Money laundering laws a charade creating ‘the illusion of safety’
Sunday, 15 October 2023
Victims of fake term deposit scams are pressing the Reserve Bank Te Pūtea Matua to investigate banks’ compliance with money laundering laws, but are not holding out much hope after concluding the laws create only “the illusion of safety”.
Scam victim Borja Ares was manipulated into sending $300,000 from his Bank of New Zealand (BNZ) account to the ASB account of a “money mule”.
“If you get a local guy receiving tremendous amounts of money, and sending it overseas, that’s highly suspicious,” said Ares.
Ares, who has asked the Reserve Bank to investigate, said the mule had been doing it for months.
“That should be a red flag straight away.”
The purpose of money laundering laws, according to the introduction to Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT), is to detect and deter money laundering, to protect New Zealand’s reputation, and contribute to public confidence, but Ares describes them as “very faulty”.
Among the duties they put on banks is to identify “suspicious” transactions and report them to the Financial Intelligence Unit.
However, victims say this is hopelessly undermined as banks lacked systems to check that the names and numbers of accounts to which their customers are sending money match.
Scam victims who found they had been tricked into sending money to mule accounts, say that had their banks warned them the name and account numbers they entered when making electronic transactions did not match, they may have realised something was wrong.
How does a bank identify suspicious transactions when it lacks visibility over transactions, Ares asks?
Damian Henry, manager for AML/CFT supervision at the Reserve Bank, said it was reviewing Ares complaint, but warned Ares that reviews were confidential.
David Bullock, ASB’s executive general manager for technology and operations, said the bank had “stringent processes” to identify customers, and monitor account activity to help detect and prevent financial crime and ensure the bank complied with anti-money laundering laws.
Ares and other victims, have formed a pressure group, which has forced banks to pledge to introduce account name and number matching.
The victims are now turning their minds to exposing the country’s money laundering laws.
A businessman, who asked not to be named for fear it would damage his reputation, asked the Reserve Bank to investigate Kiwibank after he was manipulated in fake term deposit scam in February into sending $400,000 from his ASB account to a Kiwibank account.
He later found out the account holder at Kiwibank was already being investigated for money laundering, and had even been named and shamed in 2015 in national news stories.
He was left “wondering why a person who was already up for money laundering charges was able to actively go out and be a criminal, and receive stolen money through the scammers, and not raise any alarm bells in the system at all”.
He learnt police had no duty to tell banks about money launderers and crooks.
And despite money laundering laws requiring banks to know their customers, the Reserve Bank told him there was no “specific legislative obligation” to do a web check on people before allowing them to open a bank account.
“Adverse media searches are very labour-intensive, and it can be difficult to confirm exact matches,” the bank told him.
The Reserve Bank concluded Kiwibank had met its anti-money laundering duties.
“Kiwibank’s done nothing wrong here. That’s what scares me,” the scam victim said.
“The law is not fine, in the sense that it says the right things, but it is not enforceable.”
Ministry of Justice and Horizon Research figures show a huge leap in people being defrauded as overseas crooks target New Zealand.
Despite that, the Financial Intelligence Unit is processing fewer suspicious transaction reports from the banks.
In the year to June 30, it processed just under 17,000 containing 195,165 potentially suspicious transactions.
In the pevious year, it processed just over 22,000 reports relating to 279,559.
“The act itself is not the cleanest piece of legislation,” the anonymous victim was told by one Reserve Bank staff member.
Money laundering expert Ron Pol said, “the law was never designed to be effective.”
“The law is set up to meet certain requirements that are assumed to have an impact on crime.”
Countries around the world all modelled their anti-money laundering laws on the same set of international standards assuming that would reduce money laundering.
“Has anyone ever measured that? No,” Pol said.
In 2018, Pol published a paper in the Policy Design and Practice Journal in which he compared the amounts of money confiscated from criminals each year with estimates of the proceeds of crime.
The amount confiscated was “not even a tax on crime, not even a rounding error”, he said.
“The legislation is full of holes. We know it’s full of holes.”
A Ministry of Justice review last year concluded money laundering laws were effective “to some extent”, but had “foundational issues” and regulators were “not sufficiently resourced”.
It recommended that information-sharing be established between banks and authorities like police.
Banks now say they support the creation of a Singapore-style scam centre to facilitate information-sharing, and sent executives to Singapore to study it.
The money laundering laws had been effective in building public confidence, the ministry concluded.
But Ares said, “the money laundering laws are very, very faulty. If you go into the nitty-gritty of it, it is useless rubbish.”
“It’s charade after charade. We pretend we do things we don’t actually do.”
The laws helped to create “an illusion of safety”.
“If you feel you are safe, but you are not safe, you are in trouble.”