Money laundering impacts all facets of society, affecting everyone and everything. It could be moved through real estate, boats, cars, precious metals... the proceeds from any crime have to go somewhere. And when they do, the market becomes distorted, making it harder for people raising money from legitimate businesses to make their own purchases.
In New Zealand, it's estimated that about $1.35 billion from fraud and illegal drugs is laundered through legitimate businesses every year, the Ministry of Justice reports. With money laundering so pervasive, the risk and compliance obligations placed on financial institutions and now smaller businesses are becoming much greater.
Money laundering is changing. New technology is enabling different ways of committing fraud, and the government is responding as quickly as it can with frequent updates to legislation. We caught up with Tim Gacsal, Director Risk & Regulatory Advisory at BDO, to find out more about the ever-changing money laundering landscape.
Money laundering and the gatekeeping professions
2017 has been a year of great legislative change within anti-money laundering. What's being called "Phase 2" of New Zealand's Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act was introduced through an Amendment passed in August this year. The main purpose of this amendment, Tim explains, is to extend the legislative focus to the gatekeeping professions.
"The Panama Papers and a number of other international reports showed the world it's now pretty tough to launder money through the legitimate financial system these days," says Tim. "It's easier instead to use lawyers, accountants and other gatekeeper professions."
Money launderers use these professions because they give any transactions an air of legitimacy. A lot of the time the professional in question won't realise they are aiding money laundering. This is why the AML/CFT amendment has been introduced - it aims to improve businesses' risk and compliance processes so they know how to identify any suspicious activity. The amendment is extending the original Act to include:
- Law firms providing certain types of legal services
- Some businesses that provide trust and company services
- Accountants providing certain types of business services
- Real estate agents
- Some businesses trading in high value goods
- Those operating in the sports and racing betting industry
The roll out of the new amendment will be phased, giving businesses time to prepare for the changes. "The first thing those affected need to do is understand their new obligations and assess the vulnerabilities in their business," explains Tim.
"In many cases, once you've included the cost of completing a risk assessment and compliance programme, appointed a compliance officer, developed transaction monitoring systems and undertaken the many other requirements you need to meet, it might not be worth continuing to provide the service in question."
Extending the reach of anti-money laundering
Tim also discussed legislative trends abroad. "In the U.S., we're seeing a lot more obligations around directors and officers of organisations. FinCEN, the U.S. regulator, through new guidelines now expects directors to take a real leadership role in anti-money laundering," he said. "It's not just down to your AML officer anymore, directors now have an obligation to understand and drive policy, become familiar with risks, and ensure adequate resources are available to deal with it."
This is a trend likely to reach New Zealand's shores soon - the focus on the role of directors in the Pike River disaster, for instance, emphasises that due diligence be conducted at all levels of a business.
Technology a double-edged sword
Advancements in technology are also influencing the anti-money laundering world. In many respects, technology has made it far easier to launder money; criminals are exploiting the anonymity that comes from the digital world. Cash deposit machines, bitcoin and e-wallets all give criminals a screen to hide behind when they are carrying out money laundering activities.
To combat this, law firms and other gatekeeper professionals are now beginning to insist on face-to-face meetings to ensure they really are dealing with who they think they are. However, when clients are situated all over the world this becomes difficult.
The speed at which technology allows transactions to take place also means money laundering activity is often detected when it's too late to be able to deal with.
However technology, when used effectively, can be used against money launderers. For example, data analytics tools can alert businesses to red flag indicators (such as third-party payments or large transactions) in real-time, meaning suspicious activity can be investigated as soon as it happens. This is just one element in a range of regtech that's currently being developed to fight money laundering.
Criminals are extending their money laundering activities reach to more and more businesses. Their techniques are always changing, and the regulatory environment is diversifying to respond to this. That's why it's essential to have a trusted advisor who can guide you through the anti-money laundering landscape. Contact us today to find out how BDO can help.