Caroline Courtney argues John Key ought to take a leaf out of his mate David Cameron's book on combating money laundering

By Caroline Courtney* 

I think it’s time John Key paid his old mate, British Prime Minister David Cameron, a visit. They could take a walk around the streets of London together and Cameron could give Key a bit of a wake-up call. 

Cameron has just promised action aimed at deterring corrupt foreigners from buying up residential properties in the UK as a means of laundering ill-gotten gains. Already, a massive invasion of dirty money into the UK has inflated residential property prices, especially in London, where many local buyers now find themselves priced out of their own city, revealed a Transparency International UK report earlier this year. 

Now Cameron plans to embrace the anti-corruption watchdog’s central recommendation and establish a proper public register of exactly who owns which properties in Britain – notably those owned by anonymous shell companies based in shady off-shore tax havens. 

“The UK must not become a safe haven for corrupt money from around the world,” Cameron says.

Wouldn’t it be reassuring to hear the same commitment to New Zealand from our own PM? Here, the impact of dirty money on our property market barely receives a mention, let alone attention. Are we just naïve? Or are we like rabbits caught in the headlights – too overwhelmed by what might be unfolding right in front of our eyes to know what the hell to do next? 

Where does the money come from?

Overseas research shows the corrupt gravitate towards major cities to launder the proceeds of their crimes. And their big spending has a much greater inflationary effect on those cities’ property prices than economists previously believed, explains New Zealand anti-money laundering expert, Ron Pol, (www.amlassurance.com).

Back in this country, questions are almost never asked about how and where off-shore buyers get their hands on all that moolah they’re gleefully throwing into the Auckland housing market right now. Money spent is synonymous with “investment”. And all “investment” is good, right? 

Not if it’s corrupt money, it isn’t. Auckland legal consultant Ashley Balls has just returned from London himself, where he visited his old mate. One day, they drove past a brand new block of upmarket flats, sporting an “All Sold” sign on the front of the building. “I’ll bring you back here after dark,” his friend told him, mysteriously. When they did return, there wasn’t a light on in the entire premises. This was a ghost apartment block, comprising more than 20 flash flats, worth around three million pounds each, or close to NZ$150 million. “Bought by a corrupt Russian, using dirty money,” lamented Balls’ pal who, suffice to say, would know. And there were scores more such ghost buildings he could have shown him, he said. 

Why would someone let such a valuable piece of real estate stand idle? Simple. Rather than deposit criminal money into the British banks, where it might attract unwelcome scrutiny, the corrupt use ghost properties as cash deposits – which they can liquidate within 48 hours in London’s hot market should they need the money in a hurry. Makes you think again about why the investor-owners of Auckland’s 22,000 ghost homes might choose to leave them standing empty, doesn’t it? And it doesn’t give you much faith in notion that off-shore investment in residential property developments will necessarily deliver additional new housing for locals.

Ghost-house Day

Whether or not Auckland has more ghost houses today than it did at the last Census two years ago we won’t know until the next count in 2018. In the meantime, maybe Aucklanders could rename April Fool’s Day ‘Ghost-house Day’? Community-minded volunteers could slap “ghost-busted” stickers on the vacant homes’ letterboxes and we could have a stab at tallying the city-wide grand total. I’m only half joking. 

For now, we have to rely on anecdotal evidence indicating the ghost-house phenomenon is on the rise in Auckland. I know of one person, for example, who had four family homes sell around his East Auckland property within the last year – three of them now relegated to ghost house status and owned by off-shore investors.

Meanwhile, the Government sticks to its song sheet, trilling that the city’s housing crisis is all about insufficient supply. What’s more, a disturbing number of Auckland property deals “don’t smell right” as one real estate agent put it. At the very least, these malodorous sales agreements raise suspicions of money laundering – something real estate agents have been heard to acknowledge behind closed doors. Getting them to report those suspicions to authorities is the hard bit. 

I know of one off-shore buyer who bought in excess of 50 Auckland houses within one month. I’d say that was suspicious enough to at least call the Police Financial Intelligence Unit (FIU) so they could cast an eye over the details, wouldn’t you? 

Likewise, another foreign buyer viewed more than 50 houses and snapped up in excess of 40 of them in one buying spree. Another person in China made enquiries with a local real estate agent, via his third-party representative in Auckland, about newish family homes for sale within the $1.5 to $2.5 million bracket. The agent forwarded details of six properties that met his criteria. 24 hours later, he’d bought the lot, sight unseen. 

In other property deal I’ve heard about, the sales agreement had a few separate incarnations through deeds of nomination – a rigmarole that might have served to obfuscate the source of the final settlement monies. 

