Anti-Money Laundering and Countering Financing of Terrorism Bill

Part 3 deals with enforcement and contains provisions relating to civil liability acts, offences, search and seizure, penalties, and immunity of certain persons from criminal proceedings. In the first instance the bill obliges supervisors to engage in education, awareness raising, and guidance at the higher end. Supervisors may issue formal warnings and accept enforceable undertakings or initiate civil or criminal proceedings. The bill recognises that in extreme cases it may be necessary to take court actions against businesses that do not comply with their obligations. There are two levels of pecuniary penalty for civil liability. The bill contains criminal offences that range from smaller fines of $10,000, to $50,000. The penalties are, I believe, fair, and consistent with other business-focused legislation in New Zealand.

Part 3 also contains the search and seizure powers for the bill, which clearly set out the expectations for the way supervisors and police officers should interact with the reporting entities they are investigating and the processes for seizing documents and items as evidence.

I would now like to address the two significant changes that the committee recommended to Part 3. The first was to give immunity from liabilities to supervisors and reporting entities when they act in line with their duties and obligations under the bill. For example, if a reporting entity terminates a business relationship, then that reporting entity should not be open to a civil action from its customer. Clause 72A provides protection and certainty to supervisors and their employees. When they are discharging their duties in good faith, they cannot be subject to civil or criminal action. Significantly, the committee also removed—and the Government welcomes the committee’s recommendation—the explicit liability of senior managers of reporting entities in order to ease the concerns of industry that their managers would be held accountable for matters outside their control.

I am going to make some brief remarks, I believe.

💬 Hon Trevor Mallard: Not too brief. About four calls.

OK! No, I think I will make them reasonably brief. We will see what notes come my way.

The short of Part 3 of the Anti-Money Laundering and Countering Financing of Terrorism Bill is that the enforcement regime is against not the people who do the money-laundering, but the people who try to catch the money-launderers. In case there is any doubt about it, that may lay the matter to rest. That is why it is important that a person who is acting in good faith—as a banker, a bank manager, a bank teller, or whatever—is entitled to some freedom from civil action from a disgruntled customer who was perhaps wrongly suspected of being a suspicious transaction - type person. That is, they are suspected of being a money-launderer or a prospective money-launderer. It is also the reason why individuals are removed from criminal proceedings under this legislation, though the corporate is not. The corporate can be fined a very large amount of money; $5 million comes to mind as the likely figure.

There were no huge changes to the legislation. Most of the changes came as the result of submissions to the Foreign Affairs, Defence and Trade Committee. Some of the changes came especially around the interface between customs and money-laundering.

💬 Jacqui Dean: Due diligence.

OK, the member can tell us about the due diligence aspects of it. She is quite right. The bit about customs is quite interesting because it gets into who has what access to software that might be brought across the border. Some changes were made. Some of them emanated from officials, some emanated from submitters, and they were equally dealt with by the select committee.

I do not think it is a particularly contentious part. My colleague the Hon Trevor Mallard may think that there is contention in it.

💬 Hon Trevor Mallard: I think about 20 minutes’ worth.

I was not aware of that much contention, but I admire my colleague’s almost instant and deep understanding of legislation that is put in front of him. I believe that he has the sort of hawk eye one would expect of a person trained in accountancy; he can spot a rort from 100 miles—indeed, 160 kilometres, as we say these days. I think that if my colleague can find errors in this part of the legislation, then it is really important that we examine them in order to address them before we move to the next phase of the legislation.

I rise to speak on Part 3 of the Anti-Money Laundering and Countering Financing of Terrorism Bill. Part 3 deals in particular with enforcement. I want to focus on two provisions concerning civil penalties.

Clause 72A is about the protection of supervisors of anti - money-laundering and countering financing of terrorism and the obligations of those supervisors. I believe that this is particularly important, because it means that no civil or criminal proceedings may be brought against supervisors when they are conducting their duties. This means that when there is an issue before a supervisor—the supervisor is investigating something—those whom the supervisor is investigating cannot spuriously put obstacles in the way to stop the supervisor’s work. It means that the supervisor can go about his or her duties without fear of interference from civil prosecution. However, the bill also states that where the supervisor has acted in bad faith, then he or she can face censure or penalty.

