Officials admit $1.5b laundered through NZ

MATT NIPPERT
Last updated 05:00 20/08/2012

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A report prepared for Commerce Minister Craig Foss says $1.5 billion is being laundered through New Zealand every year.

And the Reserve Bank said it had identified 1000 entities 'potentially involved in frauds in overseas jurisdictions'.

The Ministry of Business, Innovation and Employment report, obtained by the Sunday Star-Times under the Official Information Act, said those who "wish to conduct unlawful activities are increasingly seeking to incorporate companies in New Zealand".

It said New Zealand's lax company registration procedures and non-compliance with international money-laundering agreements were causing a problem that had made the country "a domicile of choice" for international criminals wanting to launder money, and traffic arms and drugs.

Ministry officials concede that measures to stamp out the practice do not go far enough. The report makes it clear that abuse is occurring, and that the potential impact on financial markets and to our reputation is increasing.

The European Union's removal of New Zealand from its 'white list' of trusted banking jurisdictions in May was evidence potential risks were beginning to have consequences.

The report comes after a two- year Fairfax Media investigation into the misuse of New Zealand shell companies. The probe has uncovered links between entities on our Companies Register and arms smuggling to North Korea, the looting of hundreds of millions of dollars from a state-owned bank in Kyrgyzstan, millions of dollars in laundering by Mexican drug cartels, and the rorting of the Ukrainian Ministry of Health.

'Some individuals, or the entities they're associated with, have caused mischief in this space," Foss said. "They are able to cast a shadow on New Zealand's reputation."

The report reveals that in August 2010, Cabinet noted 'there was a risk New Zealand could become a jurisdiction of choice for criminal interests'.

Foss said he commissioned the report in response to criticism about Government action over the issue. 'I've made it a mission to understand more about it, and understand why some legislation has not progressed as quickly as we would have liked.'

He said loopholes allowing international criminals to set up shop here would be closed by the middle of next year, when his Companies and Limited Partnerships Bill passed, accompanied by new anti-money laundering regulations spearheaded by the Ministry of Justice.

The bill would require all New Zealand-registered companies to have a local director or agent responsible for keeping records on beneficial owners, something that had long vexed authorities.

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The bill recently passed its first reading, but ministry officials have expressed concern it does not go far enough. Their report said: 'There is a risk that the media and submitters will say the bill in its current form does not address the deficiencies identified. This is true, as the bill was only intended to undertake some interim measures while further work continued.'

The report said the 'strong preference' of police was discounted in the bill's drafting. Police were opposed to the creation of 'resident agents' who, unlike directors, are not criminally liable for a company's actions.

Another briefing for Foss asked whether the bill would have prevented the transfer of hundreds of millions of dollars out of a state- owned bank in Kyrgyzstan. 'Not necessarily,' the advice concluded.

Foss said the bill tried to strike a balance between cracking down on organised crime while not penalising legitimate business. 'On its own, of course, this is no silver bullet.'

Deloitte partner Richard Kirkland, an anti money-laundering specialist, said the 12-month wait before the new regime began could lead to a surge in malicious activity as organised criminals maximised their use of the present regulations. 'We know as a country we're having to play catch-up. There's an open window here. How quickly can we close it?'

- Sunday Star Times

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