Hon SIMON POWER (Minister of Justice) : I move, That the Anti-Money Laundering and Countering Financing of Terrorism Bill be now read a first time. At the appropriate time I intend to move that the bill be considered by the Foreign Affairs, Defence and Trade Committee, that the committee present its final report on or before 15 September 2009, and that the committee have authority to meet at any time while the House is sitting, except during oral questions and during any evening on a day on which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 187 and 190(1)(b) and (c).

Like the recently enacted Criminal Proceeds (Recovery) Act 2009, the Anti-Money Laundering and Countering Financing of Terrorism Bill is an important part of the fight against organised crime. This Government recognises that those who reap profits from crime are not always the ones who are arrested and held to account by the courts. Conservative estimates put the proceeds of domestic crime at between $500 million and $1 billion every year. This bill will work in concert with the Criminal Proceeds (Recovery) Act by giving law enforcement agencies the right tools to detect and trace criminal profits. Organised criminal groups in New Zealand use sophisticated commercial and financial tools as part of their criminal offending.

Every member of this House is aware of the destruction caused by the production and sale of methamphetamine—P. This bill will reduce the impact of drug-related crime on our communities by giving authorities more stringent powers to deal with money-laundering in the illegal drug trade. Some may argue that money-laundering is not a problem in New Zealand, but unfortunately this is not the case. Last year, I am advised, New Zealand was used by an offender to launder almost $120 million from Australia, through New Zealand, and into Vanuatu.

The Anti-Money Laundering and Countering Financing of Terrorism Bill is also about enhancing New Zealand’s standing on the international stage and increasing confidence in our financial system. As a member of the Financial Action Task Force, New Zealand is committed to having a world-class anti - money-laundering and counter financing of terrorism system. Now more than ever our trading partners are looking for stable, safe economies. The G20 leaders stated in February that they expected countries around the world to implement adequate anti - money-laundering and counter-terrorist financing systems.

The bill’s new powers, penalties, and law enforcement improvements will allow our law enforcement agencies to tackle sophisticated transnational organised crime head on. We are also able to contribute to international intelligence gathering by reporting suspicious transactions through the global network of financial intelligence units. The bill works by requiring businesses that deal with the public to put in place systems that prevent or detect transactions made by those seeking to launder crime-related money. It sets out a number of “know-your-customer” requirements and record-keeping obligations for financial institutions and casinos, and obliges the financial sector to report all suspicious activity to the Financial Intelligence Unit.

For the bill to be a true success, New Zealand’s financial institutions and casinos need to work alongside law enforcement agencies to fine-tune their anti - money-laundering systems. The bill provides a flexible and risk-based set of obligations so that businesses can use their discretion to direct resources to the greatest risks. The Government recognises, as I know the previous Government did, that the bill will place additional costs on New Zealand businesses at a time when many are coming under strain. However, without this bill we could face increased costs for Crown borrowing and higher thresholds for New Zealand businesses trying to access international capital, as well as the higher interest rates that may follow such increased scrutiny.

The Financial Action Task Force has been given a new strong mandate by the G20 and is aggressively pursuing its goal of compelling compliance from reticent States. New Zealand stands in real danger of being publicly criticised for its lack of progress to date. This bill will demonstrate New Zealand’s dedication to global anti - money-laundering and counter-terrorism financing efforts. The obligations set out in the bill are based on international best practice and standards developed by the Financial Action Task Force and the Basel Group of bank supervisors. This bill will help protect and enhance New Zealand’s reputation as a stable and preferred place to do business. I commend this bill to the House.

Hon LIANNE DALZIEL (Labour—Christchurch East) : I welcome the introduction of the Anti-Money Laundering and Countering Financing of Terrorism Bill. I thought I would begin with a little story about a bank in the UK, and it begins with headline news over a weekend from, I think, The Times. One of The Times’ reporters had managed to undercover the fact that this particular bank had sought assistance from the Bank of England and was receiving that assistance. Instead of having the story led by the bank itself and the fact that that assistance was shoring up the bank, because of the headline news it was a bad story for the bank. So then began the weekend from hell for the bank where everyone went online and tried to withdraw as much money from that bank as possible. Of course, the server crashed; it was not used to coping with that amount of traffic over a weekend. On Monday morning people went down to the bank and began to queue. This was a very small bank and it had only two tellers in each of its branches, so it did not take very long for the queue to form. That queue formed because of the Financial Action Task Force requirements; the anti - money-laundering question the bank had to ask everyone who wanted to pull their money out of their account took a considerable amount of time.

I raise that example with a certain degree of humour in what I am saying, but I think it raises a substantial issue; that is, that a combination of events led to what we all now know as the Northern Rock debacle. But part of the problem was the perception of a queue that was created by the questions that had to be asked at the counter. I would like to ask customers—not the customers who turned up to take out their money, but the ones who did not turn up—why the hell they did not turn up, because people were terrified that they would not be able to get their money out. All I am saying is that when the Labour-led Government contributed to the development of the policy in this area, a huge issue was compliance costs and the impact that that would have on the market—and I will leave a lot of that to my colleague the Hon Clayton Cosgrove, who was the Minister in charge of that.

Hon Simon Power: A lot has changed since then.

Hon LIANNE DALZIEL: I am pleased that the Minister of Justice is saying that a lot has changed since then.

I want to put on record that I fully accept the need for New Zealand to meet its obligations, even though they are not legally binding in a strict sense. We are a member of the Financial Action Task Force on Money Laundering and we voted in favour of the revised recommendations in 2004. In my view, we are absolutely obliged to proceed down that pathway. The approach we adopted when we were in Government, though—and I think the Minister has really picked that up in his contribution—concerned those three guiding principles we developed. One was cost effectiveness. The industry should bear the minimum cost necessary to facilitate the effective detection and deterrence of money-laundering. The second was best fit for New Zealand, and I think that that is a huge issue. The regime should reflect New Zealand’s unique economy and the actual anti - money-laundering and countering financing of terrorism risks. The third is one near and dear to my own heart: concordance, as far as possible, with the Australian regime. New Zealand and Australia obviously have a close economic partnership, and there should not be unnecessarily disparate obligations.

One of the things that my colleague Clayton Cosgrove will talk about is the question of cost. The Deloitte’s report was commissioned in order to ensure we had the best possible take on the cost of compliance. That report was developed in probably a slightly more unusual way because we were so concerned to try to get to the bottom of how those costs might pan out, but it was intended to provide a guide to key areas of cost sensitivity and also to try to draw from industry itself an indicative response to what the compliance obligations might be. We were flying a little bit blind in that we were not going out there and saying specifically where we were going to end up. We put out some recommendations and some overseas models for people to draw on, and some preliminary thoughts on policy direction. Deloitte then solicited costing estimates through a series of interviews with the private sector and, again, it was asked to work with a hypothetical regime, which I think creates an issue about the robustness of the result. However, it was quite a significant result, and the figures are mentioned in the regulatory impact statement, which I will come to in a minute. But essentially the first phase of the reforms, relating to bank and non-bank financial sectors and casinos, was estimated to cost those industries a total of $96.84 million in establishment costs and $20.67 million per year in ongoing costs. Of the affected sectors, the banking sector was expected to bear 84 percent of the start-up cost and 75 percent of the ongoing cost. But, again, when we look into the trans-Tasman issue, we know that the fact our banks are Australian banks means they are already having to comply in some of those jurisdictions. Therefore, that does reduce the cost, and that was something we took into account when we were considering those facts.

One of our concerns, though, was that we wanted to have this bill introduced into the House just a little bit earlier than this. We had the idea that it would be before the Foreign Affairs, Defence and Trade Committee when the Financial Action Task Force on Money Laundering team came here. We thought that March or April would have been a really good time to have it there, but obviously the Minister is just a little bit behind where we had hoped to be.