I also want to talk about Subpart 2. In particular, it is directly relevant to civil liabilities. Clause 76 states that where the anti - money-laundering and countering financing of terrorism requirements are not met by a reporting body, then it could be liable for prosecution. This means that when it fails its due diligence, when it has not done enough work, it can be prosecuted. In particular, when we look at this provision, we see that it suggests that a reporting body’s due diligence must be done in such a way that it can be assured of the nature of the person whom it is conducting business with.

Subpart 1 deals with the issue of what reasonable due diligence is, and I think that this is also important to look at. It means that reasonable due diligence would not be intrusive or unnecessary, and could be risk-based. We know that a number of New Zealand banks and Australian banks have adopted a risk-based approach to their consideration of this.

To summarise, I want to draw attention to what this really means. If someone has had a relationship with a bank for quite some time and that relationship has not changed, then the changes to the bill mean that a bank would not have to do additional due diligence on that person, and I think that that is reasonable. But in the case where the relationship does change, then it would be upon the bank, as a reporting body, to do additional due diligence. Let us say that someone has had a bank account for quite some time and has small amounts of money going through that account, such as a few hundred dollars a week. And let us say that all of a sudden we find that person might have a patch on his or her back, have a new motorcycle, and have thousands and thousands of dollars going through the account. One could assume that that person was involved in P and selling P, and may be a gang member.

In such a case the bank would not merely be able to say that it has known the person for a long time, that the person has had an account with the bank, and that, therefore, the bank does not need to do any more due diligence. Should the bank not conduct further inquiries and report, it could be liable for prosecution. I support this part of the bill, along with the rest of the bill, and cannot wait for it to enter into law. Thank you.

Although colleagues have described Part 2 as being the substantive part of the bill, and I accept that there is quite a lot of meat in that part, within Part 3 there are also some pretty interesting questions that have to be discussed. In clause 85 the question of restraining injunctions is addressed. That goes to an ability to get a restraining injunction against the shifting of cash in a way that people believe is contrary to this legislation. I point out that this is money that could be going out of New Zealand, but the other situation could be if it was coming into New Zealand; and if it was money that had previously been laundered and taken out of the country, there is an ability to get a restraining order to stop people bringing it back in. Part of my question to my colleagues is why the hell anyone would want to do that. We have money that has been offshore and been washed, and now it is coming back in again. You know, the $100,000 that Melissa Lee had—if she had that money, sent it offshore, had it laundered and all cleaned up so it is dressed, sparkling, and ready to go, I am sure we would want the ability to let it come back into the country and grab it when it was back here again, rather than getting an injunction to stop money coming in.

💬 Hon Pete Hodgson: It might help the current account deficit.

I’m not sure that bringing in laundered cash helps the current account deficit. I am not absolutely certain about that. It would probably depend on her liabilities offshore.

The CHAIRPERSON (Eric Roy): Again I say that I am listening very carefully, and I detect the member accusing another member of money-laundering.

Oh, no.

The CHAIRPERSON (Eric Roy): Well, that is my detection, so I ask the member to choose his words a lot more carefully than that. All members are honourable members.

Of course. I apologise if there was any indication that I was doing that at all. All I was trying to say was that there is $100,000 cash floating around here somewhere. It may or may not have been shifted offshore, and may or may not have breached the legislation as it went. I make it clear that in the case of Melissa Lee there is no doubt at all that there is $100,000 extra cash, because she has said that there is. She has accepted that there is that extra cash, and all we are speculating about is what she has done with that cash in the interim. Where has that money been? I ask whether it has been offshore, and why anyone would want to have a restraining injunction to stop it coming back in if there is the opportunity for the Crown to grab the money that belongs to NZ On Air as it hits the country. Why would there be a restraining injunction to stop that?

