At the Appeal Court last month a judgment was handed down confirming the conviction on money laundering offences of two individuals and their money remittance business.
The three – Jiaxin Finance, Fuqin Che and Qiang Fu – were fined a collective $2.9 million after failing to report suspicious transactions in paying millions of dollars into New Zealand bank accounts for Xiaohua (Edward) Gong, a Chinese businessman living in Canada.
The money was identified by authorities as stemming from a fraudulent pyramid scheme.
In June last year, New Zealand Police reached a record settlement in civil proceedings with Gong in which he agreed to forfeit assets totalling more than $70m, including cash and property.
The settlement is one facet of an anti-money laundering regime initially covering banks, casinos and financial services and since expanded to embrace lawyers, real estate agents and sports betting agencies.
NBR sat down with Detective Inspector Craig Hamilton, manager of asset recovery and money laundering for the Police Financial Crime Group, to talk about how the law affects police work.
Hamilton: “The Financial Crime Group has three discrete groups. There’s the financial intelligence unit – that has 30-odd staff. Then there’s about an additional 130 that sit across the money laundering teams, which are probably 25 and the balance are in asset recovery staff. All up we’re a group of about 160 covering those discrete functions.
“The money laundering investigative staff and the asset recovery guys fall under my command.
“The money laundering side we’re really targeting higher end money laundering enterprise – large scale commercial crime that has a large profit margin.
“In some of our more recent investigations we’ve spent a lot of focus on the remittance sector – running the remittance enterprise to move money offshore.
“We really want to look at facilitators – people who are helping criminals move money.”
NBR: Are drugs the main focus of the unit’s work?
Hamilton: “New Zealand has a big border and big appetite for methamphetamine. A lot of work goes on in terms of hardening the border for drugs coming into our country [while] the money laundering team has a fairly large focus on preventing money going out of the country. If you stop payment for illicit commodities, whether guns or drugs, we won’t receive importations of those sorts of commodities.
“In terms of the asset recovery teams, they are all over the country. Our most southern member is in Dunedin and northernmost team is in Whangarei. They’re really focusing on recovery of profit and proceeds from crime. The principle there is around trying to discourage and disrupt criminal enterprise.
“But equally important is if you remove the working capital then enterprise must die. In a business sense if a business hasn’t got working capital, that prevents its expansion and its day-to-day operations and ultimately removes it from the marketplace. That’s where the proceeds of crime concept sits.
“In the domestic setting we have that real focus on drugs. In the international context we want New Zealand to be the hardest place for criminals to do business.
“So some of our bigger proceedings have not been drug proceedings – the Vinnik one, a range of cyber crimes, ransomware, and some of the big frauds we’ve dealt with, the Gong Xiaohua case, Yan etc, have been frauds committed in other jurisdictions where the proceeds of those offences have found their way to New Zealand.”
[In 2020 New Zealand Police restrained $140m of assets linked to Alexandr Vinnik, a Russian accused overseas of using his cryptocurrency exchange to wash proceeds of ransomware frauds. Vinnik was convicted in France of money laundering and jailed for five years.
In 2016 NZ Police obtained a $42.85m forfeiture order against William Yan, aka Bill Liu, in relation to laundering of money from frauds committed in China. In 2017 Yan was sentenced to five months home detention for money laundering.]
NBR: How does AML reporting by banks and others help your work?
Hamilton: “It’s probably the only piece of actual statute that’s got a real crime prevention focus.
“It’s about preventing money laundering, preventing proceeds of crime getting into our financial system and into various sectors including the security sector, real estate sector. It’s a big preventing framework that fits into a global system around prevention.
“In terms of how we use it every day, it’s one of the primary sources of intelligence we can rely on to respond to both the occurrence of crime and our own prevention deployment activity.
“A lot of these big cases I referred to before, the foreign ones, we pick through that reporting framework, that’s what gives us that initial lead to do some more work. It’s really central to our purpose.
“At a much lower level, like in a community policing setting, that intelligence provides a range of leads for a whole range of crime types.
“Although it might feel if you’re a reporting entity that [the information] is going into a big black hole, it’s quite the reverse. It’s pieces of information we can rely on in a whole range of criminal investigations.”
