NZ Police anti-money laundering assessment cites trusts among attractive money laundering vehicles as government plans to exclude them from strengthened beneficial ownership disclosure regime

NZ Police anti-money laundering assessment cites trusts among attractive money laundering vehicles as government plans to exclude them from strengthened beneficial ownership disclosure regime

Trusts, which the Government plans to exclude from moves to improve the transparency of the beneficial ownership of New Zealand business structures, are an extremely attractive vehicle for money launderers and terrorism financiers to use to hide the identity of beneficial owners, the NZ Police's latest National Risk Assessment of Money Laundering and Terrorism Financing says.

The Ministry of Business, Innovation & Employment (MBIE) will soon be seeking Cabinet approval for policy proposals that aim to improve the transparency of the beneficial owners of NZ companies and limited partnerships. As reported by interest.co.nz last year, MBIE is proposing to exclude trusts from strengthened beneficial ownership requirements due to their historic privacy and confidentiality strengths, and to avoid increased costs for individuals, businesses and the Government itself. 

However the new National Risk Assessment of Money Laundering and Terrorism Financing from the Police Financial Intelligence Unit (FIU) groups the risk level from trusts alongside companies and other business structures, saying trusts have the same vulnerabilities to transnational money laundering as companies. Trusts, the report adds, are commonly structured using nominees and professional trustees which hides beneficial ownership.

"Trusts, companies and other legal persons or arrangements are extremely attractive vehicles for money launderers and terrorism financiers to hide personal identity and that of the 'beneficial owner.' These structures allow for movement of criminal proceeds, while providing a veneer of legitimacy to illicit transactions and activity," the report says.

It goes on to say that NZ legal, accountancy and trust and company service provider professionals offer a range of services to establish and manage legal persons and arrangements for local and overseas customers. And these services are particularly attractive to money launderers and terrorism financiers because:

• NZ’s reputation as a well-regulated jurisdiction provides a veneer of legitimacy and credibility;
• it's easier and cheaper to register companies in NZ than in other jurisdictions, meaning NZ companies are "essentially disposable";
• professionals or other third parties may provide a resident (nominee) director, or trustee, services for overseas customers;
• legal arrangements are versatile, allowing for the sale and transfer to other people, along with assets and bank accounts established in the name of a legal entity; and
• obscuring beneficial ownership is relatively easy using "deeply nested and complex" legal arrangements across multiple jurisdictions.

'Trusts have the same vulnerabilities to transnational money laundering as companies'

The report goes on to say that the creation of trusts and companies was a common method used in a sample of professionally facilitated cases, while hiding beneficial ownership through methods like trust structures was used in all of a sample of real estate cases.

A NZ company, limited partnership or trust can be used within a complex network of companies and trusts from other jurisdictions as a vehicle for money laundering without any transactions actually occurring in NZ.

"Overseas partners report money laundering facilitated by New Zealand shell companies largely originates overseas - flowing through bank accounts most commonly in Europe or offshore jurisdictions. In a sample of international requests to the FIU, 60% of requests where a link to New Zealand was established related to a New Zealand company. In 75% of those cases no New Zealand bank accounts were identified," the report says.

"New Zealand trusts have been less common in requests to the FIU. Nonetheless, there have been some instances, which have confirmed that arrangements such as trusts have the same vulnerabilities to transnational money laundering as companies."

"The principal attraction of trusts to criminals is they can be used to hide beneficial ownership and create a front behind which criminals may mask their activity. Trust arrangements can also be an effective means of dispersing assets while retaining effective control. Trusts are widely available in New Zealand and are usually established by lawyers, accountants and trust and company service providers, all of whom are required to comply with Anti-Money Laundering and Countering Financing of Terrorism obligations including conducting due diligence on the parties to the trust and determining who the beneficial owner is," the report says.