The next clause I would like to get to is clause 88, and in particular the heading of the group of clauses—and in fact this group is only one clause long. I do not want to criticise parliamentary counsel too much, but it is not the normal practice to have a heading over a sole clause. We will take that as it is. This clause is about pecuniary penalties, and the definition of pecuniary is something that at the moment is very live within New Zealand. Some of us thought it was a pretty simple thing. I thought it was like cash, in that if one had a pecuniary interest it was pretty clear. What has become clear to a number of us now is the fineness of this definition, both with regard to the general law and to this bill in particular, which is something more detailed than we might otherwise have thought. I want to know where someone who is paying a pecuniary penalty can get the money from. Can that person get it from a trust of which he or she is a discretionary beneficiary? Does that meet the definition of pecuniary penalty? If a pecuniary penalty is applied, can someone get that money from a trust in which he or she has an interest as a discretionary beneficiary?

I would be interested in hearing the interpretation of the former professor of law, the Hon Dr Wayne Mapp, who is currently sitting in the chair, on that. I know that he is more learned in matters of the law than the Minister who has been in the chair until now, the Hon Simon Power. If he wants to share with us his views on pecuniary interest, I think that would be good for the Committee, but possibly career-limiting as far as the Minister is concerned.

I move now to the provisions on failing to report a suspicious transaction. My old schoolmate Catherine Delahunty is in the Chamber, and I want to spread the joy and the love around, and ask why she did not report a suspicious transaction when she became aware of it. I ask why she took a few weeks to do that, in a similar way to Melissa Lee failing to report for 4 whole months not only one suspicious transaction but years’ worth of suspicious transactions. In fact, under clause 90(b)(i) a transaction has to be “relevant to the investigation”. It does not even have to be relevant to a prosecution. It just has to be relevant to an investigation. So that means it is relevant if there is any possibility at all of the money being shifted offshore—and I assure Catherine Delahunty that I do not think her colleagues are going overseas with her superannuation, so I do not think there is much danger of her one going offshore.

I ask how much is involved in this. How much would Bill English have to put in his pockets, when he is doing a ministerial trip, to trigger this particular legislation? On the face of it, we cannot tell. My understanding is that in that case it would be a matter for the regulations that follow. On the face of the bill, it is possible that if there is a suspicious transaction while there is an investigation going on, and someone makes an overseas trip and has cash in his or her pocket, then this legislation could be triggered, depending on the level that is set by way of regulation. I understand that sometimes in the past, $10,000 in cash has been the amount that one has had to declare at customs as one goes through. I ask whether it counts in this particular case if someone loads up his or her credit card. If, say, someone takes the Endeavour Trust credit card offshore as a discretionary beneficiary, because that is apparently allowed with the permission of the trustee, my question is whether that triggers this legislation.

I also ask whether, if someone else who is on the trip fails to report, that person is in breach of this legislation, or whether that would be the case only if he or she were an employee of the Department of Internal Affairs. If someone were a seconded Treasury official, would he or she be caught? I am interested in hearing from any of my colleagues who could answer that question, and the question of whether, if someone were seconded and his or her salary for the time spent was being paid through the Department of Internal Affairs, that person would become one of the people required to report that sort of transaction.

It is not a simple matter. There was a case of someone who was a current Minister who went shopping in New York using a Department of Internal Affairs credit card. To be fair to her, after a period of time she repaid the money.

💬 Chris Hipkins: It’s the National Party pattern.

Well, there is a bit of a pattern emerging here. I ask whether that counts as money-laundering. If someone uses a credit card for a purpose for which he or she is not entitled, such as shopping in New York at Saks Fifth Avenue and a number of other places, spending a total of about $5,000 on the company credit card for personal shopping, and that someone is a current National Minister—

The CHAIRPERSON (Eric Roy): I just ask the member to reflect a little bit on Standing Order 116, “Personal reflections”, which mentions personal reflections, imputations, and so on. The member is on the border, and is crossing it now and again. I would be happier if he would desist from using names in that regard.

I have just now.

The CHAIRPERSON (Eric Roy): Yes; you saw me looking at you. OK.

I was not naming the woman concerned, who was a Minister in the previous National Government and this one, but I think people will end up doing that by a process of elimination.

The CHAIRPERSON (Eric Roy): What about the bill?

