If the term money laundering incites images of laundromats and large sacks of cash, or scenes from Narcos, you might be surprised to learn how subtle and innocuous it may be.

Words by Richard Manthel, CEO of AML Solutions and AMLHUB,

For most people it’s a vague concept that’s ‘bad’, with no understanding of what it is and how it actually happens. But it’s a big problem: in NZ alone, around $1 billion is laundered every year, while globally the figure is estimated to be $4 trillion.

Laundered money is a result of the most appalling crimes, such as drug smuggling, human trafficking, bribery, blackmail etc., and NZ is united with countries around the world to detect and deter money laundering.

In simple terms, money laundering is the way in which criminals take “dirty” money obtained through illegal activities, and “clean” it by running it through several different transactions to obscure its origins.

This money is usually a result of some seriously illegal activity, so criminals have a lot of motivation to hide its origins so they can spend it without being caught.

There are many sophisticated ways to layer the funds through multiple channels. For example, putting $1 million cash into your bank account would raise some alarm bells, but using different financial products and assets can disguise the origin of the money.

Ranging from the simple (such as business fronts) to the very complex (multi-country money transfers via shell corporations), the methods of money laundering are seemingly limited only by criminal imagination.

There are three typical stages to the money laundering process: placement, layering, and integration.

1. Placement: this is when dirty money is entered into the financial system, either locally or abroad. For example, buying foreign money through a currency exchange, or purchasing a large asset like property.

2. Layering: at this stage, the money is “washed” through several transactions to obscure the trail further and create the impression that it’s legitimate, typically across country lines. This could be in the form of wire transfers or making payments between shell companies. The point at this stage is to keep the money moving, take advantage of bureaucratic delays and legal loopholes, and create a difficult trail to follow.

3. Integration: the now “cleaned” money is available to the criminals and can be accessed and spent on whatever they like. Since it appears to have come from a legitimate source, there is no suspicion.

Money launderers don’t work in isolation. They have been known to make use of professional service providers to move money around, such as lawyers, accountants, real estate agents, and fund managers.

The reason professional services are targeted is because they have the authority to handle large sums of money without suspicion, or they can set up the systems by which money can be transferred or obscured. They also own qualifications that add a veneer of legitimacy and are members of a body that is trusted by society. Perfect for money launderers.

Money laundering is a big problem for New Zealand and the world, but we’re not sitting idly by and just letting it happen.

In 2009, New Zealand passed the Anti-Money Laundering/ Countering the Financing of Terrorism (AML/CFT) Act, which is a set of obligations for businesses captured under the Act to help detect and deter money laundering from happening. Such businesses range from casinos to banks, law firms to real estate agents, and more. The enforcement of the Act is overseen by three supervisors: the Department of Internal Affairs, Reserve Bank of NZ, and Financial Markets Authority.

The AML/CFT Act is risk-based legislation, meaning the company must identify and mitigate their risks of laundering money. NZ companies are captured under the Act by the products and services they provide, and for consumers, this means they will be asked to provide proof of identity, address, and sometimes where they got their money from.

Businesses and professionals are key to disrupting money laundering activities, as they are a major channel through which money is legitimized and returned to criminals. They have a responsibility to get to grips with money laundering: what it is, how it happens, and what their obligations are under the Act. By understanding and meeting their AML requirements, they can help fight the profiteering of human trafficking, drug smuggling, corruption and bribery.

Richard Manthel is the CEO of AML Solutions and AMLHUB, winner of the Best Small-Medium Business at the 2023 Newmarket Business Awards.

AML is hosting the annual Anti-Money Laundering Summit on the 16th-17th of May perfect for senior managers, compliance team members, and admin staff of companies like law, accounting, finance and real estate companies. To find out more or to buy tickets, click the banner below.