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Getting serious about stopping money laundering

By Ali Frederickson

I’m in favour of the introduction of phase two of the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Amendment Act 2017 legislation that came into effect from 1st January 2019. It shows the government is serious about clamping down on money laundering. It will make it much harder for people to come into New Zealand and launder their money through property. This is a very good thing.

Because this is not the kind of New Zealand we want to live in; where a new citizen has been able to buy 10 properties and list them under ten different owners; where criminals have been taking advantage of Kiwis to hide their real activities. Criminals often use a third party or a family member to buy a property on their behalf so that the real ownership becomes disguised.

I don’t like the thought of being used by anyone to facilitate their criminal activities – and I’m sure you don’t either. How many real estate transactions have already slipped through because there was no previous requirement to report suspect funds lodged for property deposits or to accurately verify buyers’ and sellers’ identities?

According to the Department of Justice, ‘Each year about $1.35 billion from the proceeds of fraud and illegal drugs is laundered through everyday New Zealand businesses.’

I think the latest legislation is essential, but in my view it’s been poorly drafted and it’s confusing. (Our staff have already undergone two intensive training sessions for compliance with the AML.) Although there’s now considerable verification required from all vendors of properties, there’s almost no checking required of buyers – unless of course they raise a big red flag by fronting up with bundles of hard cash for deposits. To me, this is a huge loophole.

Like many other Kiwis I was brought up to believe in the values of fairness, justice and equality. We’re not doing too well in the area of equality. Has the gap between rich and poor in New Zealand ever been so great? The latest amendments to the AML are one of the ways to ensure that the balance of fairness and justice can be addressed and criminal activity curtailed.

The AML has now been extended to cover more businesses. This includes real estate agents and conveyancers; many lawyers and accountants; as well as some businesses that deal in expensive goods; and betting on sports and racing.

What does it mean in real terms for real estate firms such as ours? More red tape, naturally, but it’s in a good cause. We’ve established an in-house AML risk assessment and compliance programme and designated a staff member to be our AML compliance officer.

However, in order to curtail the illegal activities of a few, the majority are being inconvenienced. Our customer due diligence has stepped up massively.

Now we must document sighting a passport from the owners of every property we list – including every individual member of a trust if there are multiple owners. They must verify their identity and prove that they are the genuine owners of their property. They must prove that they are a New Zealand resident to avoid the tax penalties. We’re also obliged to verify the identity of buyers who pay cash deposits of $10,000 or more. We have to ask where their money came from. And we have to document all of these details and keep them on file.

If a potential buyer wants to conduct a transaction in cash that is $10,000 or more, or an international wire transfer of $1000 or more, we have to submit a Prescribed Transaction Report to the Police Financial Intelligence Unit (FIU).

All of this extra form filling and time-consuming verification processes have loaded  additional costs onto the real estate industry. Who pays for the extra cost of running our businesses? We’re expected to just absorb it and lower our margins.

And, now we must also submit an annual report to the Department of Internal Affairs, which supervises our real estate sector. All real estate sales agents will be audited on a regular basis from now on.

Yet the bigger picture is that we simply must get serious about deterring money laundering. For too long it’s been left unchecked. The National Government should have identified that a significant amount of dirty money was being laundered in our country and put a stop to it long ago.

As an industry, real estate businesses are particularly at risk of being targeted by money launderers. Criminals often use real estate to convert the money they make from illegal activities into legitimate assets.

Let’s all pull our weight to put a stop to it.

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