I will get back to the question. The next clause is clause 92, “Unlawful disclosure of suspicious transaction report”. I want to know whether the whistleblower legislation applies here, and, if so, which legislation takes priority. If someone is a whistleblower “for the purpose of obtaining, directly or indirectly, an advantage”—I am not going to suggest that he or she gets a pecuniary gain—because a whistleblower is often seen as someone who is of high standing in the community and a very ethical person, then is whistle-blowing seen as an advantage under this legislation? What overrules that?

Clause 93, “Failure to keep or retain adequate records relating to suspicious transaction”, is relatively simple, I think. There are lots of cases that we could consider, at the moment, of people who have failed to keep or retain adequate records relating to a suspicious transaction. If we consider one of those, we see that in the end, New Zealand On Air did an audit, and it went through someone’s books with a fine-tooth comb. I will repeat the comments I made when I was the Minister in charge of New Zealand On Air when it was ripped off by Asia Downunder when it and its parent company gave inflated invoices to New Zealand On Air. It is something I find particularly embarrassing. Some very senior people chaired the board, and it had some very experienced chief executives. But they had the wool pulled over their eyes by Asia Downunder, and a six-figure sum, I understand—

💬 Hon Pete Hodgson: Just over $100,000.

—just over $100,000 was ripped off from that organisation. That was a suspicious transaction. I want to know whether there was a failure to keep records.

Clause 94 is about obstruction of an investigation. That raises a very serious question. I see that the Minister of Broadcasting is not in a position to answer at the moment, but I want to know whether there is a conflict of interest between running a campaign and being the main organiser for an individual, and being the person to whom the organisation doing the investigation is reporting, especially if that money has gone offshore and is caught by this legislation. Again, I do not want to be too critical of Melissa Lee. To be absolutely fair to her, she has indicated, albeit 4 months after the identification of the shortfall on her part—that is putting it particularly nicely; other people would have called it a misappropriation—she has decided to repay the money that has ended up with her and that should not have, 4 months after being informed of it.

I say to Bill English that that is a very good example for him. If he wants to avoid being caught by this legislation as he takes the Endeavour Trust credit card offshore—and depending, again, on the monetary level at which the legislation applies—then he should look at the previous decade and pay all the money back. It will not make an enormous difference to the Government deficit, but it would help its credibility. I say that a lot of us, as we go overseas, rely on New Zealand’s reputation. The reason we do not end up on black lists under money-laundering and financing of terrorism legislation is that in New Zealand we have a very good reputation for ethics in Government. If we lose that good reputation under this legislation and in a number of other areas, New Zealand Ministers will not be as welcome as they are.

The Hon Trevor Mallard has raised a number of interesting questions, and some of them are deserving of an answer. I do not have the accounting skills of the Hon Trevor Mallard, and I do not pretend to have them. But I have had the benefit of listening to a range of advice that came forward to the Foreign Affairs, Defence and Trade Committee, and I have been part of some of its discussions on the Anti-Money Laundering and Countering Financing of Terrorism Bill.

I say to the honourable member that I think he has probably got some of the Melissa Lee case wrong. That is to say, the suspicious transaction he referred to in relation to the legislation, in my reading of it, is one that does not get caught by the money-laundering definition. The reason I say that is that in that particular instance, as far as I understand it, money was shifted, certainly. It is a money-laundering activity to shift money from one thing to another. But in this case it was shifted from the contingency line of a company’s accounts through to the profit line, and then not shifted back again. The reason I think it is not money-laundering is that it never left the company.

💬 Hon Trevor Mallard: How do you know?

Well, I do not know that. It is true that I do not know. But what I do know is that it shifted within the company.

💬 Hon Trevor Mallard: This is a very poor defence. It’s a shocking defence.

I am sorry if it is not a very good defence. Let me just try to continue.

It has been described as a simple accounting error, and I think that probably under-represents it a little. I do not think it is a suspicious transaction according to the legislation that is in front of us, but I do think it is a great deal more than an accounting error. The reason I say that is that if it was an accounting error, it raises the question of how that accounting error occurred each year—the same error—for 5 years. It was, apparently, repetitive. Now, that is a feature of money-laundering. That is to say, money-laundering usually does not occur in one big lump sum. The suspicious transaction that the member referred to in relation to the legislation is usually one of a series of suspicious transactions, the idea being to shift small amounts of money on a regular basis, and indeed, shift some of them back to cause a bit of confusion.