"[But] there is no central register of trusts in New Zealand and as a result it may be difficult to identify the existence of a trust or the identity of the trustee if the trust does not interact with the New Zealand financial system. Information on any particular trust is limited to what is available at the time it interacts with the financial system or can be obtained from trustees."

Real estate not common in international requests to the FIU

In terms of real estate the report says although transnational laundering through real estate has received significant NZ media interest, it hasn't been common in international requests to the FIU. It also says the Government's move, via the Overseas Investment Amendment Act, to restrict the purchase of residential property by overseas persons or entities with even partial overseas ownership or control, should reduce the risk of money laundering through NZ property.

"Significant transnational money laundering has been identified in real estate markets in similar countries to New Zealand, such as Australia, the UK and the US. Given the similarities of the New Zealand real estate market to these countries’ markets, it is possible that launderers active in the international market may be similarly attracted to New Zealand. Where cases of misuse of New Zealand real estate by overseas criminals has occurred, these have included offending involving high values of proceeds creating a significant money laundering threat," the report says.

"Recent amendments to the Overseas Investment Act 2005 appear to have significantly reduced the proportion of residential properties being sold to overseas buyers, with property transfers to non-New Zealand citizens or residents dropping by 81% in the March 2019 quarter compared with the same quarter the previous year. These controls are expected to significantly mitigate the risk of transnational laundering through New Zealand real estate."

Linking to an interest.co.nz story, the report points out that during the first quarter of 2019, property purchases by overseas persons amounted to just 0.6% of all property transfers, down from 3.3% in the same quarter of the previous year.

The report says that whilst the main crimes that are predicates to money laundering domestically are drug offending, and to a lesser extent, fraud offending and tax offending, NZ faces an unknown scale of money laundering generated from overseas proceeds of crime.

"The FIU estimates $1.35 billion is generated annually [domestically] for laundering. This figure excludes transnational laundering of overseas proceeds and laundering the proceeds of domestic tax offending. The transactional value of money laundering is likely to be significantly more than this figure since money laundering involves placing, layering and integrating funds in different investments to cleanse the proceeds," the report says.

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44 Comments

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17
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Trusts among " Extremely attractive structures for money launderers........"

Tell us something new.

NZ has been heaven for money launderers and one of the pillar of Rock Star ecenomy.

Happy Realisation !

14
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This realisation is also due to international pressure, world over. Not that politicians in NZ were not aware of it but ignored as you rightly pointed that it supported and is one of the pillar of Ecenomy in NZ.

Now with international monitoring, laws will be created to tackle money laundering BUT those laws will be framed with loopholes /getaways like trust ...need say more.

Intend is missing most of the time by so called leaders in charge of framing the law - vested interest.

No consequence Trust have been excluded here.

Most senior politicians have these trust, with most blind so they hide the truth. Jon Key will be able to give us a details account of these, and he is a specialist in half truths.

14
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With a very few exceptions (eg vulnerable persons), trust's are set up to rip someone off. Be it tax man, creditors, residential care subsidy, money laundering. And NZ leads the way. Don't except any change, our professionals and politicians love them to bits.

Speaking of conflict of interest: John Key hired tax expert, John Shewan to head a committee reviewing NZ's foreign trust policies in 2016 after the infamous Panama Papers sham.
At the time, the expert was serving on the boards of China Construction Bank and Munich Re. One of the big-4 audit firms was engaged in some part of the review as well.

Why don't we invite the top bosses at Coca Cola Amatil NZ to chair the review committee on our healthcare & well-being?

Wrong - many Trusts are established to protect family capital and ensure a settlors wishes are carried out and not challenged in a will by a child feeling disadvantaged, after all the capital provided is that of the settlor and their wishes should generally be supreme and not have a child aided by smart arsed Lawyers and idiotic Judges impose their views.

Can't your read "With a very few exceptions (eg vulnerable persons)........".