Real estate agents etc still outside AML law

Currently, real estate agents, lawyers and accountants remain exempt from the Anti-Money Laundering and Countering Financing of Terrorism Act. Until that exemption is removed as planned, these professionals are supposed to report any suspicious transactions under the old, less rigorous Financial Transactions Reporting Act. But they rarely do so, according to figures.

Part of the problem is Kiwis generally don’t yet comprehend the scale of laundering that goes on here. It’s entirely feasible that billions of dollars of dirty money wash through our little economy every year – much of it generated locally, of course. Does anyone still believe the Police FIU’s now outdated estimate of $1.5 billion per year reflects anything like the ugly truth?

Forty years ago, the typical Kiwi money laundering escapade might have had a quaint touch of TV’s Westside about it. A 1970s nightclub owner, for example, might have cleaned cash for relatively small-time crims, evaded his tax obligations while he was at it, and funnelled the readies, reeking of dope, into his residential rental property portfolio in the then downtrodden Ponsonby. 

Money pouring out of China

The stakes are very often enormously higher today. World-wide, some of the smartest, most treacherous and technologically savvy criminal syndicates on the planet launder an estimated US$2 trillion every single year. 

Something like $US1.08 trillion slipped illegally out of China alone between 2002 and 2011, according the best estimate from the US-based not-for-profit agency, Global Financial Integrity. 

In fact, corrupt Chinese have made a veritable art-form out of circumventing their government’s capital flight rules which, for now, restrict individuals from removing more than 20,000 yuan (US$3200) a day and a maximum of the equivalent of $US50,000 a year, out of China.  

That dirty Asian money is inflating our Aussie neighbours’ housing market appears indisputable. Just recently, the global body, the Financial Action Task Force (FATF), issued a new report on Australia’s anti-money laundering and countering financing of terrorism practices, concluding that global crime syndicates were pouring “large amounts” of corrupt money into the Aussie housing market. The chief sources of that illicit money were Asia-Pacific countries, in particular China, said the report. (The next FATF review of New Zealand’s policies is set for 2020.)  

Why are we different?

There’s no reason I can think of why New Zealand’s housing market wouldn’t be any less exposed to illicit money that Australia’s. With our Government’s current open-door approach to foreign buyers, we might be in an even worse predicament. 

With other economies now placing serious attention on the issue – Australia’s Crime Commission has launched an investigation into money laundering and terrorism financing through real estate – New Zealand simply cannot risk falling even further behind the pack and trying to play catch-up later.  

Because the moment governments move to make it harder for money launderers to climb the residential property ladder – as Cameron’s is about to do – the corrupt will instantly switch their attentions to other appealing economies, where it’s easier to do business. And before we know it, our top-spot on the international Ease of Doing Business Index will have an awfully ironic ring to it.

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*Caroline Courtney is an Auckland freelance journalist with an interest in anti-money laundering and countering financing of terrorism. Her story on money laundering, 'Taking Us to the Cleaners' featured in North & South magazine’s July issue. The accompanying photo of Caroline was taken by Toaki Okano. 

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36 Comments

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16

Time this was out in the open. And maybe time members of our finance professional bodies paid more than lip service to their compulsory ethics training...

been a lot of "nothing to see here" from the top down as they say a fish starts rotting head first.
maybe all the bankers, lawyers, accountants, real estate agents and government officials are looking up saying our leader says its fine I don't have to abide by the laws of NZ
http://www.dia.govt.nz/Services-Anti-Money-Laundering-Index

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10

If other countries are cleaning this practice up and we don't it will become even MORE of a problem.

Should have called the article "Foreign Investment through a Money Launderers' Lense".

Don't hold your breath JK is going to do anything about it. He knows exactly what is going on since his days as a FX wheeler dealer at Merrill Lynch. Old habits die hard.

Btw, the root cause is in my view not so much common criminality, corrupt politics and media support, but global money printing at a criminal scale for nearly a decade of "helping the economy". Without money printing all bubbles would have burst and banksters, hedge fund crooks and their clientel would be out in the gutter now, where they belong. Central banks are the worst criminals in the world. They are wrecking not only our economies and financial systems with their printed money, they also have all but wiped out the last traces of decency in our societies.

Money printing has worked for those countries which have done it...so far. It has negated the traditional role of gold. Withness golds current impotence.
Nobody would know what proportion of the property bubble is related to money printing vs money laundering.
When you think about it, the property bubble could still increase from here.
Interest rates decreasing further. Auckland and QT are the main targets at the moment. But what is stopping this happening to other cities? Probably that they have not yet been "discovered". With the govt loosening up the rules for immigration to the regions, they may not be "undiscovered" for too much longer..

