of effectiveness" in pursuing criminal proceeds, along with the US, Israel and Honduras.

The FATF, founded by the G7 in 1989 to help clean up the international financial system, said that New Zealand is still vulnerable to money laundering despite its progress in recent years. The taskforce welcomed steps such as tighter controls on company registrations, including residency requirements for directors, but said there are still "major gaps in the framework".

The main problems, the taskforce said, are that the use of nominee directors and shareholders in shell companies and the lack of accurate information about trusts allows the true beneficial owners of corporate entities to conceal their identities.

However, FATF also pointed out that the police Financial Intelligence Unit needs more sophisticated software to analyse the millions of financial transactions reported to them each year.

This would give the police greater abilities to identify trends and patterns, in order to find new targets to investigate who may otherwise escape detection.

Detective Inspector Craig Hamilton, the national supervisor for the Asset Recovery Unit and the Financial Intelligence Unit, said the police are "well advanced" to respond to that FATF criticism, as the contract negotiations to provide the new technology are underway.

"It's been a long process but we're hopeful the technology will be in place by the end of the year," said Hamilton.

"We're investing in the right part of the business ... it's going to be really cool."

Detective Inspector Craig Hamilton oversees the Financial Crime Group and has worked in criminal asset recovery for 20 years. Photo / Alan Gibson

The major technology upgrade comes soon after the police increased their manpower. Staff numbers have grown from a dozen investigators to 80 in the two decades Hamilton has worked in asset recovery, as well as 30 staff in newly established money laundering teams. More staff are expected to be recruited as part of the wider police strategy to constrain the growth of organised crime.

Prior to the Criminal Proceeds Recovery Act, the police needed to secure a conviction in order to strip the ill-gotten gains from underworld figures. To their frustration, this often failed to catch the leaders of criminal gangs who limited exposure to prosecution by keeping their distance from day-to-day operations.

Under the new law, detectives no longer needed a conviction. They only had to show that someone profited from criminal offending to the lower standard of proof applied in civil cases — "on the balance of probabilities" — rather than surpassing the more difficult "beyond reasonable doubt" threshold for criminal cases.

Asset seizure cases often run in parallel to criminal prosecutions. Police make an application to a High Court judge, usually without warning so that the suspected criminals and their associates don't have time to hide or sell the assets.

Frozen assets are held by the Official Assignee, a government body which administers bankruptcies, until the High Court rules on whether they should be permanently forfeited to the Crown. The process takes two years, on average, but the most complex cases last much longer.

Because of that time lag, hundreds of millions of dollars restrained from alleged criminals is sitting in limbo. According to the data obtained by the Herald, assets frozen since 2009 amount to $1,038,765,090.36, but just under $330 million has been permanently forfeited so far.

Nearly $1m seized from a senior Head Hunter gang member involved in drug manufacture. The cash was hidden inside his bed. Photo / Supplied

Craig Hamilton said that asset seizure has proven to be a powerful tool in the fight against organised crime.

"Organised crime is all about money," Hamilton said. "But money is also the biggest vulnerability for organised crime.

"By taking their money, we're trying to take their power and influence. This is about crime prevention. By taking their money, we're stopping them from expanding their criminal enterprise."

Eighty-six per cent of the proceeds of crime cases that the police have pursued related to drugs, gangs and organised crime. Recently, they have increasingly been going after the proceeds of other alleged crimes including fraud, tax evasion, exploitation of slave labour, movie piracy and even a workplace fatality.

In several notable cases, police have worked with overseas law enforcement agencies to restrain assets in New Zealand which were allegedly derived from criminal activity in other countries.

The most high-profile case involved William Yan, better known as Bill Liu, an "economic fugitive" wanted for an alleged large-scale fraud in China. He agreed to pay $43m without admitting criminal or civil liability, the biggest settlement under the legislation so far.

But that could be dwarfed by other recent cases. In one case, the authorities froze around $70m in New Zealand bank accounts linked to Edward Gong, a businessman accused of fraud and money laundering in Canada. In another, they restrained $140m connected to Alexander Vinnik, a Russian computer expert accused of running a Bitcoin exchange which laundered money for criminal networks.

There were nine of these high-value overseas cases in the past six years, totalling $293m, according to the FATF report.

"We don't want New Zealand to be seen as a soft touch," Hamilton said. "If you want to bring proceeds of crime to New Zealand, you're more likely to lose them here than any other country in the world. These results reflect that."

Andrew Hill, the head of the Justice Ministry's delegation to the FATF, said report shows New Zealand has world-class systems in place to combat money laundering and terrorist financing.

"However, the report notes that 'timeliness [of access to beneficial ownership information] remains a challenge, as the authority must know which reporting entity holds the relevant Customer Due Diligence information".

The report also notes that because nominee shareholder and directors can be used may impact the timely access to beneficial ownership information, said Hill.

Notwithstanding these beneficial ownership risks, Hill said the report also finds that authorities are effective in investigations involving legal structures.

"We acknowledged the FATF's findings on the challenges and welcomed the recognition of authorities' skill and effectiveness in overcoming challenges through investigative excellence."