Financial Crime News wanted to find out more about how New Zealand was tackling illicit finance, the role of organised crime and the response. New Zealand’s Financial Crime Group, which includes New Zealand’s FIU, the NZ Asset Recovery Team and NZ Money Laundering Team are at the heart of this effort. To seek answers to these questions, FCN asked Christiaan Barnard, Detective Inspector and Director of New Zealands Financial Crime Group, for his thoughts on these and much more besides.
Q1 FCN: What are the main financial crime threats facing New Zealand?
CB: Drug dealing, fraud, and tax evasion have been identified in our National Risk Assessment as being the main financial crime threats. Furthermore the money laundering typologies of cash and remittance are also regarded as being high risk, closely followed by lawyers, real estate agents, and high value dealers. Our forfeitures and restraints, are dominated by physical cash, cash in bank accounts, properties, and vehicles. Cryptocurrency is emerging as an increasing proportion of the restraints.
Q2 FCN: Are these materially different from anywhere else?
CB: Due to New Zealand’s isolation, drug prices are high and this makes it a lucrative illicit drug market for transnational organised criminal (TNOC) groups. This has implications for money laundering activity in New Zealand, which is primarily cash based. It means that the cash needs to be deposited into banks at some point, which presents challenges due to the low level of corruption here and a reasonable level of AML compliance by financial institutions. This results in greater use of the remittance sector, which tends to have lower levels of AML compliance. When this occurs, cash is sent off-shore and placed into legal structures.
Q3 FCN: What is the role of the FIU, it’s purpose and ambition?
CB: The New Zealand FIU strives to be the best FIU in the world. We have been investing in new technology and processes to improve the ability for competent authorities to access, visualise, analyse and use financial intelligence. What is not highlighted by many FIUs is the ability of the FATF recommendations to deter, prevent, and disrupt organised crime and terrorist financing. There tends to be a focus on law enforcement outcomes through the Suspicious Activity Report (SAR) process, and there needs to be a change in the conversation around the very important role the private sector plays in stopping the financial system from being abused by criminals. We are promoting this message through private sector engagement which includes our monthly newsletter, our annual FIU conference, our Public Private Partnership (PPP), and the work our compliance team does with reporting entities.
We have the benefit of being a law enforcement FIU, which means that we are part of our national police service and as part of the Financial Crime Group, we work directly alongside our Asset Recovery Unit (which is responsible for confiscation) and Money Laundering Team (which uses the full range of covert policing techniques to target high risk sectors such as MVTS). Our confiscation system is already regarded as world leading and New Zealand was one of a handful of countries to have received a “high” rating for Immediate Outcome 8 in the 2021 Mutual Evaluation. In 2017, NZ Police had a stated goal of restraining US$330m in cash and assets from criminals over four years and this was achieved in June 2021. New Zealand FIU referrals were responsible for the highest proportion of restraints out of all law enforcement work groups who made referrals to the ARU.
Looking ahead, data and technology present challenges for law enforcement and regulators, and the FIU is seeking to innovate to not just stay abreast with criminals but to get ahead of them.
Q4 FCN: How does the FIU work with other stakeholders in the public sector and the private sector?
CB: We work closely with the three regulators in New Zealand to ensure that reporting entities are registered with the FIU, which enables us to provide guidance to ensure they understand the risks their businesses may be exposed to, and also encourage compliance and reporting. Our PPP, the Financial Crime Prevention Network, has proven to be an excellent vehicle for private sector engagement. The group comprises of the NZ Police, NZ Customs, and the five main retail banks (which represent 89% of the market share). Work is undertaken in the strategic and tactical space and in the 2020/21 financial year joint strategic intelligence reports were produced on trade based money laundering and the impact of COVID-19. The FIU also sends out alerts that relate to tactical subjects and during this period 48 alerts were sent which resulted in more than 450 high quality SARs being submitted that were in direct support of ongoing operations. This is against a backdrop of 20,000 SARs being submitted every year – but each of the FCPN submitted SARs contributes directly to the mission of the competent authority engaged in an investigation.
In terms of public sector partners, we provide a significant amount of financial intelligence on a monthly basis to key public partners (both regulators and agencies with a law enforcement function) and as part of the NZ Police we have a tasking and coordination process for the Asset Recovery Unit and Money Laundering Team to assign work. Our national security work is not restricted to terrorist financing and we contribute to the overall understanding of a range of national security threats.
We are currently involved in a statutory review of our legislation and as part of this we are seeking changes that will improve our ability to quickly share financial intelligence across our key partners.
Examples of actual assets seized from criminals in New Zealand
Q5: You mention that private sector engagement is important. How do you encourage the private sector in New Zealand to treat this as more than complying with complex regulations.