Hon Simon Power: I’ve had a bit on. In fairness, I’ve had a bit on.

Hon LIANNE DALZIEL: I tell the Minister that he has had that portfolio for, what is it, 7 long months now?

Hon Simon Power: That’s right; I’ve had a bit on.

Hon LIANNE DALZIEL: Give it back!

Anyway, I want to raise a serious question, because I think this is the first time that I have ever seen, in a regulatory impact statement as part of the bill’s explanatory note, the words: “information deleted in order to maintain the effective conduct of public affairs through the free and frank expression of opinions between officials and Ministers”. I do not think that I have seen that phrase specifically used in that context before. Sometimes when it is used, and it is used several times in the regulatory impact statement, I can kind of weigh up the sorts of things that maybe officials are providing advice on, and that maybe the Minister and Cabinet would not want to have on the public record, particularly in relation to some of the options that may have been looked at.

The one thing that I find really, really difficult to understand concerns the question of cost. I refer to page 28 of the explanatory note, where the regulatory impact statement states: “The reform is estimated to entail a significant net direct quantifiable cost across industry and government in each of the 2 establishment years of approximately [information deleted in order to maintain the current constitutional conventions protecting the confidentiality of advice tendered by Ministers and officials] per year. However, while difficult to quantify, the benefits of introducing and passing legislation in 2009 are substantial, particularly in terms of protecting New Zealand’s international reputation and associated medium-term trade and other economic objectives.” I think that at some point the Minister will have to explain why that information is being withheld even from the select committee. It may well be that that information will be made available to the select committee in private or in secret, but I feel very uncomfortable looking at a regulatory impact statement that provides so little information. That is particularly so when it is followed by a paragraph that refers to “the net quantifiable benefit of the proposed reform”, which “could range substantially”, so we are told, “between a net cost of $17 million and a net benefit of $59 million …”. In my view, that is just too wide a breach. I think there has to be some substantial debate in the select committee and again in this House over the cost of the proposals that have been brought before members. With that comment in mind, I tell the House that we are happy to support the passage of this bill to the select committee.

JOHN HAYES (National—Wairarapa) : I rise to speak to the Anti-Money Laundering and Countering Financing of Terrorism Bill. As the Minister of Justice has set out, this bill will help to protect New Zealand’s financial systems from money-laundering and the financing of terrorism. As a member of the Financial Action Task Force, New Zealand is committed to having a world-class anti - money-laundering and counter-financing of terrorism system. It is very important that New Zealand continues to meet international standards, and that we do our part in the international fight against money-laundering and terrorism financing. People can be inclined to be a bit offhand about that, but I can tell members that time as a bureaucrat in this country taught me that these issues are very alive and well, including those in some of our territories like Niue, where the Panamanian-based bank Mossack Fonseca and Co. operated at will, beyond New Zealand’s control, and certainly beyond the Niue Government’s control.

Hon Lianne Dalziel: And the Cook Islands.

JOHN HAYES: It was not only there; it was also in the Cook Islands—and in Vanuatu, where these issues have been very, very real. The Anti-Money Laundering and Countering Financing of Terrorism Bill will place a number of obligations on the financial and casino sectors. Many of these obligations, such as reporting suspicious transactions, record-keeping, and carrying out due diligence, are not new. There is also a necessity to ensure that the telephone system is tied up, in this arrangement, because it was very easy to set up a company in Niue, for example, with an 0900 number, and talk to a hot voice or something, in a recording. A call could be made on a Friday afternoon and the phone left off the hook until Monday morning. The caller would invoice himself or herself via the company in Niue, send the cheque to Niue, and launder the money that way. It is quiet-intelligence reporting of suspicious activity that is crucial in the fight against crime. We know that the reporting of the Financial Intelligence Unit works. It is used to unravel complex, organised corporate crime, as well as drug-related crime.

What is new in this bill is that it uses the intelligence of financial institutions to assist in the fight against crime, and that is very, very important. Businesses understand the risks of their services being abused by money-launderers and terrorism financers, and this Government understands that financial institutions are best placed to manage those risks. This bill harnesses the knowledge of businesses. It asks businesses to undertake an assessment of the money-laundering and terrorism-financing risks, and, once those risks are understood, it asks financial institutions and casinos to prioritise those risks. The response is documented in a well-structured anti - money-laundering and counter-financing of terrorism programme. This way, the bill applies an effective risk-based approach in a carefully prioritised and deliberate way. It achieves quiet, intelligent, suspicious-transaction reporting, and it will focus on the highest priorities for detecting and prosecuting crime. If this bill had been in place, I suspect a lot less money would have flowed in the direction of the conflict in Sri Lanka over recent years.

This risk-based approach is the key to a successful and cost-sensitive anti - money-laundering and counter-terrorism financing system. Not only does the risk-based approach provide better intelligence, but also it allows businesses to direct resources to the areas of highest priority or greatest risk. Financial institutions and casinos can focus their resources on the products, situations, and customer types that are the riskiest for the fight against crime.

We recognise that this bill will cost the financial and casino sector, but the risk-based approach means that it will not cost any more than is strictly necessary. This Government also understands that the sector is willing and able as a partner in fighting crime. The bill does not over-regulate this sector through prescription. It primarily sets out the risk-based approach and any other minimum requirements to meet our international obligations. Regulations will flesh out any further requirements that need to be responsive to risk. However, the framework will also provide for safe harbours for situations in which risks may be too uncertain. Flexibility is built in to allow related entities to organise themselves efficiently. The bill allows related businesses to collaborate to manage their money-laundering and financing of terrorism programmes. They may join together to form a designated business group with not just members within New Zealand, but also with parent or subsidiary companies overseas.

The overall structure of the regime is one of self-management, flexibility, and light-handedness with the supervisory support brought by Government through constructive interaction. Let us not forget what my honourable colleague the Minister of Justice was saying earlier: the costs of not proceeding with this bill are high, not just in terms of borrowing for businesses and the Crown. The obvious cost of not implementing this bill is that we allow organised crime to profit from criminal activities, and our financial, banking, and investment markets will be awash with criminal proceeds from across the globe. This bill will help restrict the destabilising flow of criminal proceeds through the New Zealand economy, and although the bill will not stop the proceeds of crime being generated it will empower financial institutions and casinos with the ability to quietly report any suspicious activity they come across. [Interruption] Mr Cosgrove may well be their first target. I commend this bill to the House.

Hon CLAYTON COSGROVE (Labour—Waimakariri) : After that riveting speech made by John Hayes, I say I share with the Minister of Justice our support for the Anti-Money Laundering and Countering Financing of Terrorism Bill. In my role as the previous Minister I was initially in charge of shepherding the bill through, so I commend him for bringing it to the House. He was right when he said it has taken a long process and period of time to get the bill to this point. I want to touch on one of the reasons for that tonight. It is one that I think the Minister and my colleague Lianne Dalziel also touched on: the issue of compliance costs.

One of the dilemmas we faced in Government, and one of the reasons why we delayed this bill coming to the House, was that although we were presented by officials with what I think was a good model, I had visited the equivalent anti - money-laundering agency in the US, which is chopped up between a number of Government agencies, and that had created, I have to say, a bureaucracy with huge resources to deal with this problem. In New Zealand we took the view that we would use existing Government agencies. We decided not to create another department or agency but to use the existing agencies, and, as my colleague Lianne Dalziel said, to try to minimise the costs. One thing I said to stakeholders at the time was that we did not want a “Rolls-Royce” solution. It is not the case that we could get around this obligation; it is an international obligation, and we must take action in order to comply with it. There are international reputation issues if we do not comply with it, and I think business accepted that. But business also told us not to put another zero on the invoice.