The problem is vested interests .

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13

too may high up national party members with their fingers in the cookie jar to be able to put the lid on

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19

Young Kiwis are having their lives destroyed by this.

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10

This article is about 2 years too late.

Quite right. Here's one from exactly two years ago.
http://www.amlassurance.com/uploads/2/1/1/6/21169026/stop_criminals_misu...

If you crackdown hard on the use of trusts and companies , which provide a layer between the buyer and the actual beneficial owner of residential property, it would put a dent in this problem. The title holder should be a live person, in respect to residential property. Then the onus is on them, the title holder, to make sure the funds are legit, or face the consequences. It would shake things up a bit.

The UK did just that. Slapped a tax on houses in secret "corporate wrappers". Earned stg142 million in just one quarter, five times what Treasury expected. They promptly cut the threshold to stg1m and upped the tax rate. And as Caroline says David Cameron is now clamping down on the criminals and overseas corrupt officials stashing their criminal proceeds into London real estate, and the National Crime Authority has frankly admitted that the billions of criminal proceeds being laundered is pushing up house prices in London.

The key is to also protect against the use of host country frontmen to do the purchasing. Only successful technique I know of is to open the books of the purchaser.

Relevant to this discussion is the final sentence in the paragraph below - an item within the 'Comprehensive Strategic Partnership' that New Zealand and China agreed late last year. Will the Key government really be willing to help repatriation of the flood of dubiously-obtained money it has welcomed - and continues to welcome - into New Zealand?

The two sides also acknowledge the positive development of practical and effective cooperation on crime and legal matters. This includes formal cooperation under the Treaty between New Zealand and the People's Republic of China on Mutual Legal Assistance in Criminal Matters and highly effective Police to Police cooperation (including under the framework of the Memorandum of Arrangement on Crime Cooperation... and other informal channels of cooperation). The two sides will continue to work constructively on these issues, including with respect to joint efforts to combat cross-border crime, and to facilitate the recovery of the proceeds of crime within our respective legal frameworks.

"A brighter Future" one wonders who for..?
Key has created our money oriented/desperate society; if some one wants to throw cash at a real estate agent or Casino does any one really think they are going to report it to authorities - not likely.
Now he wants to bring more immigrants into NZ to channel these ill gotten gains.
Keys done nothing to increase affordable housing supply in Auckland and continues to deny theirs a crises to this day.

Great Article and yes action is needed. But we also need to address the avalanche of overseas cashed up buyers who are not criminals, but are causing the same problem. Young New Zealanders are being destroyed all the same. There are 100s of millions of people out there who can do this to us against the limited supply of housing in a small nation. Building more houses won't deal with it.
Perhaps we need to take up Bernards call about the problems caused by immigration.

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10

Dotcom had his assets frozen on flimsy US evidence (?)
While having little real knowledge our lapdog Key government turned over to have its belly scratched.
Laundered money is obviously degrees of magnitude greater.
Our message to Key should be "Get up and do something worthwhile rather than fiddling with the flag"

Suggested before, start with a prohibitively high stamp duty of say 50% of the sale price on all residential properties with an existing dwelling of any type. From that exempt NZ passport holders buying in their name half of it, then exempt them the other half if they reside in it for minimum 12 months. If you want to buy a home it costs you nothing. If you want to park money the sums do not add up for existing, but you can build or buy newly developed without duty. Could also add ongoing tax, 10% of purchase, to those not fully exempt to make the "ghost houses" seriously not worthwhile. Failure to pay means forfeit to crown and auctioned. Implement without warning and require all properties registered with true ownership by a 6 month deadline or forfeit and auctioned. It would be funny to see the scurry to the exits.

In some parts of the developed world perhaps it is time to use semantics more honestly. For example replacing the word migrants with invaders.

The same could be said about the Western Powers who have knowingly aided and abetted the creation of a militant Islamist political force, whose atrocities and depredations in the region are responsible for precipitating this migrant crisis. Michael T Flynn former Director of the Defense Intelligence Agency admitted as much.
http://www.aljazeera.com/programmes/headtohead/2015/07/blame-isil-150728...

Maybe anyone counting themselves firmly as New Zealanders, whose forebears were settlers or colonists from afar, need to take pause. Note strongly here that this includes all who came to this land from another regardless of when. By my count that is 100% were invaders at some point. Now we have Government and things are markedly different from those times, but the argument cannot be finders keepers........

