iPredict to close after Govt refuses anti-money laundering law exemption
Prediction website iPredict is to be closed down, with the Government deciding it represents a money laundering risk.
The site, run by Victoria University of Wellington's commercialisation arm, VicLink, issued a statement to its website and on Twitter on Thursday.
According to the iPredict statement, Associate Justice Minister Simon Bridges refused to grant it an exemption from the Anti-Money Laundering and Countering Financing of Terrorism Act, declaring that it was a "legitimate money laundering risk" because of the lack of customer due diligence.
The website added that Bridges "formed these views without any discussions with us".
Geoff Todd, managing director of VicLink, said the website had been caught in a legal loophole which had caused problems globally.
"Predictions markets aren't financial markets, and they're not gambling, but the legislation is very binary. You're either gambling or you're a financial market."
Staff had been having "quite positive" conversations with the Financial Markets Authority, which Todd said had been quite understanding, but Ministry of Justice had eventually recommended to Bridges that the application for an exemption from anti-money laundering legislation be refused.
Todd said that while it was possible for users to create multiple accounts, he had examined 1300 withdrawals from iPredict. One was over $7000, around 30 were over $1000 and the rest were "trivial". The average withdrawal was $191.
"It's just nonsense. Noone's going to go around financing terrorism by doing that."
The purpose of the website was to bring private information into the public domain, Todd said, meaning it was unreasonable to ask users to give their identities. A number of staff around Parliament, as well as MPs, are known to have used iPredict.
Although some of the information brought out in public could be embarrassing to the Government, Todd believed many in the Beehive found the website "useful" and so did not think there was a political motivation to the decision.
"I think this is a bureaucrat in the Ministry [of Justice] who has simply looked at our website and said 'well, people could launder it, so you're a risk' and declined it."
Todd said the process left him "peeved".
"We thought we had made it part of the fabric of New Zealand, and particularly around elections, provided some interest to people."
In a statement, Bridges said anti-money laundering legislation created obligations for businesses to check customers' identities and report suspicious transactions.
"The main reason for declining the application was that Predictions Clearing Limited [iPredict] does not identify its customers, which creates an opportunity to use the iPredict market to launder illicit funds. The customers can deposit and withdraw funds from their accounts, including from overseas. Deposit restrictions apply, but these can be circumvented by setting up multiple user accounts as the customers' identities are not verified."
As well as economic forecasting, iPredict allows traders to place bets on political events. Currently, for example, Bridges is rated as having only a 4 per cent chance of becoming the next leader of the National Party.
The website also offers stocks predicting the outcome of the upcoming flag referendum, whether the Reserve Bank of New Zealand will cut interest rates and the outcome of next year's US presidential election.
Although iPredict said that most of its transactions were small, three traders hold portfolios on the website worth in excess of $10,000.
The website claims to have more than 9000 traders including more than 4000 who have deposited $20 or more, although most are understood to be inactive accounts.
One of the site's higher profile traders, Kiwiblog author David Farrar, said the decision was hard to fathom.
"Their turnover is teeny. You could only money launder a few hundred [dollars], maybe a thousand, because there's just not enough people," Farrar said, adding that the requirement to give bank accounts or credit card details meant the money should be traceable.
"You could money launder many times larger amounts and much more effectively by going to gaming machines," Farrar added.
"It just seems like such an overreaction."
In its statement, iPredict said it was looking to transfer its activities to PredictIt, a US-based trading platform.
"From now on, we are unable to take further deposits, sign ups or place new prediction stocks. We will continue existing stocks and you can continue to trade them."