It was interesting to talk to some of the Australian banks, when we said we wanted to minimise the costs of compliance. It was interesting to note that those Australian banks said to us that if we went below the level of compliance in Australia, they would have—because our banks are Australian owned, bar one—a trans-Tasman compliance cost. I thought that was an interesting point of view. The officials could not at the time tell us the cost of what they were proposing. I had a high degree of discomfort with that. As I was also the Minister for Small Business at the time, I thought it was appropriate that Government agencies should tell us that, so we could tell stakeholders what the costs of these proposals would be. The difficulty was about trying to elicit the information from the stakeholders, because there was competitive information at stake, and many of the stakeholders did not want to disclose their costs. Equally, of course, if one is trying to consult stakeholders but does not want to pre-empt that consultation by coming up with a rigid framework or a proposal, it is difficult to cost what one does not know will occur.

We put up a draft framework and submitted it to stakeholders, but I asked that we get independent advice. We obtained that from Deloitte. As I recall events, we met in this building with stakeholders and put it to them that the level of assurance that we wanted to give them was encompassed in the independent costings that Deloitte would carry out for us. My objective was that we could go to business and say that we must do this, but that we agree not to “Rolls-Royce” it and to provide business with independent advice that says the compliance cost is as minimal as we can get it, substantial though, as my colleague Lianne Dalziel has pointed out, the dollars are: some $96.84 million in the first phase alone. Ultimately, those costs will be passed on to consumers.

Deloitte did a very good job and looked very closely at the framework of the proposal that the Ministry of Justice had put up, and Deloitte provided that level of assurance. In some ways, that is quite a good model, because Governments, Ministers, and agencies get accused of ramping up costs. To some extent our joint experience, I suspect, would be that it is self-evident in many cases that agencies do put another zero on the invoice. But in this case, this bill arrives in the House with the confidence of the business community.

I will not reiterate, in the time I have available, the points that other members have made; they are valid. Some would ask why little old New Zealand, at the back end of the Earth, is concerned about anti-terrorism, money-laundering, and organised crime. It is the case, and Mr Hayes pointed this out in his contribution, that the smaller a country is, often the greater the target it is. There is a perception—and some of it is the truth historically with regard to our Pacific Island brothers and sisters in some countries that Mr Hayes mentioned—that the jurisdictions in small countries are slightly more loose in their rules, and that those who wish to prey on their Governments and agencies and launder funds for criminal reasons, or for more nefarious reasons in respect of terrorism, can actually do that. Although New Zealand is robust in our regulatory framework, because of our size we can present a target.

In the light of my visit to the US last year, I commend the unit within the New Zealand police force, small though it is, for the work that its members do. They are world renowned, not only because they have limited resources but also because in a good old-fashioned Kiwi way they are very innovative, flexible, professional, and extremely effective in how they investigate and prosecute the crimes associated with this proposal and this bill. The Americans were particularly complimentary about that unit within the New Zealand Police.

There was a fear, and I have to say it bordered slightly on paranoia, on the part of some in the Ministry of Justice that if we did not meet the mark, somehow our financial position would be in jeopardy. I am sure the Minister may share the view that the gentlemen and women from the Financial Action Task Force on Money Laundering who came over and audited us would maybe give us a slap across the wrist because the previous Government did not present a bill to the House, but we were well on the way towards doing that. I do not share the view that our financial position is in jeopardy.

Hon Simon Power: I toughed it out for you.

Hon CLAYTON COSGROVE: Thank you very much, Minister. He toughed it out for us. The Minister shares my view, obviously, given his support for it.

I recall that the Canadians were visited by the Financial Action Task Force on Money Laundering folk a couple of years ago, when they were within, I think, a couple of weeks, possibly even days, of passing their legislation through their Parliament. The eminent men and women from that task force, knowing what was going to be passed and knowing that it was certain to be passed, gave the Canadians a negative vetting. I know the Canadians were particularly upset about that. I have to say I feel that sort of process is a little over the top.

I do not believe that war will be declared, in a financial sense, against New Zealand because this bill has arrived slightly later in the piece. I think we have the advantage, unlike some countries historically—countries that Mr Hayes referred to—of having a robust banking, financial, and legal system, with a highly professional and world-class police force to back it up. The intent is made clear by this legislation; it has been brought into the House. I believe it will be passed, and I hope that will occur without a great deal of time-wasting being associated with it, given that we are bipartisan, I believe—at least the major parties—on this issue. This measure is something we must take. Perhaps some people will be of the view that we do not need to do this, but it is an international obligation that is visited upon us.

In this day and age, certainly since the infamous time of September 11, it is true that the criminal fraternities and the terrorist organisations have become very, very sophisticated in how they can launder and dispose of funds. Indeed, when I was the Minister I recall the police made the claim that some in the terrorism sector, as it were, had found it particularly lucrative to use the generic schemes that organised crime has, to launder funds and inject funds into the system and cleanse them, so they could be used for nefarious means. We have to fight against that every day. The technology improves, and the deviousness of those who want to penetrate our system improves. It is incumbent upon us, if we want to preserve the good name of New Zealand as a sovereign State, and also to preserve the good name of our financial institutions and the associated stakeholders, to ensure that we not only meet our obligations but meet them in a robust way, while balancing against that trying to minimise the compliance costs that are visited on business, and then ultimately on consumers.

I commend the Minister for getting the bill to this stage. We support the bill and look forward to its passage.

JACQUI DEAN (National—Waitaki) : I rise to speak to the Anti-Money Laundering and Countering Financing of Terrorism Bill. Intelligence gathering has played a paramount role in every war: the war against money-laundering has been no exception. It started around 20 years ago as an extension of the battleground on the war on drugs and also in the aftermath of September 11, 2001. It became fused with the new fight against terrorism, of which the fight against the financing of terrorism has become an integral part. With the increasing importance of intelligence in this war, the scope for financial intelligence-gathering has grown as well. Legislative developments in this field have, therefore, risen to unprecedented levels of information collection, allocation, and dissemination.

Particularly critical in the arsenal of Governments internationally has been the global network of financial intelligence units, fed by a host of auxiliary—that is, primary—financial institutions required to report suspicious transactions. This quiet reporting of financial intelligence is crucial in detecting money-laundering and the financing of terrorism. In today’s world one does not need huge sums of money to fund a terrorist attack. Indeed, £15,000 was all it cost the July 7 London bombers to wreak havoc.

Tracing terrorism financiers across the globe requires a globally consistent approach to attaching customer information to wire transfers, alongside reporting expectations. This bill will place New Zealand in line with the international standards of the Financial Action Task Force on Money Laundering, as well as better equipping the New Zealand Police with financial intelligence about our own domestic organised criminal organisations. This bill is important. It is needed and, as the House has already heard, it will bring in a number of obligations for private businesses.

The bill will also bring about some changes to Government agencies. This bill will enhance the existing supervisory roles of the Securities Commission, the Reserve Bank of New Zealand, and the Department of Internal Affairs by making them supervisors of the anti - money-laundering and countering financial terrorism framework. Although the focus of these roles may be new, these agencies are all experienced supervisors in their own right, having complementary supervisory roles under existing legislation. In recent years both the Reserve Bank and the Securities Commission have had their supervisory roles expanded to better address the needs for responsible and considered regulation throughout the financial sector. This bill is another aspect of the proper and responsible regulation that these agencies find themselves leading.

Anti - money-laundering and countering financial terrorism supervisors will work with, not against, the businesses they regulate. Their role is to facilitate businesses putting in place sound and proper anti - money-laundering and countering financial terrorism programmes. However, where a financial provider, or a casino, is being reticent, the supervisors are there to spot the gaps in their industries and work to ensure that all the entities under the supervisor are complying with their statutory obligations. Because there are three supervisors, there is a need to ensure that there is consistency across supervisors, and that the supervisors work together with the Financial Intelligence Unit and each other to support a successfully implemented anti - money-laundering and countering financial terrorism regime. This bill sets out a national coordination committee, which, led by the Ministry of Justice, will ensure that the system beds in effectively and efficiently, and will be the forum that all the Government agencies involved in the running of the Anti-Money Laundering and Countering Financing of Terrorism Bill will work through together.

