New Zealand’s Financial Crime Gap: Beyond The "Number 8 Wire" Mentality

New Zealand is often celebrated for its "Number 8 wire" ingenuity, a term that exemplifies the nation’s spirit of resourcefulness and creativity. However, when addressing the challenges of financial crime, the government and its registered banks are significantly behind the 8-ball.

Opinion, Kerry Grass, Asia Pacific AML

New Zealand’s ‘blind-eye’ approach to combating financial crime should have been rectified following the introduction of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the AML/CFT Act). The intentions of introducing the AML/CFT Act were to enhance New Zealand’s international reputation. This included aligning its regulatory oversight of financial crime to international recommendations set by the Financial Action Task Force (the FATF). The FATF was established in 1989 as the international watchdog to set recommendations for countries to implement into laws to reduce international security threats arising from money laundering and financing of terrorism.

Four years after the 9/11 tragedy, New Zealand’s weaknesses in combating financial crime continued to cause concerns to the International Monetary Fund and the Financial Action Task Force. New Zealand was being identified as a country lagging behind its peers and operating an unregulated financial services industry.

Notably, at this time, New Zealand did not have in place a financial service licensing system. Nor did it have in place a screening process for directors and shareholders who elected to register a New Zealand incorporated company. It did not matter where the Directors and Shareholders resided, and nor did it matter who they were. Whether it be a real name or a false name made no difference to the Companies Office Register because there was no screening.

The international financial criminal syndicates must have enjoyed the fact that they could “buy” a New Zealand company Incorporation Certificate for a mere NZD150.

Should it really be any surprise that today New Zealand is suffering from a growth problem of organised criminal groups?

New Zealand’s Soft Touch to Financial Crime

For decades, and continuing, the international Drug Lords have no doubt liked New Zealand’s “convenience” for easily establishing intricate, affordable and favourable money laundering corporations. Then with that NZ company incorporation and official certificate, the international or domestic financial crime syndicates are “good to go” for establishing an account at a prestigious NZ-registered bank. Now armed with a NZ-registered bank account and a NZ company incorporation certificate, these “corporate veils” can start or enhance the money laundering cycle of filtering a dirty flow of funds.

Despite New Zealand’s apparent “reform” of its AML/CFT laws, there remain significant gaps and vulnerabilities. NZ-registered banks do not have to “verify the identity” of their “existing” customers unless there is a “material change” to the business relationship. Even if the NZ-registered bank becomes aware that there is insufficient information to identify the owners and operators, identity veriication under NZ’s AML/CFT laws still do not mandate the need to verify the customer. It is not until there is a “Material Change” that the mandate to verify exists.

This weakness undermines NZ’s ability to play its part in protecting its country and people from financial crime.

Such weaknesses result in these banks failing to detect suspicious activity and protect their customers from becoming victims of financial crime. Financial crime is linked to serious fraud, money laundering and financing of terrorism. It is also linked to human trafficking and child exploitation.

New Zealand’s History of Complacency to Financial Crime

The inability of NZ-registered banks to detect international or domestic fraudulent scams is likely a consequence of NZ’s history of complacency (or negligence) to financial crime.

A recent news article published by stuff.co.nz “A Dream Destroyed” indicates that one of these NZ-registered banks removed over $18,000 from the victim’s business account, leaving the victim to bear the financial cost of the fraud. This was a money laundering activity that the NZ bank(s) did not detect or prevent – yet it appears the bank has penalised the victim of this crime.

While New Zealanders take pride in their ability to adapt and overcome obstacles, the ongoing issues related to financial crime highlight a lack of urgency and effective solutions from the government.

New Zealand’s sluggish response to financial crime includes a significant deficiency in its technological infrastructure to its AML/CFT Supervisory framework. This hampers the ability for New Zealand’s government to protect the economy and maintain the principles of integrity and accountability within the nation's financial services.

This absence of advanced technologies across New Zealand’s AML/CFT Supervisory framework not only exposes vulnerabilities in financial oversight, but also undermines public confidence in the government's capacity to address pressing issues related to financial crime.

By prioritising investments in technology and developing comprehensive strategies, the government and banks can better safeguard its economy and reinforce its commitment to ethical practices. This would ensue a more resilient and trustworthy environment for all stakeholders involved in New Zealand's financial ecosystem.

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