NZ realty also haven to dodgy foreign funds

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By Leith van Onselen

Much has been written on this site about Australia’s failure to implement anti-money laundering rules with respect to real estate, which have been sitting in draft form since 2006.

Earlier this year, the Paris-based Financial Action Task Force (FATF) applied a blowtorch to Australia’s anti-money laundering (AML) regime, releasing a scathing report highlighting that Australian residential property is a haven for international money laundering, particularly from China, and recommending that Australia implement counter-measures to ensure that real estate agents, lawyers and accountants facilitating real estate transactions are captured by the regulatory net.

It seems similar issues are at play in New Zealand. Like Australia, New Zealand has implemented a partial AML regime that captures financial institutions like banks, casinos and bullion dealers, thus requiring them to report suspicious activity. However, other gatekeepers including those involved in real estate are exempted from the AML rules.

On Friday, Interest.co.nz’s Gareth Vaughan penned an interesting piece asking whether New Zealand is “a paradise for money launderers?”:

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Although the likes of our banks, financial advisors, and casinos are now knee deep in AML/CFT compliance, plans to extend the Act to the likes of real estate agents, lawyers, accountants and potentially to jewelers and precious metal dealers, have progressed at the speed of an asthmatic snail.

Adams “announced” in July this year that the Ministry of Justice had begun preliminary policy work considering a second tranche of AML/CFT reform to extend coverage to designated non-financial professions and businesses, including lawyers, accountants, conveyancing practitioners, real estate agents and businesses that deal in high-value goods. Clearly this is a slow process as back in August 2013 a Ministry of Justice spokesman told me the Ministry was “in the early stages of policy development in phase II reform.”

Some countries have rolled AML/CFT laws out to the real estate sector including Britain, most of the European Union, Canada, Singapore and Malaysia. Australia, however, like us is a laggard on this front…

In Auckland, where the median house price is up 25% year-on-year according to the Real Estate Institute of New Zealand, it’s simply impossible to believe no money laundering’s taking place. Britain’s National Crime Agency and Prime Minister David Cameron have both recently highlighted the distorting effect of money laundering on the equally hot London real estate market…

In its latest quarterly typology report, the NZ Police FIU notes real estate remains an attractive option for money launderers, both in the layering and integrating of the proceeds of crime. Further, real estate is “increasingly becoming an international business which creates the opportunity for complex transactions, and to layer real estate deals across many jurisdictions.”

The Police FIU says the potential for movement of the international proceeds of crime through real estate is a known vulnerability…

Rolling the AML/CFT Act out to real estate agents and lawyers is the obvious next step. But don’t hold your breath. The Ministry of Justice and Adams won’t put a date on when this might happen…

What’s not debatable is our current AML/CFT Act has holes in it big enough to fly a jumbo jet through. Whilst sophisticated and well advised crooks may be able to find ways around most laws, NZ is currently fighting money laundering with laws that look like a piece of Swiss cheese. And this is damaging our international reputation from Beijing to Barcelona.

The Antipodes: world leaders in unaffordable housing, real estate dirty money, and willful neglect by its policy makers.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.