Money-laundering and the financing of terrorism know no borders. The flow of money through global financial systems is the main focus of this bill. However, the flow of cash across borders is also an area of concern. So this bill also addresses the carrying of cash across the border. The bill increases the penalties for failing to declare, if one is carrying large amounts of cash across the border. Informal cash couriers are an internationally recognised method of financing terrorism, and that is why people coming into or going out of New Zealand must declare if they are carrying more than $10,000. As the enforcers of cross-border cash requirements, this bill also allows the New Zealand Customs Service to use its pre-existing, already scrutinised, powers for questions, search, and, if necessary, seizure of undeclared or mis-declared cash.

This bill will help New Zealand tackle domestic organised crime, allow New Zealand to meaningfully contribute to global counter-terrorism financing efforts, and help ensure that those who are ripping off the New Zealand taxpayer are caught and held to account. I commend this bill to the House.

CLARE CURRAN (Labour—Dunedin South) : I rise in support of the Anti-Money Laundering and Countering Financing of Terrorism Bill. Labour will support the referral of this bill to the Foreign Affairs, Defence and Trade Committee. The purpose of this bill is to enhance New Zealand’s anti - money-laundering and countering financing of terrorism framework, and, in doing so, to progress compliance with the Financial Action Task Force recommendations and ensure the robustness of New Zealand’s financial system.

The Financial Action Task Force recommendations have widespread support, and they were established in 1989 by the G7 countries in response to the threat that money-laundering posed to the international financial system. The Financial Action Task Force is a strategic, inter-Governmental body. Its broad purpose is to develop international standards, and New Zealand, with other nations, is a member of this organisation. The International Monetary Fund and the World Bank, in addition to many other non-governmental bodies, work cooperatively with the task force.

The Anti-Money Laundering and Countering Financing of Terrorism Bill was originally the previous Labour Government’s bill. It was the previous Labour Government that approved the basic framework to underpin New Zealand’s anti - money-laundering reforms, and there were compliance obligations in two phases. In the first phase, the framework would extend to financial institutions and casinos, and in the second phase, to certain types of non-financial businesses and professions. It included a regime for supervision, monitoring, and enforcement of the entities, new civil and criminal offences, and a set of core requirements including customer due diligence, reporting, and anti - money-laundering and countering financing of terrorism policies and practices. It also included a set of objectives and criteria to guide ongoing development and implementation of the regulatory framework. The main objectives of the proposed reforms were, and remain, the effective detection and deterrence of money-laundering and terrorism financing, maintaining and enhancing New Zealand’s international reputation, and contributing to public confidence in the financial system.

The New Zealand approach to the reforms is guided by three key principles. The first one is cost-effectiveness. The industry should bear the minimum cost that is necessary to facilitate the effective detection and deterrence of money-laundering. The second is “the best fit” for New Zealand, which means that the regime should reflect New Zealand’s unique economy and the risks. The third is concordance as far as possible with the Australian regime. New Zealand and Australia have a close economic partnership, and there should not be unnecessary disparate obligations.

Why did the previous Labour Government delay this bill’s introduction? It was delayed simply because it was necessary to undertake detailed analysis of the costs of compliance. That is what drove the Deloitte report, and I am sure that previous speakers on this side of the House have outlined that before me. The bill was planned to have been introduced earlier this year, in time for the April 2009 visit by the Financial Action Task Force, but the National Government did not meet that timetable. Public input will almost certainly be about the cost of compliance and how it can be minimised.

Money-laundering is an important issue. It involves transforming money from crime, or dirty money, into money that has the appearance of coming from a legitimate source, and makes the criminal origin of the money difficult to trace. Effective money-laundering is damaging as it allows criminals to mask their activities and makes it harder to prosecute those who undertake it. There are many ways to launder money, some of which are sophisticated and complicated. The most common examples include “smurfing”, or “structuring”, which is depositing cash at various institutions in amounts less than the amount that must be reported to Government, and subsequently transferring them to a central account. Another example is currency smuggling, or moving funds across borders to disguise their source and ownership, by mail, courier, or body packing, often to countries that have strict bank secrecy laws. Others include exchanging transactions or buying foreign currency that can be transferred to offshore banks; purchasing assets with bulk cash, which involves purchasing cars, boats, or real estate in someone else’s name, selling the assets, and depositing the funds; and gambling, which involves buying gambling chips and, after placing a few bets, redeeming the chips for a casino cheque.

Money-launderers are very creative at masking their activities, as the list I have just mentioned illustrates. The people who engage in these activities do much harm to communities and those who work hard. Looking at this bill, compliance with the Financial Action Task Force minimises the threat to business communities from money-laundering and terrorist financing. The overall objective is to reduce crime in New Zealand and therefore to make our communities safer. After September 11, money-laundering became a major concern of the United States’ “war on terror”, and here in New Zealand most money-laundering takes place in relation to drug crime, organised crime, and fraud. Labour welcomes laws that strengthen and prevent the use of such measures.

Effective anti - money-laundering laws make it easier to detect and investigate money-laundering activities by establishing links between criminal activity and the funds generated by that activity. Restricting the ability of criminals to profit from crime is important, and I look forward to further discussion on this at the select committee. Making it hard to engage in organised crime can only be advantageous to New Zealand communities. Here in New Zealand we are fortunate that we do not have organised crime syndicates such as those mafia gangs that include the Russian Mafia, the Chinese Triad, the Albanian Mafia, Japanese Yakuza, the Neapolitan Camorra, and the Mexican Mafia.

Hon Simon Power: That’s a pretty good sweep.

CLARE CURRAN: Hopefully we do not have many of those here. This bill represents the new international standards that have been put forward by the Financial Action Task Force to prevent and deter money-laundering and terrorist financing. The new legislation will replace the Financial Transactions Reporting Act 1996, which, according to the Minister’s press statement, no longer reflects international best practice.

As I said before, New Zealand joined the Financial Action Task Force in 1991, and was one of the original members. Domestically, a weak regulatory framework in the area of money-laundering and terrorist financing increases the prospect that organised criminals and terrorists will exploit New Zealand’s financial system for criminal ends. This bill attempts to achieve to provide a regulatory framework by offering to undertake due diligence on customers or any person transacting on an account, undertaking transaction and account monitoring, reporting any suspicious transactions to police, and requiring reporting entities to have an anti - money-laundering and countering financing of terrorism compliance programme. I look forward to further discussion on these at the select committee and on how the reporting entities will achieve those obligations. Those reporting entities include banks, credit unions, currency dealers, issuers, money transmitters, life insurers, and stockbrokers, and they will be invited to make submissions to the select committee. In a post-9/11 world this bill, importantly, prevents the financing of a terrorist framework. There is a demonstrated need to pass laws that prevent the financing of terrorist organisations and deter money-laundering. I support the Anti-Money Laundering and Countering Financing of Terrorism Bill at its first reading and its referral to select committee.

Dr PAUL HUTCHISON (National—Hunua) : Thank you, Mr Assistant Speaker, for the opportunity to speak on the Anti-Money Laundering and Countering Financing of Terrorism Bill. Like many other speakers before me, I note that the purpose of the bill is “to enhance New Zealand’s anti-money laundering and countering the financing of terrorism (AML/CFT) framework, and in doing so, progress compliance with the Financial Action Task Force’s (FATF) AML/CFT Recommendations and assure the robustness of New Zealand’s financial system.” I note that Minister Simon Power pointed out that this bill is part of the important fight against crime, both in New Zealand and internationally, and it goes right through the Pacific itself. I understand that the estimates of losses in New Zealand alone are between $0.5 billion and $1 billion a year. That is pretty significant money.

