This article first appeared on Thomson Reuters’ Regulatory Intelligence platform, which can be found at risk.thomsonreuters.com
New Zealand to crack down on laundering through real estate and “gatekeepers”
The New Zealand government is working on new anti-money laundering laws amid concerns that illicit offshore funds are flowing through the country’s lawyers, accountants and into the real estate sector.
The government is responding to concerns raised following the release of the Panama Papers and the findings from the recent Shewan Inquiry into the use of foreign trusts for tax evasion and money laundering.
The proposed reforms would extend the existing laws to cover lawyers, accountants, real estate agents, conveyancers, certain high-value goods dealers and gambling service providers.
Lawyers in Auckland said the proposed reforms would bring New Zealand into line with global standards on anti-money laundering and counter financing of terrorism (AML/CFT). Australia has shelved similar proposals for more than a decade, despite its commitments to global standard setter the Financial Action Task Force (FATF).
Gary Hughes, a barrister with extensive experience in the AML/CFT field, said the government was concerned that existing laws had “displaced” dirty money into unregulated channels, including foreign tax trusts and real estate.
“The Panama Papers revelations were the political storm that became the catalyst for actually getting on with phase two. But New Zealand’s cottage industry in establishing foreign tax trusts had been under scrutiny even before Mossack Fonseca became a household name,” Hughes said.
The Reserve Bank of New Zealand has expressed concerns that the surging property market is creating unacceptable risks in the economy and requires a coordinated policy response from the government. In the year to June house prices increased 13.5 percent across the country, the fastest pace in 12 years, according to national valuer QV.
Kerry Grass, director of consultancy AML360, said precious metals, real estate and high-value vehicles were some of the most common channels for laundering illicit funds.
“Until a country enforces requirements across all vulnerable sectors, the country will continue to have weaknesses in prevention of money laundering and financing of terrorism,” she said.
The introduction of lawyers into the AML/CFT regime has proven challenging for governments in comparable jurisdictions including Canada, where it was appealed to the Supreme Court. In Australia the legal profession has indicated that it intends to challenge any new anti-money laundering legislation if it impedes legal professional privilege.
Lloyd Kavanagh, partner at Minter Ellison Rudd Watts, said lawyers in New Zealand were more likely to accept the need for these reforms.
“Around the world legal professionals have been quite vigilant and strong in their resistance to AML/CFT regimes impacting on the rights of their clients to take advice. In Australia, for instance, I think there is no prospect of lawyers being brought under the AML regime any time soon,” Kavanagh said. “By contrast, I think the New Zealand legal profession will tend to be much more accepting of the application of the regime.”
Rajesh Chhana, deputy secretary of policy at the Ministry of Justice, said the government’s goal with “phase two” of the AML/CFT regime was to ensure that the laws were effective without imposing an unreasonable burden on businesses. He said the new laws would come into force “as soon as practically feasible”.
“Money laundering and terrorist financing are significant problems both here and worldwide. They allow criminals to hide the proceeds of their illegal activities and to fund serious crimes such as drug offending, organised crime, terrorism and tax evasion,” Chhana said.
Head Regulatory Analyst | Australia & New Zealand
Financial and Risk