New Zealand used to be a haven for money laundering, with overseas criminals exploiting the legislation using offshore accounts. This is due to a number of factors, the first of which being New Zealand’s reputation for being a non-corrupt country.
The downside of being the second least corrupt country in the world means people believe they can use that reputation as a smoke screen for their shady dealings. Another attractive aspect of New Zealand is how easy it is for one to start and register a private company. One can create a company overnight, all online and with only 1 director/shareholder. The cost of this process to incorporate a company is only NZD$105.
We also have company formation agents, who help to form companies for others – this service comes with a New Zealand address, registration and bank account. These new companies can also apply for GST and IRD (Inland Revenue Department) at the same time. In order to do all of this, there is no requirement of being a New Zealand citizen. So you can see how money launders flocked to our shores, enticed by the clean reputation and ease with which one can start a company.
Trusts are another old favourite of money launderers. The basic idea of a trust is that someone who owns assets hands these assets over to another person, who in turn holds the assets for the benefit of a third party. The giver of the assets is called the Settlor, the person who holds the assets is a trustee and the person who gets the benefits of the Trust is called the Beneficiary. New Zealand tax law allows a person residing overseas to settle assets on a trust, for the benefit of foreign persons who are not living in New Zealand at all, and have a trustee here in the country. So if the settlor and the beneficiaries live overseas, the trust will not get taxed at all.
Other countries do not have the same rules as New Zealand. Many other countries tax trusts on the basis of where the trustees live. This means there is a mismatch between New Zealand rules for taxing trusts, and other countries’ rules for taxing trusts and that mismatch creates a loophole that can be exploited.
However, New Zealand is cracking down on money laundering by introducing stricter legislation ensuring that customer due diligence is conducted in vulnerable industries. By going through AML processes when onboarding new customers or when an individual or entity wishes to list property, the risks of money laundering and other financial crimes are mitigated.
First AML can help take away the stress and administrative burden of these strict regulations - get in touch today.
About First AML
First AML is an AML technology provider, and the maker of Source, an all-in-one AML platform. Source powers thousands of compliance experts around the globe to reduce the time and cost burden of complex and international entity KYC. Its enterprise-wide, long term approach to the KYC / CDD data lifecycle addresses time and cost challenges while minimising compliance, reputational and security risks.