Undoubtedly, organised criminal groups are using more and more sophisticated methods to launder money, particularly in relation to the drug trade. I cannot recount all those different types of organisations that Clare Curran brought up. She might go through them again. Fortunately, the Russian mafia, the Scandinavian mafia, the Triads, and the Mexican mafia are not here in New Zealand, as far as we know.

Hon Parekura Horomia: Yes, they are—over there.

Dr PAUL HUTCHISON: They are over here, says Parekura Horomia. Well, behind every desk there could be a potential Mexican mafia, but we hope not, and we hope that this bill will act towards countering that possibility.

There is no doubt that money-laundering involves transforming money from crime, known as dirty money, into money that, first, has the appearance of coming from a legitimate source, and, second, makes the criminal origin of the money difficult to trace. It is then known in the vernacular as clean money.

Paul Quinn: Parekura’s going to tell us about the gangs.

Dr PAUL HUTCHISON: Hopefully he will. Hopefully there will be a contribution from Parekura.

Fraud and financial crimes have changed and increased as rapid technological development means that our laws become easily out of date, and this type of crime becomes increasingly easy to commit. It is very important not to underestimate just how sophisticated money-laundering is becoming through the new technologies, as Mr Hipkins is readily agreeing across the Chamber. The bill responds to developments in this area and ensures that New Zealand’s anti - money-laundering and countering financing of terrorism laws are up to international standards. These protections are a very powerful tool in the area of drug trafficking and money-laundering, where we have previously struggled to trace and confiscate the proceeds of drug trafficking. I understand that this bill will work in conjunction with the domestic Criminal Proceeds (Recovery) Act 2009.

Some very important international obligations relate to the bill. The National-led Government is committed to maintaining and enforcing effective anti - money-laundering and countering financing of terrorism laws, known as AML/CFT laws. As an active member of the Financial Action Task Force, New Zealand has spoken out strongly in support of this commitment, as did the previous Labour Government, which did not quite get round to culminating the enactment of the legislation, along with many other things that it failed to do. We must do our part in the international fight against money-laundering and financing of terrorism. The dominant view is that the strongest anti - money-laundering and countering financing of terrorism laws are those based on the Financial Action Task Force recommendations. We stand at risk of being criticised for our lack of progress in this area to date. That is a serious concern, as the G20 has recently given its explicit support to the Financial Action Task Force. The United Nations Security Council recently strongly urged nations to comply with the Financial Action Task Force recommendations.

I note that my colleague John Hayes mentioned just how realistic the problem is in the area of the Pacific. He specifically mentioned the Panamanian bank Mossack Fonseca and Co., which apparently was operating in Niue for up to 10 years. I understand that they were not quite aware of what was going on, and how much it benefited them is not clear, but it is a great worry when countries close to us that are so intimately involved with New Zealand are involved. It is very important, as this bill goes to the select committee, that we think of other Pacific countries—the Cooks, Tokelau, and the wider Pacific.

There are a variety of benefits of taking action, which include the fact that terrorism is a threat to domestic and international business communities. The measures in this bill protect our business communities against those threats by reducing crime and making New Zealand a safer place. Non-compliance would result in costs to our domestic business sector. That aspect is very important to be aware of. Increased costs of borrowing overseas for both the Government and the private sector would result as overseas lenders perceive the non-compliant country as a greater financial risk. There would be difficulties in the form of increased costs or lost business opportunities overseas for companies from the non-compliant country, and difficulties in trade negotiations at a Government to Government level, as foreign Governments may be reluctant to extend trading privileges to non-compliant countries.

Other benefits of taking action include impacts on relations with international organisations such as the World Bank, the International Monetary Fund, and the United Nations. There is the possible perception that the non-compliant country may be seen as a soft touch for money-launderers and terrorism financers.

I will end my speech by making a couple of comments on Part 2, “AML/CFT requirements and compliance”, which deals with standard customer due diligence, simplified customer due diligence, enhanced customer due diligence, and ongoing customer due diligence and account monitoring. Clearly, there will be a balance—there was always going to be a balance—between individual privacy and how far the mechanisms associated with the bill can go.

The very final point I will make is regarding the cost-benefit analysis. I agree with the Hon Clayton Cosgrove and others who have mentioned that the Deloitte independent cost estimation, although it talks about start-up costs of financial institutions and casinos, is $97 million to be spread over 2 years, but the data indicate an upper cost of $249 million for start-up costs. That is pretty wide. We hope it would be more accurate than that. However, this bill is a very important bill, and I certainly commend it to the House.

JOHN BOSCAWEN (ACT) : The Anti-Money Laundering and Countering Financing of Terrorism Bill is a bill I was not intending to speak on, but I have come back into the House and picked up the previous two speeches—in particular, the speech from Clare Curran, but also that of Dr Hutchison.

Hon Trevor Mallard: A very good speech.

JOHN BOSCAWEN: It was a very good speech. Clare made three or four key points that came across to me. She talked about the robustness of our financial system, she talked about enhancing our reputation as a country, and she talked about terrorist organisations and transferring money. I pick up her first point, the robustness of our financial system. I have only just come back into the House after spending 40 minutes on the phone talking to a Mr Bruce Graham in Tauranga. Mr Graham is coming up to his 70th birthday. We talked about an issue that a lot of members I speak to have had correspondence on. Some members will have some understanding of the issues, but others will have just a cursory acquaintance with them.

Mr Graham is one of some 13,000 to 14,000 mainly elderly investors who have lost money through investing in the ING Diversified Yield Fund or the ING Regular Income Fund. The point that Mr Graham made to me is that he has lost part of the proceeds that had been built up over 80 years—30 years of income from the work that his father did that he inherited, and 50 years of income from the work that he did himself. He said that his father spent most of his life in England, apart from the time he fought in the Second World War. When he came to New Zealand with his young son he said to him: “You’ve got to be able to trust your bank. If you’re in a country where you can’t trust your bank, it’s time to find a new country.” So when Clare Curran talked about the robustness of our financial system, it challenged me to give this speech this evening.

Earlier this afternoon I spoke to Mrs Liz Brown, the Banking Ombudsman, on this issue. I was fascinated to learn that of the 14,000-odd people who lost money invested in ING New Zealand Ltd through ANZ, some 2,800 were advised by advisers employed by, or in some way linked to, the ANZ bank. Those 2,800 people have an advantage over the other 11,000 people, who were not. They are privileged because they get the services of the Banking Ombudsman. The Banking Ombudsman is someone who can listen to them, hear their complaint, and adjudicate on it. In that regard they are very lucky, because some 11,000 people who invested in those two funds do not have that right. As I understand it, they might have been able to apply to the Insurance and Savings Ombudsman for consideration, but because ING is, I understand, a subsidiary of ING Australia, and the Australian company is not covered by that system, they do not have that protection.

Clare Curran also talked about enhancing our reputation—the reputation of New Zealand—and although I realise that I am drawing a very long bow between terrorism and money-laundering and the situation in which 14,000 investors find themselves, I think it is an important issue to raise. In some cases these people face the loss of significant parts of their life-savings. They have had an offer made to them by ANZ and ING that they have to accept prior to 5 p.m. next Friday. If they accept that offer of 60c or 62c in the dollar, they sign away their rights. Right now there is a Commerce Commission investigation into the activities of those two companies. I am told that it has been going on for more than 6 months, and that the Commerce Commission advises that it is likely to continue for at least a further 6 months. It is quite possible that the Commerce Commission will find, after more than a year of investigation, that there was misleading conduct and deceptive conduct—it may not happen, but it is a possibility—and if that were to happen, it might give rise to those people being able to claim back their money in full. But anyone accepting the offer by 5 p.m. next Friday is signing away his or her rights to get that upside. Mr Graham said to me this evening that that is blackmail. This bank is saying to its investors: “Sign up, take this money, take 60c in the dollar, and sign away your rights.” I ask today whether that is right.