The CHAIRPERSON (Eric Roy): Can the member just tell me what clause of the bill he is discussing?

The clause on suspicious transactions—

💬 Hon Trevor Mallard: I think the—

The CHAIRPERSON (Eric Roy): I have asked the member.

💬 Hon Trevor Mallard: Clause 90.

Clause 90—OK. Clause 90 is about failing to report a suspicious transaction. So the suspicious-transaction feature of the legislation can be found right through it. There was a failure to report 5 years ago, 4 years ago, 3 years ago, 2 years ago, 1 year ago, and 4 months ago. So even when it was drawn to the attention of the transactor, there was a failure to report that suspicious transaction, as clause 90 refers to.

I know the member thinks that my defence of Melissa Lee is poor, but I hold the view that it is probably not money-laundering, although it does have a lot of the characteristics of money-laundering because small amounts of money were moved on a regular basis. I suspect it is not money-laundering because it is yet to leave the company, but the Hon Trevor Mallard may be correct when he says it has already left the company. I simply do not know. So I say to the member that I think to accuse Melissa Lee of money-laundering as defined in this legislation may be an error. But to suggest that it is a suspicious transaction is something that I strongly agree with him on, and to suggest that there was a failure to report it, as mentioned in clause 90, is absolutely the case. And not only that; there was a failure to report it, as far as I can see, on five separate occasions. So maybe there is a point of agreement between the Hon Trevor Mallard and me, but there also remains the point of disagreement. I think it might be worth exploring that point further.

Well, this situation is rather unusual and it actually takes me back to the days when I was first a member of Parliament and the Committee stage used to be a lot less formal, a lot more back and forth. There was a lot more debate with colleagues, and there were often amendments from the floor. I think those were more civilised and probably less partisan days, and I think we are seeing a little bit of that now. I do want to disagree with my colleague who sees the bright side of life on every occasion. I think that on this occasion he has been far too generous.

My colleague has gone through the Melissa Lee case, and he has shown the repeated appropriation of money—into profit, into loss, and into profit—that should have been returned to the Crown. There have been a number of instances here, so we have established that we have money that has been misappropriated—it has been appropriated wrongly; it has gone into the profit.

The question then is what happened to that money after that, and I think that is where the member and I might start to differ. What I know is that if it has been paid to Melissa Lee as part of dividends and she has spent it offshore, then, depending on the reporting levels of this, it is misappropriated money—money that has been obtained in a way that it should not have been and has then been taken offshore. My view is that unless the levels of reporting of this are so low, then the legislation has been triggered. If it is not the case, then the member has something to answer for, because he, along with a number of other members of the select committee, did the work to ensure that this legislation does in fact catch people.

I might go back to clause 104 later, because it deals with thresholds and with failing to report “cash over applicable threshold value moved into or out of New Zealand”. But going back to the time limit for prosecution, in clause 102, I compliment the select committee because it—

💬 Hon Pete Hodgson: 3 years, isn’t it?

The committee decided on 3 years—3 years after the time when the matter of the information arose—and that is a more standard approach, rather than the 6 months originally. But is that long enough?

💬 Hon Pete Hodgson: It should be 5 years.

It is a question of whether it should be 5 years. In the case of Melissa Lee, if the money that has been wrongly appropriated has, in fact, gone offshore, it would be 5 years—and it is accepted by Melissa Lee that it has been wrongly appropriated. Melissa Lee has accepted that she has wrongly appropriated money. She calls it an error. Some people say that when one is the managing director and the chief executive of a company, one takes responsibility for the errors. When one is drawing money down, as a result of having that extra money to draw, then it is particularly suspicious. But I am assured by my colleague that this goes back 4 or 5 years.

I want to say that it is good to share some of the grief with my former colleague Steve Maharey who was the Minister of Broadcasting for part of that time and was also responsible for it. What is the current Minister’s name—the cigar-smoking one?

