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Money laundering is the “cleaning” or processing of money from the proceeds of crime in such a way to make it appear legitimate. Financial services, property and high value goods are often used to achieve this.
There are rules and regulations in place to make it hard for criminals to use businesses to launder their money.
These rules are also in place to help stop the international financing of terrorism, so you’ll normally see references to AML/CFT – “Anti-Money Laundering and Countering Financing of Terrorism.”
Businesses covered by the rules (such as foreign exchange dealers, financial advisers, banks, investment advisers or fund managers) will ask for proof of identity when you start doing business with them. It’s important that they have proof of who they’re dealing with.
Proper identity checks and verification are one of the main pillars of anti-money laundering laws.
You may have been a customer of a company for some time, but they must review information on an ongoing basis and update identity information they hold to meet the requirements.
They also must monitor account and transaction activities effectively to identify suspicious activity and or financial transactions.
Businesses receiving money from people or moving it around need to ensure that it’s a legitimate customer they’re dealing with and not a cover for criminals. They also need to check what your intentions are when it comes to doing business with you – some customers might be higher risk than others. Knowing what a customer’s intentions are also helps with spotting unusual or suspicious behaviour.
Sometimes the FMA issues warnings to companies that aren’t keeping up with their anti-money laundering and countering financing of terrorism requirements.
This doesn’t necessarily mean that there’s any extra risk to customer funds, or that money laundering or financing of terrorism is taking place. It means that systems aren’t good enough to properly check for bad behaviour.
If a business asks for information from you and you don’t provide it, that business could be in breach of the Act and the FMA could then take action. This could be a private or public warning, or in more serious circumstances, court action against that business.
If a company can’t get the right information, they might be required by law to ‘terminate the business relationship’ – effectively dropping you as a customer.
The FMA is responsible for monitoring around 800 businesses for AML/CFT processes under the law which include issuers of securities, derivative issuers, fund managers, providers of client money or client property services, financial advisers, etc.
The Reserve Bank supervises the banks, and life insurers, along with what are called ‘non-bank deposit takers’.
The Department of Internal Affairs covers casinos, ’non-deposit-taking lenders‘, money changers, non-financial businesses and professions, including lawyers, accountants, real estate agents, etc. and other reporting entities not covered by the other supervisors.