NBR: Out of the reports provided by banks or lawyers or real estate agents, for example, which is most useful?
Hamilton: “Certainly the big financial institutions report the biggest volumes. They provide millions of pieces of information. In terms of some of the new sectors that have come on stream, we don’t get that volume.
“But when we do get them from, for instance lawyers, we tend to find they’re really good quality reports and we do tend to respond to them specifically.
“In terms of things like real estate, looking at the amounts of proceeds of crime we’ve got restrained in that real estate sector, real estate is not only for domestic criminals but foreign criminals as well, we’ve got an attractive real estate market. It’s plainly obvious that there have been quite considerable proceeds of crime invested in that sector. So it’s really important.
“If you ignore that sector, or a particular sector, it becomes an increased vulnerability which can have quite an impact if it’s left unchecked.
“So for those that say it’s regulation over the top, what’s the alternative?
“What’s the alternative when there are literally billions of dollars of proceeds of crime being generated all around the world?
“What does the sector want? Do they want a sector that’s safe and has some regulatory compliance and oversight and some response from us when dirty money gets in? What’s the alternative?
“We’ve all got a part to play in that and I don’t know if that’s entirely understood – and it should be understood.
“It is really important that our financial system has integrity in our country.”
NBR: Can the AML system be improved?
Hamilton: “There’s no doubt it could be improved and there’s no doubt reporting entities could improve their understanding and awareness and quality of their reporting. I’m not being critical of them, but what we want is obviously quality reports we can respond to.
“On that point, there is a cost to an AML framework, as I’m sure all the reporting entities will understand, and it’s not going away.
“It’s part of an international setting, so it’s important we make it as efficient as we can. That efficient really draws from sharp reporting, accurate reporting.
“The country and our communities will be safer if people can’t make money from crime.
“What drives risk to us is crime, and a lot of crime is economically motivated, so if we can suppress the occurrence of that sort of crime through a really efficient AML system we all win.
“So those that might be resentful of the time and effort that goes into an AML system need to think of it as an investment in our community and their family’s safety and their own safety, and therefore look upon those responsibilities as something that provides real benefit to the safety and security of our country.”
NBR: The Government has announced plans to improve disclosure of who owns companies and limited partnerships. Is that useful for the Police?
Hamilton: “It is. As AML systems around the world are maturing we’re starting to see certain criminal behaviours emerge in response to that and one of them is this concept around concealment of beneficial ownership.
“When we start pushing money to the corners the absence of really good controls and optics around beneficial ownership has become more important.
“That’s where we’re seeing that shift globally, around adjustments to policy settings and legal settings to make disguising and hiding proceeds of crime more challenging.
“With that comes the need to have improved systems around establishing who actually owns what. That’s the whole principle around strengthening beneficial ownership registries – and doing so in a way that doesn’t override privacy concerns and protection.”
NBR: How do you respond to people who are concerned a beneficial ownership register will impinge on privacy?
Hamilton: “I understand and accept those concerns and reservations, but again, what’s the alternative?
“We’ve had criminals doing very serious crimes like ransomware attacks. We know in New Zealand it’s shut down hospitals and schools. It’s had major impacts on the lives of people in our community from criminals committing crimes in other parts of the world.
“The concept of concealing proceeds of crime in trusts and companies that might be formed in New Zealand is a live risk. We can’t be naïve to think it won’t happen to us. To balance and offset that risk we as a country need to accept we need to have improved transparency around these sorts of things.
“I accept people have some reservations about it, but if you’re waiting for your hip to be replaced and the hospital can’t do it because their computer system’s been shut down because someone’s firing a ransom attack at us, you might not connect the two, but they’re connected.”
NBR: What are some current examples of the work you’re doing?
Hamilton: “I guess one thing that’s worthy of mention is over the last five years we’ve seen increased seizure of cash – we’re encountering large amounts of cash more.
“The likely reason for that is because the AML system is actually working – and criminals are struggling to get large amounts of cash into the financial system. We’re talking millions of dollars.
“These are measures that show us the system is working. It’s a good sign.”