Dirty Money: What is money laundering and how can it affect you?
Notorious drug cartels in Narcos, Tom Cruise running from The Firm, the crime and chaos of Ozark. Money laundering is the illegal process of making funds generated from criminal activities appear legit, and it isn’t just the stuff of TV drama. It’s far more widespread than you may think, it’s right here on our doorstep, and it can impact you! Globally, it’s estimated that 2-5% of GDP (trillions of dollars), is laundered every year. This money comes from all sorts of crimes, many of which do serious harm to people and communities.
What exactly is this dirty business, and how are Kiwis helping to fight it?
What is Money Laundering?
Here’s the dirty lowdown on this not-so-clean crime. When criminals receive their ill-gotten gains from illegal activities, they can’t easily spend it without raising a few red flags. New Lambo times two? $49,000 diamond necklace, anyone? To escape being found out, prosecuted, convicted, and doin’ time for doin’ crimes, they need to lie about where this money came from. Hiding the true source of this money is where the ‘laundering’ part comes in - the crim’s goal is to make this money appear so fresh and so clean that it looks like it was acquired legally.
How do people launder Money?
Disclaimer: This is not a how-to guide (if you’re looking to launder your dosh from a public health perspective here’s a hygiene handbook), if you’re here to clean up your ill-gotten gains these guys can help...
There are three stages of money laundering; placement, layering, and integration. To launder money, criminals look for businesses and professions that might not have solid processes in place to pick up on suspicious activity or transactions. This could mean a casual approach to confirming customers’ identities, or no proper checks in place to spot shady conduct and check who (or what) exactly is bankrolling this bad behaviour.
Once criminals find a business to use, they’ll introduce the money from their illegal activities into the legal financial system, this is called ‘placement’. From there they’ll keep it moving by buying and selling assets in the hope of disguising where the money has come from. The more complex these transactions are, the more they can hide the origin of the funds and make it harder to trace, this is called ‘layering’.
Once the funds are looking fresh and clean they make their way back into the hands of the felons through purchasing legitimate assets or investments, this is called ‘integration’. Tracks are covered, the money looks legit and the crims are now free to spend the proceeds of their crimes on whatever they like.
Is money laundering a problem in Aotearoa?
Around $1.35 billion NZD from the proceeds of illegal activity is laundered in this country every year through Kiwi organisations and businesses. That’s enough to build another long-awaited billion-dollar highway like Transmission Gully. This money may have come from the proceeds of serious crime such as drug trafficking, embezzlement, fraud, pyramid schemes, human trafficking and child exploitation – things that do real harm.
Various scams are used to launder money, including involving innocent members of the public and unsuspecting businesses. Hot targets for money laundering are businesses that have authority to handle large sums of money, which is why the Anti-Money Laundering and Countering Financing Terrorism Act 2009 (AML Act) applies to them. Rather than being used as a tool to launder money, these businesses now have processes in place to detect crims, and discourage them from using the business to reintroduce dirty money back into the financial system.
What is Anti-Money Laundering in simple terms?
In New Zealand, the AML Act is a piece of legislation that covers businesses that can be targets for financial crime like financial institutions, lawyers, accountants, real estate agents, casinos, and other organisations. It holds them accountable, and helps them to take responsibility for identifying risks of money laundering and terrorism financing, and reporting that to the appropriate authorities.
The AML Act gives guidelines to businesses so that they can put practices and processes in place to protect their customers, and themselves. If they don’t want to inadvertently help criminals to launder money or fund terrorism (note: nobody does) they need to have an AML program in place. The AML Act also helps businesses to know what action to take if they get a whiff of something suspicious, or find something that looks odd.
The goal of the AML Act is to detect and deter people from money laundering and financing terrorism, which in turn makes it harder (ideally impossible!) for them to use the money gained from criminal activity (harming other people) in legitimate ways.
How does money laundering impact me?
In order to do its job, the AML Act can mean some extra hoops to jump through when you’re signing up to use a service, and additional checks once you’re on board.
Proving that you are in fact, you, is a given when applying for a mortgage, opening a bank account, getting a speeding ticket (sorry, Officer), the usual things that require proof of identity. When signing up for a financial service you may also be asked questions about your main source of wealth and what you’re investing for. This might feel invasive, but it’s probably not as invasive as having your property and pockets searched and your Ferrari seized. Or being trafficked. All of which the AML Act aims to help stop in their tracks!
As an example of how AML can impact you, if your money behaviours no longer match with the information you originally gave, this can mean you need to update your details.
If it seems like overkill, try to remember that a small pain in the hindquarters for you can mean preventing people from profiting from human trafficking and drugs, it’s worth it!
What is Hatch’s responsibility?
As a reporting entity and responsible corporate citizen, Hatch has an important part to play in trying to help prevent or detect illegal activity, and reporting it if we find something a little “off”. Hatch runs an AML program and from time to time we might need to ask for certain actions or information from our investors so that we know they’re all good, and that we’re meeting our regulatory requirements.
If you have any questions or concerns you can always get in touch with our team to learn more.
We’re not financial advisors and Hatch news is for your information only. However dazzling our writing, none of it is a recommendation to invest in any of the companies or funds mentioned. If you want support before making any investment decisions, consider seeking financial advice from a licensed provider. We’ve done our best to ensure all information is current when we pushed ‘publish’ on this article. And of course, with investing, your money isn’t guaranteed to grow and there’s always a risk you might lose money.