Wrong - many Trusts are established to protect family capital and ensure a settlors wishes are carried out and not challenged in a will by a child feeling disadvantaged, after all the capital provided is that of the settlor and their wishes should generally be supreme and not have a child aided by smart arsed Lawyers and idiotic Judges impose their views.

"John Key's vision to position New Zealand as an Asia-Pacific Switzerland....Some 79 per cent of CEOs find the Key vision of a "wealthy, desirable and secure haven in a restive world that other people want to...invest in" to be attractive."

Nothing new.
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=117...

10
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So our ex prime ministe had a vision to create heaven for money laundering / stashing in NZ and must admit was very succesful.

Yeah you only have to take a look at websites like OneRoof to see just how successful it has been. Most of central Auckland is owned by dodgy Family Trusts. Take Remuera for example, where around 38% of it is held in Trust funds. And you'll find a similar pattern in most other so called expensive suburbs. Go look at their suburbs info and scroll down to the 'Ownership' pie chart in their Suburbs info page : https://www.oneroof.co.nz/suburb/

What makes a family trust 'dodgy'? Anything to back that up?

Why does one need a trust to buy a house?

I had a whole bunch of reasons here, but using a trust to buy a house is extremely common for people for estate, insolvency or asset protection reasons.

Yeah I guess if you're going to take some big financial risks on behalf of other people it pays to hide your assets behind a trust.

So I take it you'd want to end the use of limited liability companies as well? Because that's effectively your argument here. And it's not a great one.

Totally agree. Trust ownership of housing is legitimate and commonplace. Perhaps even necessary given NZs over the top property relationship law. I always thought foreigners rorting the system would spoil it for everyone, and that seems to be what's happening.

GV27
CJ is in to conspiracy theories so he doesn't need to back anything up.

Wow you seem so sad and desperate P8, And obviously you've not read the article that you're commenting on. Here's the NZ Government website links that I've sent you many times before, that matches the same information as contained in this article! https://www.justice.govt.nz/justice-sector-policy/key-initiatives/aml-cf...

CJ099 agree and everyone is aware and knows that most trust are scam but as is run by rich and powerfull stats quo will contnue as also the people passing the law have vested interest being part of it.

Need political will to weedout the corruption - Legal corruption

I think you'll find most family trusts are for owning things like baches or the family home and protecting it from unforseen events like business failure, but don't let that stop you from making baseless sweeping statements that criminalises anyone who happens to use an extremely common way of structuring their affairs.

Hi GV
No convincing CJ. A conspiracy theory is essentially based on two premises - spin wild inaccurate comments as fact, and don't accept or be persuade by factual information.

Wow you seem so sad and desperate P8, Here's the NZ Government website links that I've sent you many times before! https://www.justice.govt.nz/justice-sector-policy/key-initiatives/aml-cf...

TRUSTS.......Also good for not paying resthome fees.

and for bankrupt builders and finance co directors to remain living in their mansions.

You're 100% incorrect on this. You can't just transfer your assets into a trust and say "I'm broke, I need a free resthome please."

Don't you think the IRD et al have cottoned onto that?

The situation is that they claw it back.

Of course you are correct,you just cannot declare your broke after you have put your money into a trust.
Thats where thinking and planning ahead becomes involved.
If you have had a trust for many years its highly unlikely they will nab you especially if you have a legitimate reason for setting it up in the first place.This answer is based on a family issue that started in 2016.

Most people don’t pay rest home fees.
There would be more people who have family trusts paying than ones that don’t.
Many in rest homes are solely reliant on the taxpayer to pay for their living their.
Once with trusts tend to be more financial

Hi ngakonigold
Not so - a common myth that is not correct.
WINZ requires details of all trusts in which a person is a beneficiary and all other gifting. Note the comment in the following that MSD can look back as far as they like regarding gifting - including a house to a trust.
"In the five years prior to making an application for a residential care subsidy, only $6,500.00 per annum is considered as safe gifting. Any funds over and above this sum will be considered excess gifting. The Ministry of Social Development can look back as far as they like to determine whether any excess gifting has been undertaken."
https://gywlaw.co.nz/blog/residential-care-subsidy-eligibility/
Gone are the days when trusts were a shelter. In fact many are now closing family trusts as they require considerable work, have a high tax rate, and are ineffective for protecting assets regarding care subsidies.

