What is money laundering and terrorist financing?

Money laundering is the process criminals use to ‘clean’ the money they make from crimes such as fraud, dealing in illegal drugs and tax evasion. By making the money look like it comes from a legitimate source, they can cover their tracks and avoid detection.

They do this by buying, selling and channelling funds through things such as property, expensive goods and financial services. They then spend the money or use it to fund criminal activities.

Money laundering makes it harder for authorities to find out where ‘dirty’ money comes from, stop crime, prosecute criminals, and seize illegally earned money and assets.

People who finance terrorism use similar methods to money launderers to channel funds to violent causes and to disguise who is providing and receiving the money.

How big is the problem in New Zealand?

Money laundering is happening every day across the country.

It’s estimated about $1.35 billion from fraud and illegal drugs is laundered through legitimate businesses in New Zealand each year.

However, the true cost and impact is many times that figure when you factor in all the crimes that generate “dirty” money and the suffering they cause.

For example, tax evaders and international criminals try to take advantage of our clean reputation to launder funds through New Zealand businesses. Crimes like fraud and illegal drug dealing take a human toll on victims, their families and the wider community.

New Zealand is also exposed to threats relating to financing of terrorism, including the potential for financiers of overseas groups within New Zealand, and overseas based groups who may seek to use New Zealand as a channel for funds. While the frequency of terrorism financing is low, the potential consequences are significant. It is important for businesses to watch for ‘red flags’ that may indicate terrorism financing activity.

How do criminals launder money?

Criminals exploit weak points in the financial network. For example, they target businesses or professions that don’t confirm customers’ identities, or don’t have the right checks and balances in place to detect suspicious transactions, activities, behaviour or financial arrangements (the financing of terrorism uses similar techniques).

Criminals use different methods to launder the proceeds of their crimes. They may buy and sell assets like property and expensive goods like cars or jewellery, or channel funds through financial structures such as companies or trusts.

Money laundering often involves complex series of transactions. By moving funds around different parts of the financial system, they disguise who and where it came from – making their illegally earned ‘dirty’ money appear legitimate or ‘clean.’

Criminals may:

  • try to hide their identity by using companies and trusts to own or buy assets

  • carry out a series of transactions with a bank or business that are below the monetary thresholds that trigger money laundering ‘red flags’

  • buy foreign currency or send money overseas to move it through accounts and financial products, which makes it hard to trace

  • pay cash for a house or car, then sell it and use or bank the money

  • buy gambling chips then redeem them in different currencies or denominations.

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