CB: The private sector entities need to be taken on the journey with the FIU and understand the ‘why’ behind what we are trying to achieve. Often there is a strong culture of regulatory compliance within businesses who simply seek to mitigate commercial risk without looking at the broader community landscape. There needs to be strong messaging from the FIU about their moral obligation to mitigate risk to the community. If a large business allows their services to be used by criminals, they are actually increasing their own long term risk, as it will influence the behaviour of competitors, and create an environment ripe for corruption. In my experience there is often a culture gap between the compliance team and the rest of the business, with compliance being seen as an add-on rather than central to their business. There is a tension between a company’s business units whose chief goal is the pursuit of profit and the compliance teams. In the international context there are a number of high profile examples that have seen large financial institutions get into trouble with such an approach. The community outcome mindset needs to sit not just within the compliance team, but it should also form a key part of the companies values and mission and it needs to be led from the top. This means that the CEO and the other executives also need buy in, which means that there needs to be engagement by FIU’s not just with the compliance teams, but also with the leaders in financial institutions. In our PPP, we have two boards – an operational board and a strategic board. The operational board serves to engage with the compliance professionals at the five banks, whereas the strategic board engages with the senior leaders from the banks.
Q6 FCN: What are the main challenges in fighting financial crime in New Zealand?
CB: As drug dealing is the key money laundering risk in New Zealand, it means that cash is the highest risk typology. Cash remains the most anonymous method of operating a black market and when coupled with criminal operators in the MVTS sector, who use a range of typologies to get cash into the financial system, it makes tracking the origin and destination of the cash challenging. The emergence of new technologies has created fresh challenges in developing the right expertise and tools to detect money laundering. This is coupled with the vast increase in data that is now available to analysts and investigators. This data presents both technological and regulatory challenges, as it requires legislative changes that both enable the detection and investigation of money laundering while ensuring that citizens’ rights to privacy are protected. Compliance, particularly amongst DNFBPs, creates challenges as they are a highly diverse sector, engaged in a wide range of activities, with a large variance in understanding of risk and AML/CFT obligations. This is highlighted in our confiscations, which are dominated by property, vehicles and cash held with the intention to purchase high value goods.
Crucially, while prosecution and confiscation remain the sharp tip of the spear, understanding and quantifying the prevention value of the AML/CFT system remains challenging. If the prevention value was better understood, this would assist with setting the tone for the messaging to the private sector around their investment in due diligence and their willingness to not complete risky transactions and escalating customers for enhanced customer due diligence and possible debanking. The goal of a well-regulated AML/CFT system should be to push criminal customers into a smaller pool of criminal facilitators, where investigative and confiscation resources can be focussed
Q7 FCN: What lessons can New Zealand learn from other Countries approach to fighting financial crime?
CB: New Zealand is a small country with only 5 million people which was famously described by a former prime minister as “the fastest law-maker in the west”. Despite this, With the exponential pace of societal and technological change, we risk falling behind if our regulatory response cannot keep up. This means we need to have a highly adaptable AML/CFT system that is forward looking and capable of quickly responding to new risks.
There are several approaches to the way that risks are managed that New Zealand can learn from other countries. However, they all require close engagement with key public sector partners and carry with them their own challenges with adoption. Taking cash as an example, some of the ideas floated based on the overseas experience include a rapid demonetisation, recording and tracking serial numbers, and the elimination of high value notes. However, before any such initiative takes place, we need to be well placed to leverage these changes to their full potential as criminals will quickly adapt. When it comes to data, employing new technology such as artificial intelligence and data lakes while addressing some of the regulatory restrictions will prove to be fruitful.
Coordination has proven to be critical. Our Money Laundering Team’s priorities are driven by the National Risk Assessment and they target high risk sectors who have criminal operators. They have proven to be highly successful in targeting the MVTS sector where they have taken down networks who are providing professional services to organised crime groups. In turn they have developed a deep understanding of the criminal environment within these professional facilitators which is fed back into the FIU, which drives guidance to the private sector.
Q8 FCN: What lessons could New Zealand teach others from its experience in fighting financial crime?
CB: The immense problem posed by organised crime is not one that we will arrest or restrain our way out of. I do not want to diminish their massive importance as a deterrent and a way to hold criminals to account. However, there needs to be a shift in focus to understanding and highlighting the role the AML system plays in disrupting and preventing organised crime. The private sector needs to be part of the journey, and to not see their role as simply complying with regulation. They need to understand how they contribute to making the country and their communities safe. This can’t just sit with AML specialists; rather it needs to be part of the ethos of the way the private sector conducts their business. The FIU and the regulators have the role of setting the tone of this conversation through the narrative they provide to the private sector. New Zealand benefits from being a country that is relatively free from corruption and it regularly features as one of the top countries in terms of transparency. But we cannot rest on our laurels as our high exposure to the international economic system, the risks posed by transnational organised crime groups, and the sophisticated techniques that are employed by these threats mean that we have to remain ever vigilant.
Extract from the NZ FIU Monthly Dashboard from the FIU Monthly Suspicious Activity Report February 2022, which also includes newly published materials on sanctions against Russia in connection with the invasion of Ukraine.
Christiaan Barnard is Director of New Zealand’s Financial Crime Group, which includes New Zealand’s, the NZ Asset Recovery Team and NZ’s Money Laundering Team. Christiaan has more than 20 years of policing experience with the New Zealand Police, holding the rank of Detective Inspector.
NZ Police is the lead agency responsible for reducing crime and enhancing community safety and has a staffing of over 14,000.Director
For more reports and information including from the NZ FCG & FIU See the FCG Homepage & the FIU Homepage. For the NZ NRA click HERE & the FATF 2021 Report HERE.
For additional Resources available to Financial Crime Fighters see the FCN NZ Country Dashboard & The 100 page FCN Country Threat assessment published in April 2022, available now.