Westpac Trust removed Trust from its name and ironically see where it is now ?
Trust helps hoodwink people, don't lose it..

Trusts should be left alone , its personal affairs of those who have them .

What we could do is make Trustees responsible for any wrongdoing with extreme penalties , and a requirement that Trustees be located inside New Zealand

That might work if it was personal liability. Otherwise fines on the company are just seen as a cost of business to be passed on to clients.

It's foreign trusts we need to change I reckon.

No need for foreigners to be able to have opaque entities here.

"Recent amendments to the Overseas Investment Act 2005 appear to have significantly reduced the proportion of residential properties being sold to overseas buyers, with property transfers to non-New Zealand citizens or residents dropping by 81% in the March 2019 quarter compared with the same quarter the previous year. These controls are expected to significantly mitigate the risk of transnational laundering through New Zealand real estate."

Yeah really? How recent were these amendments? Because we're still seeing a few properties being blatantly purchased at auction in the results for double their 2017 RV property values in an otherwise stagnating market, that's a sure sign of money laundering.
Our Government really needs to take a firmer control over Real Estate Agents because they are the main facilitators of allowing money laundering.

Trusts are set up for security rather than money laundering and financing overseas acts

??? It's like you didn't even read the article!

Blobbles?
Read every bit of it and commented Blobbles lol

CJ
Keep the ridiculous conspiracy theory going.
"Because we're still seeing a few properties being blatantly purchased at auction in the results for double their 2017 RV property values in an otherwise stagnating market, that's a sure sign of money laundering."
That leap of believe is ridiculous, and if that is what your conspiracy theory is based on then your comments have no credibility.

@P8: LOL, Wow you are desperate, you've trolled me three times. So are you saying that the information on our NZ Government website is wrong in your opinion? I think you'll find it is you that is wrong. "Each year about $1.35 billion from the proceeds of fraud and illegal drugs is laundered through everyday New Zealand businesses". "Real estate agents (Like you P8) are at risk of being exploited by criminals to launder money. They’re among several professions whose members may be affected by changes to the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act".
https://www.justice.govt.nz/justice-sector-policy/key-initiatives/aml-cf...

"Trusts among 'extremely attractive structures for money launderers & terrorism financiers'

Hi Gareth, You know, me know and am sure everyone knows specially the politicans who are surrounded by so called experts ...Now What ?

Do you think anyone in NZ is stupid to stop legal way of money laundering and saving oneself behind trust (Security). Form a trust and do whatever you want and if goes bankrupt can hide behind it - security besides money laundering.

Why stop as it is serving the very purpose, why it was created in the first place byhigh and mighty.

When no polical leader has guts to bring CGT, how can they ever think of touching trust - Political sucide - Vote Bank politics will prevent anyone - Classic example is JA who fought election on CGT but backed out of CGT despite knowing and accepting that it is must in NZ as in rest of the world.

With discoveries like this NZs well on the way to fighting crime
Well done kiwis just in time for Christmas

That's the problem isn't it? Everyone wants to stash the cash but governments want the taxes. The quickest way to much wealth is not to pay your taxes. It has been this way since taxes were invented. Perhaps there's another way to look at this. Perhaps we should get rid of taxes altogether, which could mean getting rid of governments altogether!?!? With the poor form & behaviour from all sides of the political spectrum these days, this could be an option, couldn't it?

Such Trust arrangements are like primogeniture
Arisen in large numbers since 2009 especially, funnily enough.
In UK massive increase arose due to older people wanting to evade care home fees scrutiny of means testing local councils.

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