💬 Hon Pete Hodgson: Jonathan Coleman.

I also share some of the grief with Jonathan Coleman, who is the current Minister of Broadcasting and the person responsible.

I want to know whether clause 108 applies in this case. Clause 108 relates to persons who provide false or misleading information in connection with a cash report. If people have some money that they have gained through misappropriation in their pocket or handbag as they leave the country, and they do not declare their sources in the way they are meant to, is that caught by this provision? That is a very real question. Are they caught by this provision if they put the money on a credit card? What about if they put it in a TAB account? Actually, no—a TAB account would not work offshore. But those are the sorts of ways that people launder money around the country, and if people take that sort of approach, are they caught by that provision? My final comments go, and this is—

💬 Hon Pete Hodgson: It’s certainly not my final comment.

No, it is my fourth call on this particular set of clauses.

My final comments go to new clause 112A, which deals with the duty of persons with knowledge of computers. I ask whether the legislation goes too far or not far enough. It depends on which approach one takes.

It is a matter of fact that the Foreign Affairs, Defence and Trade Committee worked across party lines, and it is a matter of fact that members of the committee from time to time would argue freely with one another, even arguing with members of their own side. It is a matter of fact that from time to time the National members went to sleep for long periods of time during the select committee, and that is simply being replicated in the Chamber this afternoon, as my colleague with his skills and I with whatever skills I have seek to tease out some of the finer points of this legislation.

I think the member who has just resumed his seat has made some interesting points about the 3-year limit on prosecutions. It is an improvement on the bill as introduced, but the member points out that money-laundering can reach back deep into history. We, I think, have probably come to the view that although that might mean that some people may get off some earlier misdemeanours, none the less there is a degree of uniformity in the way that we approach a sort of limitation on prosecution, and that that uniformity mattered.

I do not have anything to offer on whether we have gone too far or not far enough on the issues around computers and access to computers. I am afraid the member did not have time to develop his argument there and I therefore do not have an ability to refute it, but I do want to take the member back to clause 90. I say to the member gently, and I suppose I am partly to blame here, that failure to report suspicious transactions does not refer to the money-launderer but to the person who is supervising the money-launderer.

💬 Hon Trevor Mallard: That’s right—John Key!

That is the point. That failure to report a suspicious transaction is something that might, say, if we were to use the analogy of the Melissa Lee case, take us to New Zealand On Air, to the Minister of Broadcasting, and to the Prime Minister, because all three of those bodies failed to report. The first of those—New Zealand On Air—reported the suspicious transaction to the person who had undertaken it, for God’s sake! It was not reported to anyone of authority but to the person who was suspected of the transgression. That same person has now indicated that she will pay the money back. That is the person to whom New Zealand On Air reported. The Minister of Broadcasting tells us that at the time he did not know. Well, we might explore that as the weeks go by, but he did say that he knew, some time in August. And here we are in October. He did not report.

Then we had the Prime Minister on the TV3 programme Breakfast this morning saying that his office knew but that he did not. So somehow his office staff failed to report this suspicious transaction, and the only organisation that reported the suspicious transaction, according to the obligations in clause 90, was TV3. Now what have we come to in this country where a quango, a Minister, the Prime Minister’s staff, the Prime Minister, and, indeed, the person who is responsible for the suspicious transactions did not report to anybody, but TV3 did? That is why probably legislation like this matters, and certainly why clause 90 matters, because failing to report a suspicious transaction commits an offence.

The rest of Part 3 tells what those offences might lead to—what sort of pecuniary penalty, what sort of fine. Indeed, in some cases the fines become very significant indeed. So I think we do have a nice little case in point here where there has been a serial failure to report a suspicious transaction by Government agencies, by a Government Minister, and by the Prime Minister of the land. If that does not tell us that there is a case for having legislation with clause 90 and the subsequent features of that legislation, then it is hard to know what other argument one could adduce for such a necessity as we have in clause 90.

Part 3 agreed to.

Part 4 Institutional arrangements and miscellaneous provisions

The CHAIRPERSON (Eric Roy): The debate on Part 4 includes debate on schedules 1 and 2.