Latest National Risk assessment is vital reading for all reporting entities

The New Zealand Police has recently published the 2019 National Risk Assessment of money laundering and terrorism financing. It is vital reading for all reporting entities as it sets out the perceived risks faced by New Zealand and those within it. This may assist reporting entities in determining what they should be watching out for when setting up their own processes, as supervisors are likely to be particularly sensitive to risks identified in the National Risk Assessment. Additionally, it provides background information reporting entities can share with clients when trying to explain why they have to undergo the CDD process.

The National Risk Assessment describes the scale and nature of the criminality risks faced by New Zealand. It sits at the top of New Zealand’s three-tier AML/CFT risk assessment system, above sector risk assessments by the AML/CFT supervisors and assessments by individual businesses of their own operations.

Much has changed since the previous National Risk Assessment in 2010. The 2019 National Risk Assessment provides an overview of:

  • the nature of money laundering and financing of terrorism (ML/FT) threats, both domestic and offshore, faced by New Zealand;
  • the development of the New Zealand AML/CFT regime;
  • the most significant remaining ML/FT vulnerabilities faced by New Zealand, including:
    • international wire transfers – given the scale of money moving through those channels;
    • alternative payment methods and remittance systems – allowing the movement of value in a potentially less-regulated manner;
    • new technology – where the dynamic environment allows vulnerabilities to emerge quickly and alternative methods for moving value to develop;
    • gatekeeper professional services – that may conceal beneficial ownership, create further steps in the chain to frustrate detection and investigation, provide the impression of respectability or open channels for criminal transactions that would otherwise not be available;
    • the use of cash – given its anonymity, flexibility, independence from formal financial institutions and general lack of records or a transactional trail;
    • the use of businesses as fronts; and
    • high-value goods and real estate assets – given their ability to store wealth or move value;
  • the estimated volume of domestic criminal proceeds generated in New Zealand, being NZ$1.35 billion (consisting of NZ$750 million from drug offending, NZ$500 million from fraud and NZ$100 million from other offences, and excluding tax offending and overseas offences);
  • the interaction between the New Zealand and the global AML/CFT landscapes, and the attractiveness of New Zealand to those seeking to commit ML/FT;
  • the conclusions drawn by sector risk assessments;
  • the particular vulnerability of the financial sector in New Zealand;
  • risks and ongoing issues anticipated to emerge, including around:
    • correspondent relationships – creating a chain of relationships rather than direct transactions between the parties;
    • the displacement of transactions from more regulated sectors to less controlled sectors;
    • de-risking by deciding not to conduct business with entire classes of customer rather than managing the risks posed by individual customers, which does not align with the risk-based approach to combating ML/FT and may have wider social consequences; and
    • technological change in – particular, the generation of proceeds through cybercrime, the development of technology that increases anonymity, the increasing speed of transactions and the facilitation of international transactions.