Most of us in this House have received emails from the Frozen Funds Group concerning ANZ and ING. It has called upon parliamentarians to speak out against this situation. I have given a number of speeches on the issue of finance companies. I have never discussed this particular issue, because I have not had the chance to properly investigate it. The Banking Ombudsman said to me that of the 2,800 cases she is entitled to investigate, she has had 450 complaints. So about one-fifth of the people have lodged a complaint. Of those, 150 have been referred back to the ANZ bank, which gives her a file of 300 complaints. Of those 300 complaints, 150 have been decided—approximately 50 percent have been decided, and 50 percent are yet to be adjudicated on. So we have a sample of 150 cases. What I found fascinating in what Mrs Brown said to me is that she has found in favour of the complainants in two-thirds of those cases. So, in rough numbers, of the 150 cases that have been decided on, 100 have been found in favour of the complainant. Two-thirds of the cases have been found in favour of the complainant, and one-third of the cases has been found against the complainant.

So a person lodges a complaint with the Banking Ombudsman because that person is not happy with the answer he or she has had from the ANZ bank, that independent ombudsman looks into it, and in two cases out of three she says that the bank has been wrong and the complainant is right, and awards the complainant all or part of what the complainant has claimed. Let us imagine for a moment that we had consumer protection law that allowed all 13,000 people affected to have the benefit of the Banking Ombudsman; on that rough calculation, maybe 8,000 people would have a genuine complaint and 4,000 would not.

However, it is actually worse than that. Mr Bruce Graham is one of those 50 people whose complaint was declined by the Banking Ombudsman. Liz Brown’s office spent many, many months looking into Mr Graham’s case and he was declined. What I found interesting was the circumstances in which he was declined. He was declined because apparently some 30 pages of fine print were attached to his document. He read only the first four pages. Because he had been given 30 pages, the Banking Ombudsman was able to point to the fact that he had been given notice—he was on notice and therefore he had no claim. That was despite the fact that he had made it quite clear to his financial adviser at the ANZ bank that he wanted an investment that was safe, an investment where he would not lose his capital. He did not need the income, but he wanted his capital to be safe. That was the one thing he stressed. He raised it with his investment adviser, who I understand was an employee of the ANZ bank. He said “Is this safe?”, and she said “It’s as safe as the bank.” His wife witnessed his financial adviser saying that. But one of the reasons he was declined was that apparently the ANZ bank had said to Mrs Brown that its advisers would never have said that. So despite the fact that he is prepared to swear that that was said, Liz Brown appears to have favoured the bank.

I make this point: the KiwiSaver system has default providers. I joined as a member of Parliament, and I am with the AXA New Zealand provider. The ANZ bank has privileges as a result of that system. I believe that the ANZ bank and the ING group owe these investors a lot more than what they are giving them. Thank you, Mr Assistant Speaker Roy.

RAYMOND HUO (Labour) : I rise to support the Anti-Money Laundering and Countering Financing of Terrorism Bill being referred to the Foreign Affairs, Defence and Trade Committee. In the era of globalisation, no country is immune from issues such as money-laundering, terrorism financing, and tax evasion, etc. For countries like New Zealand, there is often initial scepticism in some quarters that money-laundering or financing of terrorism even exist here. That scepticism may pose a question as to whether this is legislation in search of a problem that will incur additional compliance costs. A straight answer to that question is no and yes; like any other measure, legislation will inevitably incur compliance costs.

Many financial institutions are very concerned about those compliance costs. Earlier this evening I briefly scanned the 132-page Deloitte report that was commissioned by the previous Labour-led Government. The front page of that report unlocked the true cost of compliance. It suggested compliance costs of $111.8 million for initial start-up costs and $42.7 million potential incremental costs per annum. A breakdown of the compliance costs into the two phases shows that the first phase of the reforms that relates to the bank and non-bank financial sector and casinos is estimated to cost those industries a total of $96.84 million in establishment costs and $20.67 million per annum in ongoing costs. Of the affected sectors, the banking sector is expected to bear 84 percent of the start-up cost and 75 percent of the ongoing costs. Across most sectors, the compliance programmes for account and transaction monitoring and anti - money-laundering and countering terrorism financing are expected to account for around 90 percent of start-up costs and 80 percent of ongoing costs. Phase two of the reforms that covers the New Zealand Racing Board and professionals such as lawyers and accountants is estimated to cost those industries a total of $14.96 million in establishment costs and $22.03 million per annum.

On the other hand, some experts believe that a number of participants surveyed by Deloitte had a moderate view. They thought that the actual compliance costs could be more than double those amounts given in the report. The complexity of the costs of compliance was one of the main reasons why the introduction of this bill was delayed in the first place—if the honourable member Dr Paul Hutchison, who spoke previously, wishes to know. However, it was slightly disappointing that the bill could not be introduced earlier this year in time for a scheduled revisit of New Zealand’s compliance by the Financial Action Task Force on Money Laundering, of which New Zealand is a member.

Currently, New Zealand has limited compliance with a number of its recommendations on anti - money-laundering and countering of financing of terrorism. On my take of this bill, I see two aspects. On the one hand, this bill is largely driven from offshore multilateral party nation efforts to eradicate money-laundering, which is led by the Financial Action Task Force on Money Laundering. This was founded in 1989 by the G7. The Financial Action Task Force on Money Laundering issued 40 recommendations in 1990 and completely revised them between 1996 and 2003. The 2003 version of the 40 recommendations, among other things, requires countries to implement relevant international conventions, criminalise money-laundering, and enable authorities to confiscate the proceeds of money-laundering, along with requirements to implement customer due diligence, record-keeping, and suspicious transaction reporting. Subsequent to the September 11 terrorist attacks in the United States, the Financial Action Task Force on Money Laundering issued nine special recommendations on terrorist financing in October 2004. It broadly extended the application of the 40 recommendations to terrorism financing and introduced new requirements relating to services such as alternative remittance, transfers, cash couriers, and non-profit organisations. Therefore, the current financial sector reform, encouraged by the 40 recommendations plus the nine special recommendations, will now involve measures in detecting and deterring money-laundering and terrorism financing on a scale of intrusiveness not seen before in New Zealand. On the other hand, the bill is an essential component in New Zealand’s ability to investigate organised crime, to follow the money trail through financial systems, and to enable the police to use the Criminal Proceeds (Recovery) Act passed in April to attack those profits. In order to do so, the affected sectors, including banks, finance companies, casinos, professionals, etc., will have to consider some immediate issues, such as implementing anti - money-laundering reforms including enhanced due diligence, enhanced reporting, and fuller record-keeping measures.

Money-laundering and terrorism financing undermine the economy and creates instability in the financial sector. It is very important for the private sector that New Zealand meet the Financial Action Task Force on Money Laundering standards, but, more directly, failure to comply with those recommendations could result in the Financial Action Task Force on Money Laundering declaring New Zealand a high-risk country for money-laundering and terrorism financing. This would potentially impact on our credit rating and on the cost of borrowing for New Zealand.

Australia has had anti - money-laundering laws for over a year now. It is now our turn to implement similar measures to enhance New Zealand’s anti - money-laundering and countering the financing of terrorism framework, thus strengthening New Zealand’s international reputation and reinforcing public confidence in the financial system. Thank you.

TODD McCLAY (National—Rotorua) : I rise to speak on the Anti-Money Laundering and Countering Financing of Terrorism Bill in its first reading. This bill will ensure that New Zealand’s laws against money-laundering and its laws to counter the financing of terrorism are up to international standards.

