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NEWS UPDATE: NZ needs to improve multiple AML defences; latest FATF report warns that progress may be ‘undermined’ by loopholes in areas like beneficial ownership

By Dan Byrne for AMLi

THE FINANCIAL ACTION TASK FORCE has revealed multiple areas of improvement for New Zealand as it continues to readjust its defences against dirty money. 

In its latest assessment, FATF’s Mutual Evaluation Report of NZ indicates beneficial ownership, private sector supervision and the financial sanctions area need fixing.  

However overall, FATF says the country has “achieved notable results tackling money laundering.”

The report released today (Thursday) praises New Zealand’s performance in recovering criminal assets, its understanding of money laundering and terror financing risks, and the level of collaboration across different watchdog agencies in-country.  

“However, key areas need to improve,” the report stresses.   

The country has been in contact with the global FinCrime watchdog for some time now, with much of the assessments in the last year being done virtually due to the pandemic.  

Despite the fact that FATF considers New Zealand a “high-integrity jurisdiction,” it also considers it vulnerable to money laundering threats, both foreign and domestic.  

“It has a very open economy, with free flow of capital and people and substantial ease of access to legal persons and arrangements,” the report said.  

“New Zealand has taken steps to mitigate the money laundering and terrorist financing risks associated with legal persons and arrangements, but those could be undermined by loopholes regarding beneficial ownership and nominee directors and shareholders.” 

FATF Mutual Evaluation Reports effectively ‘grade’ member nations in several different categories during assessment rounds.  

These categories are broadly grouped under “immediate outcomes”, which are key goals each country should achieve, and “Recommendations”, which are more technical requirements that countries need to meet, primarily through new legislation.  

The “immediate outcomes” group grades AML effectiveness as either “high”, “substantial”, “moderate” or “low”. New Zealand has achieved no “low” ratings, but five of its eleven performance categories have been rated “moderate”.  

These are supervision, preventative measures, legal persons and arrangements, terror financing investigation and prosecution, and terror financing preventive measures and financial sanctions.  

The country’s record of tracking true beneficial ownership information was patchy, the report suggested – with action needed for institutions like shell companies and trusts which can – and often are – used to launder illicit funds.  

Additionally, the supervision of certain private sector institutions has garnered criticism. These are largely what FATF describes as Designated Non-Financial Businesses and Professions (DNBFBPs) and include lawyers and accountants.  

The report calls for the supervision of these professions to be improved, saying that AML measures in these sectors are, so far, “very new.” 

Meanwhile, combatting the financing of terrorism has also fallen short of the mark.  

The report has said that there is an immediate need for “closing gaps in the implementation of some counter-terrorist financing measures, particularly the supervision of targeted financial sanctions.” 

The report mostly analyses New Zealand’s performance up to 2020 and was originally adopted at the most recent FATF plenary in February this year.  

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