Update: following the review discussed below, the Government announced that the Department of Internal Affairs will take over as the single supervisor for AML in New Zealand.
The craft of compliance is based on a foundation of good policy and robust institutions, and they operate in a cultural context that differs between nations. I first bumped into AUSTRAC in my tax days – AML is closely related to tax administration, as one of the biggest forms of money laundering is tax cheating. I’ve always admired their focus and courage in facing up to big private sector entities.
AUSTRAC worked for many years on streamlining reporting systems, by which I mean systemising the processes for gathering information from the regulated base. But as the FinCEN files have shown us, that’s only part of the challenge – information must lead to action. AUSTRAC’s attention has increasingly turned to ensuring that there is a price attached to compliance failure.
As a nation NZ has a commendable track record of administrative elegance, but this can misfire. We have a strangely biased attitude that readily sacrifices justice for simplicity. This used to be partly justifiable on the grounds of economies of scale, but that argument is a bit old fashioned in the context of lower cost of sophisticated automation.
We’ve had our AML/CFT regime in place since 2013. We phased the rollout, and we put multiple agencies in place to tackle different market segments. That was an admirable intent – anointing supervisors (whether they wanted it or not…) that understand the perspective of the regulated entities.
But with it comes challenges. I see differences in focus and interpretation across our supervisors – suspicious transaction reporting is higher profile for, say, a bank than a real estate agent. These subtleties end up delivering a different customer experience depending on what type of entity you are dealing with. This damages confidence in the system and slows down the issue of guidance (because multiple regulators have to agree everything).
It also leaves regulatory gaps. Service providers depend for efficiency (and therefore reduced cost) on common standards and practices. You’ll never get 100% commonality in a risk based regime (it still depends on judgements being made every day on the front line) but simply having one point of contact to clarify the hard questions would be useful. There is little recognition by the supervisors of the importance of the role of service providers in driving effectiveness in the sector. Frankly the standard of audit and advice is often shameful which erodes the effectiveness of the system. AUSTRAC have a specific Executive responsible for industry relationships – ours is fragmented, and providers are generally ignored.
Money Laundering is an international game, and NZ is part of a global network. The primary liaison point is law enforcement: every country has a Financial Intelligence Unit (ours is in the Police, and they do a great job) but alongside this we have four other agencies maintaining relationships in their respective sectors (the Ministry of Justice rightly owns the overall policy) plus IRD in the guise of FATCA & CRS.
And alongside that we need to be aware of the serious privacy risks associated with AML practice, so our Privacy Commissioner has an important role. I would like to see AML service providers subject to a Code in the same way as credit reporting agencies, including the vexed question of overseas control of data. It may be worth looking at integrating CRS into the regime in certain circumstances.
Our AML/CFT legislation is up for review – we should consider the architecture of our regime, and recognise the strength of the Australian approach – it’s time to think about a single AML/CFT supervisor for New Zealand recognising the focus necessary to tackle international financial crime.