We have heard from other speakers tonight about what money-laundering is. It involves transforming money gained from crime into money that appears to be legitimate. It is a process whereby funds gained illegally are cleaned to gain the appearance of having come from legitimate sources. It means that money gained from criminal origins is often difficult to trace. But there is another part to money-laundering; it directly includes legally gained funds of money that are channelled to illegal bodies or organisations, or that are channelled for illegal intent. In particular, this part is directed towards those people around the world who are involved in terrorism. Not all money that is spent by terrorists is gained illegally. In many cases, if one reads the newspapers or looks at the news, one will see that there are legitimate companies that pay their taxes but that support unworthy causes that harm and kill people. In 1996 the International Monetary Fund (IMF) said that the aggregate size of money-laundering in the world could be somewhere between 2 percent and 5 percent of the world’s GDP. Those 1996 statistics would indicate that money-laundering ranged in the size of NZ$1 trillion to NZ$2.5 trillion. Let us put this in context. The lower figure of NZ$1 trillion roughly equates to the value of the total output of an economy the size of Spain.

Fraud and financial crime have changed significantly and increased dramatically as the world’s economies have come closer together. They have come closer together largely because of international agreements and technology. This, in turn, means that, in particular, as a result of rapid technological development, our laws have become and continue to become quickly outdated. Criminals and terrorist organisations are increasingly becoming technologically competent and increasingly harder to track.

We have heard in this House the horror stories of the increase of the P trade in New Zealand. It is a trade that harms too many of our people, young and old, and that does devastating damage to far too many of our families. P is a huge business and it seems to be awash with money in this country. This drug—as with other harmful and illegal drugs and the precursors to manufacture these drugs—is largely imported from countries overseas. The moneys gained from this disgusting trade must, moreover, move across borders, and therefore they must be laundered so that these horrible people can pay others overseas to have these drugs sent to them.

In August 2005 the IMF put together a report based upon observing the standards and codes in place in New Zealand. This, of course, was the Financial Action Task Force report, which others have spoken about to some degree. I notice when it came to the general situation of money-laundering and financing of terrorism, particularly in New Zealand, it said that “The main sources of illegal proceeds are considered to be the cultivation, manufacturing or dealing in illicit drugs, traditionally cannabis, but more recently methamphetamines. Fraud offences have also produced significant proceeds.” Well, there is money-laundering in New Zealand. I am not sure of the size and scale of it, but any that comes from the illegal drug trade is too much, and we must do much more about this.

This legislation is a powerful tool to combat drug trafficking, and drug money that is laundered. I think it will add an extra tool to the box that our law enforcement and customs agents can use as they trace and confiscate the proceeds of drug trafficking. Many other countries of the world and blocs of countries have implemented similar legislation to counter terrorism and money-laundering. The European Union, countries of the Council of Europe, the Caribbean, Asia, other parts of Europe, and South Africa have all created regional task forces or similar organisations to combat money-laundering. Pacific Island countries have also worked closely together on this important issue, and the US administration has had laws in this area for many years.

My colleague John Hayes, who has great experience of the Pacific region, has raised the issue of a number of small countries. A number of Pacific countries—Cook Islands, Niue, Vanuatu, and a few others in particular—were criticised by the IMF and others as far back as the year 2000. Largely the issue was, I think, a lack of accountability and not having the proper procedures to control some of the bodies—the companies or banks—that they allowed to be established for use overseas. For example, I will look at the issue of Niue. With the help of the New Zealand Government, and support from the IMF, Niue put in place a number of changes to its domestic laws to outlaw offshore banks and to change their companies’ regimes. At the time one could not—and still to this day one cannot—establish a company in Niue. In fact, if one wants to trade in Niue and one wants a company, one must establish a company under New Zealand law. But Niue did allow overseas companies—offshore companies and banks—to be in place. When I was the Niue Ambassador to the European Union some years ago the Belgian police called me —

Hon Member: What? Niuean ambassador?

TODD McCLAYI was the Niue ambassador as well as the Cook Islands ambassador, but that is not the best part of the story; that bit is coming now. The Belgian police called me and said that somebody had contacted them purporting to be a Niue diplomat. It was not me. When we looked a bit closer we saw that, in fact, the person seemed to be involved with offshore companies and the money-laundering trade. Through some swift work on the part of the Niue officials and with help from the New Zealand Government and, of course, Niue’s ever-diligent proper ambassador based in Brussels, this man was arrested and is now, one hopes, in jail. In the case of Niue, it was not that the country had any particular intent to flout laws; it was just that as a small country it was difficult for it to control the overseas companies that it had put in place.

I want to draw to a close because I believe the sooner we get this report to the Foreign Affairs, Defence and Trade Committee the better it will be for all of us, and the sooner those who see New Zealand as a place where they may be able to launder their illegally gained funds will realise that we are taking this issue seriously. I want to touch just for one moment on another part of the report from the IMF that I raised earlier. In 1989 the then G7 countries came together to create the Financial Action Task Force. This was in response to the threat that they perceived to countries of the world. In that report the task force evaluated New Zealand, and said that there was more work to be done. Generally our laws in place were reasonable, but, in particular, to make sure that we were meeting international standards, we needed to put in place additional measures. This legislation will do that. I support it, and I cannot wait until it gets to the select committee. Thank you.

TE URUROA FLAVELL (Māori Party—Waiariki) : Kia ora, Mr Assistant Speaker Roy. Kia ora tātou katoa i tēnei pō. I have to say that when our caucus looked at this bill on the Order Paper today, the two phrases that stuck out were “Anti-Money Laundering” and “Terrorism”. We were trying to work out what the hang the link was between the two. Be that as it may, we suggest that the Anti-Money Laundering and Countering Financing of Terrorism Bill is a pretty formidable title, and it is obviously for a fairly formidable area of work. A key strength of this bill is to put in place a process by which we are implementing recommendations from some fairly hefty global documents. Support for this bill will enable Aotearoa to be compliant with three documents, as I understand it: the United Nations Convention Against Transnational Organized Crime; the International Convention for the Suppression of the Financing of Terrorism, to which New Zealand is a State party; and also to progress compliance with the United Nations Convention Against Corruption, signed in December 2003. It also sets in train a process to adopt and implement the Financial Action Task Force recommendations, which are widely regarded as the international standard.

So if the three conventions I mentioned are not significant enough, this task force to all intents and purposes is a body that no one would want to mess with. I understand that it has fairly wide membership: some 32 jurisdictions are involved, including the European Commission and the Gulf Cooperation Council. We—Aotearoa—have been a member of the task force since 1991, and our performance will be on the line in October 2009, just 3 months from now. In fact, it is more than a matter of manners and simple courtesies between countries; the compliance has a slightly more serious shade to it.

The Reserve Bank, in its briefing paper, identified that countries that are non-compliant or partially compliant will be considered by a regional subgroup for inclusion on the Financial Action Task Force International Cooperation Review Group, which can formally blacklist non-compliant countries. The same briefing paper revealed that New Zealand is yet to be assessed, and our level of compliance is significantly below that of other nations with which we typically compare ourselves: Australia, the United States, and Canada, all of which have made substantial progress in implementing the recommendations. So the question of reputation is at stake. If our response to the Standard and Poor’s credit rating is anything to go by, reputation is, indeed, everything.

The stage is set to take this bill seriously, by virtue of the fact that we take our international responsibilities seriously as well. If only that were the case in all aspects! The Government’s inaction and, in fact, wilful disregard of the Declaration of The Rights of Indigenous Peoples has often been commented on in this House, in indigenous forums, and in international human rights hui right across the globe. The Māori Party, as one would expect, places considerable priority on enhancing our international reputation through showing respect to indigenous peoples, to tangata whenua, and to human rights, and in the commitment to the global call for action to end poverty. We will continue to speak out, as one would expect, about the need to be compliant and to respect our international obligations.

