New Zealand’s Anti-Money Laundering Reforms Fail To Deliver

Asia Pacific AML, Kerry Grass

The key piece of legislation in New Zealand to prevent Anti-Money Laundering (AML) is the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act).

The AML/CFT Act establishes a legal framework for preventing Money Laundering and Financing of Terrorism (ML/FT).

In essence the AML/CFT Act establishes a legislative framework that promotes collaboration between the financial markets sector and government. It does this by obligating certain financial service businesses to operate with policies, procedures and controls to detect and report potential crimes of money laundering and financing of terrorism.

Know Your Customer

One of the key aspects of ML/FT laws is to Know Your Customer (KYC). The terminology refers to the need to conduct ‘Customer Due Diligence’ and verify the identity of a customer or client so that the business can be reasonably satisfied the customer is who they say they are.

Identity verification (knowing who your customer is) is crucial for any AML/CFT legislative framework to succeed in its objectives to detect and deter financial crime. Not only is it crucial for the purpose of detecting, deterring and preventing financial crime, but it is also a common-sense approach to running a business to ‘Know Your Customer’ or ‘Know Your Client’.

By requiring financial service businesses, such as New Zealand registered banks, to verify the identity of their customers through independent and reliable sources, ensures NZ registered banks are in a better position to protect New Zealanders from being victims of financial crime.

Mandatory obligations to Know Your Customer by independently and reliably identifying the customers, assists to ensure the account is not being operated by Mexican, Chinese or Russian cartels (as an example).

Identifying bank account owners and operators also assists to detect corruption and serious fraud. The application of KYC assists to prevent a rogue bank employee or a rogue public servant or rogue politician, from operating an account anonymously whilst facilitating financial crime through that account.

However, since New Zealand’s introduction of the AML/CFT Act, it has operated with a significant flaw which results in ‘existing’ customers of New Zealand registered banks evading the need for identity verification.

The application of New Zealand’s AML/CFT Act enables registered banks to continue operating financial accounts for ‘existing’ customers even when the bank is aware that the bank holds no identity records on file. The AML/CFT Act also enables a registered bank to continue operating an ‘existing’ bank account if it has some records on file but the reliability of those records is questionable. It is only if there is a detected suspicion of money laundering or financing of terrorism, or if there is a ‘material’ change to the account, before the bank has an obligation to identity the owners and operators of the account.

Accordingly, New Zealand’s AML/CFT Act allows bank accounts that were facilitating money laundering at the time the AML/CFT Act was introduced, to continue to do so – without the need to identify the owners or operators of those accounts until a suspicion is detected or a material change occurs. Both conditions require the registered bank to have capability of detecting, monitoring and reporting.

These conditions weaken the ability of the AML/CFT Act to achieve its purpose of:

• To detect and deter money laundering and the financing of terrorism; and
• To maintain and enhance New Zealand’s international reputation by adopting, where appropriate in the New Zealand context, recommendations issued by the Financial Action Task Force; and
• To contribute to public confidence in the financial system.

NZ’s AML/CFT Reforms Fails To Deliver

Despite promises from the Ministry of Justice that it would reform New Zealand’s AML/CFT Act during the 2021 statutory review, the legislative reforms, as at 27 November 2025, have not addressed this loophole. The AML/CFT reforms do not address this loophole as it continues to give registered banks the discretion on whether ‘existing’ customers should have their identity verified.

Whether a New Zealand registered bank should incur compliance costs or a compliance burden in order to protect New Zealanders from financial crime, should not be an option. Especially when the primary problem is within registered banks who allegedly make millions in profits.

Cost of Compliance versus Cost of Financial Crime

There is no common sense in trying to make AML/CFT compliance cheaper or easier for large conglomerate financial institutions such as registered banks when, in doing so, the consequence is it is impossible for the AML/CFT Act cannot achieve its statutory purpose.

Where is the common sense in our parliamentary spokespersons who claim that New Zealand will get tougher on transnational crime, money laundering, terrorism financing, corruption, serious fraud etc.

It is not possible for New Zealand to get tough on combatting organised crime when such legislative weaknesses exist in New Zealand’s primary legislative instrument to combat money laundering and serious financial crime.

