Why do I have to keep proving who I am?
Increasingly, you should be asked to supply evidence of your identity, where you live and how you obtained your wealth when wanting to conduct seemingly simple activities such as invest, open a bank account, or even take out a loan. This will become even more common across New Zealand this year as lawyers, accountants, and real estate agents progressively come under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (often called the AML/CFT Act). The wider application of the law will roll-out in phases and will soon require you to supply similar information when engaging a lawyer or accountant, or when making a property transaction. In late 2019, even betting on sports and racing will be covered.
What is money laundering?
Money laundering is a process which creates the appearance that large amounts of money obtained from criminal activity, such as drug trafficking or terrorist activity, originated from legitimate sources. Initially, the money from the illicit activity is considered dirty, and the process of money laundering "launders" the money to make it seem clean.
As dealing in large amounts of illegal cash is inefficient and dangerous, money laundering is essential for criminal organisations who wish to use illegally earned money effectively. The criminals need a way to deposit the money in financial institutions or use it practically, such as to buy property, but they can only do so if the money appears to come from legitimate sources.
It’s estimated that each year about $1.35 billion from the proceeds of fraud and illegal drugs is laundered through everyday New Zealand businesses. However, this is likely to be only what is known – the actual amount of illegal funds is likely to be significantly greater. These law changes put in place practical measures to protect businesses and make it harder for criminals to profit from and fund illegal activity. They’ll also safeguard and help New Zealand live up to our reputation as being one of the least corrupt countries and a good place to do business.
The AML/CFT Act is starting to cover more sectors of the economy to plug known areas where criminals may attempt to launder money. The legislation is designed to look through structures such as trusts, companies, and partnerships to identify the ‘real people’ behind the scenes who own or operate them. Once the people are identified, it’s easier to confirm that they obtained their welth by lawful methods such as investing or earning a salary. If people’s activities start to appear unusual – such as irregular financial transactions – or if people suddenly have money which does not carry a simple explanation of how it was obtained, then reporting entities defined by the AML/CFT Act (such as banks, financial advisers, lawyers, accountants, real estate agents and others) must report those activities to the authorities. From there, the Police may decide to investigate.
Despite the best efforts of the authorities, money laundering and financing of terrorism is unlikely to be totally stamped out. All we can hope for is that over time, it becomes harder and harder for criminals to launder funds to make them legitimate.
Fortunately, identity verification is becoming easier with a number of technology based systems being introduced whereby only a drivers licence or passport number needs to be supplied and the software undertakes all the other checks behind the scenes.