However, we make the point that there needs to be a more robust process so that the Government signs up to such arrangements—indeed, like a Treaty-based process. An important variable in any discussion about domestic and international agreements from the Māori Party perspective is the priority of Crown consistency with the Treaty of Waitangi. This is not just a Māori Party commitment; the relationship in the confidence and supply agreement between the National Government and the Māori Party states up front that both parties will act in accordance with Te Tiriti o Waitangi, yet this bill is another example of New Zealand’s gaining membership in a forum without Treaty partner dialogue.

The cost of achieving compliance with Treaty justice is a cost that appears to be left out of the costings included in the preparation of this bill, yet we have every detail, and more, about other costs involved in the implementation of this bill, and Mr Huo spoke about that earlier. An independent cost estimation undertaken for the Ministry of Justice in 2008 assessed that the start-up costs for financial institutions and casinos were $97 million over a 2-year information period, with ongoing costs of $21 million per year after that. The question of how these costs will be met is expected to be within the banking sector, which will bear 84 percent of the start-up costs and 74 percent of the ongoing costs.

But other costs to the Crown require further attention. There are questions around monitoring and supervising reporting entities, the assessment of money-laundering risks at national and sector levels, the analysis of an increased volume and variety of suspicious-transaction reports, and ensuring adequate coordination of regulatory functions across multiple supervisors.

As I said earlier, this bill and the framework proposed are formidable in their scope. This is where it gets relatively tricky, because the costs that banks will pick up will come not just out of the corporate office in Wellington or, more to the point, Sydney. Adopting the recommendations in this framework will increase business costs to consumers, which will be passed on to all ordinary bank customers—all this, when banks have already been shown to be overcharging their customers.

Rahui Katene, the Māori Party member on the Finance and Expenditure Committee, shared with me some of the extremely critical comments made about the banking sector in its June 2009 report. In the report on the financial stability of the Reserve Bank of New Zealand, the select committee noted its surprise that despite the severe impact of the current recession on business and household liquidity, bank profits declined only marginally in the past year. The comment concluded: “Some of us consider it vital that banks neither insulate their profit margins nor charge excessively high interest rates at the expense of the real economy and the taxpayers, because of the potential adverse consequences for business and households.”

These sorts of things are very timely reminders to focus on, as we think about the downstream effects of compliance with the Financial Action Task Force’s recommendations on anti - money-laundering and compliance financing of terrorism. We clearly have many questions about the bill, its impact on Aotearoa, and the status or need for complying with the international framework in the first instance. We do, however, extend the benefit of the doubt to enable a full and frank response to the issues apparent in this bill, and it is for that reason that the Māori Party will support this bill to its first reading. Kia ora tātou.

Hon TREVOR MALLARD (Labour—Hutt South) : It is good to beat the member Nikki Kaye to the call, and I hope that later in the year the experience can be repeated in a bike race, although I am not quite as confident about that as I was about the call.

I want to have a discussion about money-laundering, about the widespread practice that has been well canvassed here whereby money changes from dirty money into clean money through laundering. That is the usual understanding of the term, but occasionally clean money turns into what we might describe as disguised or dirty money. A number of members opposite have some experience of this. I think the Waitemata Trust was probably the most widely used money-laundering vehicle within the New Zealand political system. Over $1.2 million in 2005 was laundered through that trust, in a very similar way to international money-laundering. The trust was seen as a way of moving cash without identifying the original owners or the intermediate owners.

Clare Curran: Secret money.

Hon TREVOR MALLARD: Well, it is not a secret and it is not surprising. I think Buddle Findlay did one such transaction for Labour before the practice stopped; from our perspective, transparency and sunlight were very, very important in this particular area. I see that, as we move forward, National seems to be accepting the fact that that sort of money-laundering is inappropriate. It is unlikely to continue in the future, and I think that is a good thing.

Early in my time as Associate Minister of Finance Labour members looked at this area pretty extensively, and it is fair to say that we came to some different conclusions from those that we have come to now.

Hon Simon Power: A lot has changed!

Hon TREVOR MALLARD: A lot has changed. The world has changed substantially over that period. The whole electronic banking system has developed in a way that is enormously different from where it was at that time. At that time, people who looked at us internationally said that we had a problem in theory but not in practice, and to a certain extent that was right; we did not quite fit with the international models. We had a prudential system around our Reserve Bank, and the supervision of our banking system was a lot better, and that would not have been acceptable in the United States and in the United Kingdom at the time. Clearly, times have changed. There is a lot of transparency of the United Kingdom’s banking system as far as the British Government is concerned; it owns just about all of it as a result of the changes that have occurred there over the last 12 months or so. Therefore, I presume that it would not have any problems around transparency.

As a member has said, there has been a movement, a growth in sophistication, both amongst terrorist groups—and that has become very clear—but also amongst drug dealers. Those of us who have slightly more time now were able to watch a television series recently on Terry Sinclair—the Mr Asia series. It was an Australian series that apparently had some relationship with the truth and—

Clare Curran: Underbelly.

Hon TREVOR MALLARD: The name was Underbelly; I am never good on the titles, or names, or things like that. But it showed that 20 years ago there was not the sophistication in the money-laundering system at that particular time. In fact, there was a lack of sophistication in quite of few of the approaches taken by Mr Sinclair and a number of other people in that period! But since that time organisations that were there 20 years ago have become much more active and sophisticated—in particular, drug gangs. My view is that the ability to follow the money as far as the drug gangs are concerned is very, very important. We know from the assets that, through even casual observation within our electorates, we see accumulating that they cannot have been developed through honest means by the individuals who now own those assets. It is important that we have the ability and as much strength as possible in the regulatory system to dive down under a lot of the fronts that exist and thereby push back against drug dealers in particular, but, clearly, there is the question of terrorists as well.

Without revealing too much of the previous Cabinet’s secrets, I can say that some really interesting debates occurred around proscribed organisations, around who should be on the list of international organisations to be regarded as terrorist organisations, and who should not. There were some very strong views about organisations that some of us had had dealings with over many, many years. Certainly, the fronts were very peaceful and the individuals who were involved in them were seen by a lot of people to be making a big contribution to New Zealand. But there were some international suggestions that money being raised for those groups and those communities was finding its way to terrorists of a wide variety of hues—without getting on to the sides of particular debates and battles that are happening in nations around the world. That goes to the question of whether New Zealanders have knowledge of where their money will go when they make donations to seemingly innocent and good organisations, because sometimes behind them—sometimes quite a long way behind them and quite well-hidden—are organisations that, when we know what they get up to, are in fact organisations we should have nothing to do with, and certainly should not be financing.

This is a good bill. It is an indication that times have changed. There is an acceptance of that, I think, around the House now. There are some things that I would have, probably 7 or even 5 years ago, regarded as an infringement of individual rights or as a breach of civil liberties, but on balance I have changed my view. I think that the majority—

Hon Clayton Cosgrove: True!

Hon TREVOR MALLARD: I have not changed my view about Mr Cosgrove.

Hon Clayton Cosgrove: Nor I about you, Mr Mallard.

Hon TREVOR MALLARD: Well, I think there is a mutuality there. Our view is that the world has changed, we have to stay up with modern methods, and that involves some sacrifices as far as our civil liberties are concerned, and I think it will be a very good debate to have within the select committee. I do not want to signal automatic support for the bill when it comes back, until we have had that debate and heard what the views on it are. Thank you.

• Bill read a first time.

Hon SIMON POWER (Minister of Justice) : I move, That the Foreign Affairs, Defence and Trade Committee consider the Anti-Money Laundering and Countering Financing of Terrorism Bill, that the committee report finally to the House on or before 15 September 2009, and that the committee have authority to meet at any time while the House is sitting (except during oral questions), and during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 187 and 190(1)(b) and (c).

• Motion agreed to.