Government advised to broaden the legal definition of money laundering as part of 'significant shift in NZ’s approach to financial crime'

The Ministerial Advisory Group on Transnational, Serious and Organised Crime is recommending broadening the legal definition of money laundering to "address a much wider range of behaviours" associated with money derived from organised crime.

The group, chaired by Meredith Connell Crown Prosecutor Steve Symon, has spent six months preparing advice for the Government on recommendations to better tackle organised crime. Its final report describes transnational serious and organised crime as becoming the number one threat to New Zealand’s national security.

"It threatens our peace and prosperity, our economy, our institutions and our communities. It threatens our very fabric as a nation. Organised crime is our common enemy. It is the enemy of all New Zealanders," the report says.

Despite this the country's current response is described as "siloed and inadequate," creating intolerable risk, with the current response to organised crime not working. Therefore decisive and bold action is recommended.

This includes changing the legal definition of money laundering and appointing a Minister responsible for leading the response to organised crime. 

The Ministerial Advisory Group on Transnational, Serious and Organised Crime was established by Casey Costello, the Minister of Customs and the Associate Minister of Police, to provides independent, expert advice. It started work in February, concluding in September. (Full details on its recommendations are on page 25 of the group's final report).

"Organised crime is all about money and therefore money is organised crime's biggest vulnerability. Organised crime makes a lot of money. Money which is taken from New Zealanders. In addition to targeting the organised crime, we need to chase the money," the report says.

"Money laundering offences should be redesigned to address a much wider range of behaviours associated with money derived from organised crime. It is well established that it is difficult to prosecute money laundering offences."

"For a prosecution to be successful, it must be proven that the person who laundered the property knew that they were dealing with the proceeds of crime or was reckless that they were dealing with proceeds of crime. It can be challenging to prove a person was reckless by consciously disregarding a substantial and unjustifiable risk."

"The difficulty in proving knowledge or recklessness in money laundering cases means it is usually treated as a secondary offence that is often not pursued. This reduces our capacity to hold those people who are central to the business of organised crime to account. This includes professional facilitators such as accountants, real estate agents, immigration consultants and lawyers, as well family and associates of organised criminals."

"These groups are key enablers of a system of money laundering that protects the profits of organised crime and enables it to be highly profitable," the report says.

It recommends adding a strict liability offence where a person deals with property, that's established to be proceeds of crime, unless they can prove they reasonably believed the property was not the proceeds of crime.

"The penalty for this offence would be lower than if there was direct knowledge or recklessness. This would place the onus on the defendant to show they took reasonable steps to determine whether the transaction involved proceeds of crime."

It says penalties could be scaled by level of intent.

The report also recommends making cash a less attractive option, suggesting electronic wage payments should be mandated in high-risk sectors, with wages paid via traceable methods in industries like construction, hospitality, and agriculture.

Additionally the report suggests prohibiting cash payments for professional services to lawyers, accountants, immigration advisers, and real estate agents to reduce laundering risks.

The group wants to restrict cash use in remittance services, noting a limit of $5,000 has been agreed in principle as part of the overhaul of the anti-money laundering and countering the financing of terrorism (AML/CFT) regime.

It's also advocating for lower AML/CFT reporting thresholds for high-value goods by reducing the threshold to NZ$5,000 from NZ$10,000 to help better detect laundering through luxury purchases.

Another recommendation, agreed in principle as part of the overhaul of AML/CFT regime, is banning cash purchases of cryptocurrency, noting this is agreed in principle as part of the overhaul of the AML/CFT regime.

Lawyers at MinterEllisonRuddWatts say while they acknowledge the Ministerial Advisory Group's concerns about the increasing level of organised crime, many of its proposals raise serious issues in terms of fairness and the rule of law that also need to be considered.

"These proposals signal the potential for a significant shift in New Zealand’s approach to financial crime, and may have profound consequences to many legitimate businesses and everyday New Zealanders," MinterEllisonRuddWatts says.

Costello is expected to take the recommendations to cabinet for consideration with public consultation also expected.