Some of our ancestors 'invaded' in 700 yeas ago with their ancestors originally from Taiwan -apparently. And some of our ancestors 'invaded' in the last 150 years. But we are all New Zealanders now.
If my ancestors came from 'Canton' in the 1860s I have every right to be worried about 'those chinese' currently invading.

the AML/CFT act is overly burdensome on those businesses that are not dealing in property, whereas my assessment is that property should be the only focus as it is where any ill-gotten funds are invariably "parked", and it will also have a long term detrimental effect on the recipients economy.

Having said that financial institutions can only do so much - they are not police, and or regulators. Therefore if politicians want to clamp down on it there are more cost affective avenues - stamp duty, taxing capital gains, giving IRD, OIO more resource to name but a few.

Up to $10 Billion is laundered annually in New Zealand.

Tips on detecting money laundering - From AML-Assurance

Internationally recognised techniques are used by criminals to target real estate. Train staff to recognise combinations of key "red flag" indicators and build a wall to protect your business.

Examples include:
• Use of cash, or disproportionate amounts of cash.
• Purchasers acting through intermediaries, with no personal contact without reasonable explanation.
• Transactions where the price does not reflect local valuation data/trends.
• Urgency for no apparent reason - quick commissions are tempting, but may be "too good to be true"
• Multiple transactions with significant change in value in short timeframes.
• Doubts about the real (‘beneficial’) ownership of funds or assets.
• Purchasers unusually willing to pay the asking price with lack of concern about price.

http://www.amlassurance.com/uploads/2/1/1/6/21169026/stop_criminals_misu...

Real estate in NZ is being used to launder money

We have recently received information from the Police that New Zealand real estate is be being used to launder money. The Police are looking into a recent trend of overseas buyers stating they are purchasing properties and transferring the money (directly from overseas) to the agents trust accounts (not via a NZ bank account). They then fail to bid and have the money sent back. This process is a form a money laundering.

Real.Estate.Agents.Authority.Govt.NZ
http://www.reaa.govt.nz/News/NewsletterLinkedPages/Pages/December%202014...

True, and there's also shady "not-quite-illegal" money coming out too

Ghost Houses

[quote] - Whether or not Auckland has more ghost houses today than it did at the last Census two years ago we won’t know until the next count in 2018. For now, we have to rely on anecdotal evidence indicating the ghost-house phenomenon is on the rise in Auckland

Not so - why go slow when you can go fast?

The electricity retailers and water providers - watercare - metro water

They know

At any given time, on any given day, they know all the residential properties that have had zero useage for the past 1 month, 3 months, 6 months or 12 months

Afterall , it's all money injecting to the local economy, who will be benefiting from it? local economy maybe ?

Grossly incorrect. Cash coming from offshore retires a local mortgage, which contracts the money supply.

"Grossly" is a bit over the top. Didn't Bob Jones claim that 65 % of houses in New Zealand are mortgage free? Given current market value of the housing stock exceeds residential housing debt by about four to one, it might be a reasonable claim.

local economy doesn't benefit from such things, it just puts up the prices - ONE local might benefit, briefly, but they have to buy into an inflated market, which is now permanently 1 asset less.

At least if they had to build a house, it wouldn't deplete housing stock, and wouldn't distort the prices others are having to pay to get a rental or home.
And all such major assets/security should be registered back to a tax ID in one country or another.

From my long term experience the potential for money laundering in NZ is at staggering levels and much of the problem has to be sheeted home to the three exempt professions. They simply don't or won't ask questions when confronted with business opportunities. It's long overdue that the leaders of these professions required their members to undergo compulsory professional development on anti money laundering. Then at least the feeble and frequently used excuse; 'we didn't know' or worse 'that's an additional compliance cost' will finally be removed. These professions need to understand that other anti money laundering loopholes have been closed the vector of choice for criminal has become the professions' trust accounts.

You're bang on with your comments abogadoNZ.

So when the Chinese laundromat gets shut down and real estate has to be sold to legitimate buyers again, what will be the effect on the la-la-land sale prices?

I hear that nature abhors a vacuum.

Great article, but terrible title. It's lengthy and needs explaining just to be shared on social media.

The Foreign Trust laws are also helping turn NZ into the next Cayman Islands.

No requirements for disclosure of where Foreign funds come from, or who the Beneficiaries are,
just a requirement for at least one NZ based qualifying Trustee (lawyer, accountant).

Effectively the funds are in NZ, the benefits ultimately are destined for off-shore. Buy houses and leave them empty with a bogus offer to rent far exceeding what people will pay, claim the loss for not being rented out against any other income.

As said before, other governments including Switzerland are moving towards full disclosure of Foreign bank accounts, assets, trusts.

Rt Hon Keys, I imagine, is loving the flood of cash coming in via Foreign Trusts.