And this is not the only material flow that continues under New Zealand’s post-AML/CFT reforms.

Underground Banking Evades Prescribed Transaction Reporting

‘Underground Banking’ escapes capture under New Zealand’s AML/CFT Act in that these methods of ‘trading’ or moving money or value does not obligate reporting in the same was as conventional or ‘Wire Transfers’ are captured under the AML/CFT Act.

As unconventional methods of trade in international activity is through informal channels which may include a ‘ledger’ notation – these types of methods of money or value transfer are outside of New Zealand’s definition of ‘Wire Transfer’.

A ‘Wire Transfer’ is an electronic transfer that travels through one financial institution (the Originating institution) and delivered (received) into another financial institution (the Beneficiary institution).

However, traditional methods of Hawala, alternative remittance or underground banking – operate outside of traditional methods such as ‘Wire Transfers’. Unconventional methods of trade can be through a ledger notation – or a scribbled note.

Alternative remittance does not need to involve a ‘sending’ and a consequential ‘receiving’ from one financial institution to another financial institution. Not requiring use of a ‘Wire Transfer’ or ‘electronic transfer’ is common for methods of traditional Hawala or alternative remittance.

This ongoing anomaly in New Zealand’s AML/CFT Act in failing to capture repotrting of informal money value transfers into and out of New Zealand is confirmed by the definition of ‘Prescribed Transaction’ and ‘Wire Transfer’ at Section 5 of the AML/CFT Act.

A Prescribed Transaction for the reporting of international movement of funds is explicitly limited to ‘Wire Transfers’ and ‘Wire Transfers’ are explicitly limited to electronic means. See Figures 1 and 2 below which are extracts from the AML/CFT Act, section 5:

Figure 1 – Prescribed Transaction definition:

Figure 2 – Wire Transfer definition:

Accordingly, New Zealand’s AML/CFT Act obligations for international ‘Prescribed Transaction Reporting’ does not obligate reporting obligations arising from alternative money or value transfers that rely on methods outside of an electronic or ‘Wire Transfer’. Hence, New Zealand’s AML/CFT Act does not obligate reporting of Underground Banking when the method of underground banking is traditional and not a wire transfer.

This was not intended outcome of New Zealand’s AML/CFT Act. The international watchdog, the Financial Action Task Force, expects its member countries to operate with systems that promote financial inclusion and in doing so, operate to prevent underground banking channels occurring.

Whereas other countries such as Australia, Canada and the United Kingdom have legislated their AML/CFT laws for ‘financial inclusion’ by providing a legislative framework that capture Hawala or Other Similar Service Providers, New Zealand has not.

This flaw has caused many problems in New Zealand and continues post AML/CFT reforms.

Online Selling of Precious Metals Escapes NZ’s AML/CFT Act

Precious metals such as gold, diamonds, etc have always been a number one commodity of choice for money launderers. The high value of precious metals make them a preferred method to place dirty funds, layer the dirty funds or integrate the dirty funds through the use of precious metals.

Enabling the ability for financial criminals to anonymously purchase precious metals from a New Zealand online business whilst avoiding capture under the AML/CFT Act - was not intended.

However, New Zealand’s AML/CFT Act reforms have resulted in persons, whether operating in NZ or overseas, being able to set up an online NZ business of buying and selling precious metals, without needing to know who is the buyer or seller.

This is because New Zealand’s AML/CFT Act has now excluded high value dealers from the capture of the AML/CFT Act if they do not deal in cash. If they do not deal in cash but instead trade online – they are good to go.

Consequently, online trading in precious metals is now permitted with no obligation to identify sellers or buyers of these precious metals.

This means economic sanctions can be evaded and New Zealand can be used as a country to facilitate the evasion.

This weakness means the Mexican, Russian and Chinese cartels can trade with an online NZ retail store and use dirty funds to purchase $1M of precious metals – without the need for any identity verification.

What is the Future for New Zealand’s Fight Against Financial Crime

As New Zealand nears the end of its 2021 statutory review of the AML/CFT Act, there has been more harm than good that has come from it.

What is for certain is that New Zealand continues to be an attractive conduit-economy to facilitate money laundering and financing of terrorism whilst these weaknesses remain.

More to come.

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