Tuesday, 21 February 2012

NZ helps islands region launder billions?

Published February 2012 in Islands Business International,
Business Intelligence section.

by Jason Brown

An Auckland bar, with young Asian women in white mini-skirts. Two Russian men light up a fat joint.

They talk, smoke and casually pass the doobie. Bemused patrons look on. One Russian is chatty. The other, eyes dead, scans each end of the street.

Welcome to 100% pure New Zealand, an unofficial finance centre to mafia gangs from Europe and Asia—and white collar criminals.

“Money laundering prosecutions in New Zealand continue to be low,” reads a 44-page “National Risk Assessment”.

New Zealand police working in the country’s FIU, Financial Intelligence Unit, attribute a low rate of prosecutions to “the result of perceptions of complexity around financial investigations, low enforcement priority and limited resources.”

Another is the “poor use [and] interpretation of legislation, leading to weak legal decisions and restrictive precedent.”

FIU police estimate money laundering through New Zealand companies at more than US$1 billion each year. The 44-page review leaves a question unclear. Gangs are the main problem in New Zealand—or white-collar fraud?

Declaring that 95% of money laundering “is related to drugs”, the police Asset Recovery Unit barely scrapes back US$15 million.

There is a “lack of focus on fraud and financial crime in general by law enforcement agencies”, admit the New Zealand police.

Justice officials and police are not alone.

New Zealand media are also slow to pick up on money laundering, with only one newspaper, the New Zealand Herald, reporting the police review—but not until January 2012, five months after publication. The report was buried on page five.

Elsewhere, journalists are more aware of the role played by New Zealand as a major centre for money laundering.

“The Proxy Platform” is an editorial slogan applied to global money laundering networks, as exposed by an aid-funded alliance of investigative journalists, OCCCP, the Organised Crime and Corruption Reporting Project.

Their final report, published just before Christmas, includes Auckland as a ground zero of money laundering.

In the main CBD, a Queen Street address was home to rented offices of the GT Group, a main player in the Proxy Platform, representative to 2,100 “shell” companies. Offices remain in Vanuatu, Samoa and the Cook Islands, according to a website for GT Group International, headquartered in Port Vila.

According to OCCCP, GTI acts as a conduit linked to secret networks laundering billions.

One set of transactions alone, through a GTI registered company called Tormex Ltd, was worth an estimated US$680 million, flowing into an Oceanic abyss of money laundering.

A similar acronym, GFI, stands for Global Financial Integrity, a group on the other side of the law, focused on exposing money laundering through tax havens and other finance centres.

What GFI terms “illicit finance flows” grew from a “conservatively estimated” US$353 billion at the start of the last decade, to US$775 billion in 2009.

Just the year before, in 2008, money laundering hit a high of US$1.31 trillion, before the fallout from the “Global Financial Crisis” hit bank accounts, secret and otherwise.

Arguably, New Zealand has the most free market economy in the world and an exceptionally light regulatory environment.

“Currently, there is no AML supervision except to a limited extent for banks and casinos,” reads the August 2011 police review; AML referring to “anti-money laundering.”

Authorities in New Zealand seem intent on blaming “organised crime” yet audit giant KPMG uses its “Fraud Barometre” report to identify white collar crime as a much larger problem than gangs.

Established in 1996, the NZ FIU did not write its first National Risk Assessment until 2010, some two decades after joining FATF, the Financial Action Taskforce, in 1990.

New Zealand is a first world nation that has not ratified UNCAC, the United Nations Convention Against Corruption. It compares with its closest trading partner, Australia. In January 2012, Australia released an independent review into its financial intelligence unit, AusTrac, and related agencies.

It spotlights a downward trend for offshore finance havens across the region, revealing plunging revenue in Vanuatu from Australia, which signed an MOU with AusTrac in 2002.

Also last month, a call from Christian Aid in the United Kingdom to end tax haven secrecy, calling it a “global curse” claiming some US$160 billion from poor countries, more than they receive in aid.

Back at the Auckland bar, the two Russian men finish their smoke; flick the butt over the balcony.And head inside, upstairs to a private suite.

The Asian girls avoid eye contact and take more drink orders.