20/03/25

NEW ZEALAND: NZ Police reveal biggest money laundering vulnerabilities for banks

As published on: fst.net.au, Thursday 20 March, 2025.

Inadequate information-sharing between banks and complacency around current fraud detection systems are posing major challenges to New Zealand’s ability to tackle the growing money laundering and terrorism financing (ML/TF) threat, a new report by the NZ Police service has revealed.

The National Risk Assessment (NRA) 2024 report, authored by the NZ Police’s Financial Intelligence Unit (FIU), has detailed the key threats and sectoral vulnerability posed by money laundering, terrorism financing and proliferation financing (i.e. funding the spread of weapons of mass destruction) – with more than NZ$1 billion each year estimated to be washed from proceeds of fraudulent and illegal activities.

One of the major roadblocks to curtailing the ML/TF and PT threats was the lack of information sharing between the banks on their customers and their transactions, with the FIU identifying a state of intelligence ‘siloing’ between institutions.

“This inhibits sharing insights and potential prevention initiatives (the “anti-” in “AML”) across the sector,” the report read.

This siloing comes despite the long-standing work of the NZ Police force-led Financial Crime Prevention Network (FCPN), launched in 2017, to develop an information-sharing regime between NZ’s major banks and public sector stakeholders.

Other ML/TF/PT vulnerabilities identified in the NRA report were:

De-risking/de-banking: A reluctance by larger retail banks to provide banking services for high-risk industries and sectors – an effort to ‘de-risk’ – may influence the development of unregulated underground sectors. This act of de-risking, the FIU warns, could have the unintended consequence of displacing high-risk activities into another bank or non-bank deposit taker.
Smart ATMs: The rapid pace of bank branch closures has led to a preponderance of self-service Smart ATMs. The report flagged that any vulnerabilities in these automated systems that are identified by bad actors will be exploited, with illicit cash quickly entering the financial system before detection and preventative controls are in place.
Prescribed Transaction Reporting (PTR) gaps: AML Act regulator the Reserve Bank of New Zealand (RBNZ) has identified gaps in the PTR regime, noting that not all transaction types are being correctly identified as reportable. The report notes a vulnerability in the PTR threshold – set at $1,000 for international electronic transfers and $10,000 for cash – excludes reporting of high volume-low value transactions that may be used by criminal networks to evade detection. As well, the FIU challenged the PTR framework’s ‘default mechanism’ which absolves regulated financial market participants of any further obligation to detect, deter and report suspicious financial activity.
Complacency with system design: The FIU identified a lack of ongoing testing/review of systems used to detect ML/TF activity. “While systems may have been set up correctly, in compliance with international standards, these standards do not afford the protection that customers increasingly expect. The banking sector is challenged by the innovation of criminals and banking customers requiring further education on fraud prevention,” the report read.
Acknowledging the increasing threat and incidence of fraud, the FIU suggested that the current design and operating effectiveness of the AML/CFT system is failing to perform “as circumstances now require”.

“The FIU may therefore not be capturing all desired activity, from which policy and practice could be developed to make the banking environment more hostile to fraud, scams and other criminals.”

The report identified fraud-related crime, drug crime and transnational money laundering as posing the highest ML/TF threat, with the banking sector, money or value transfer service (MVTS) providers, and virtual asset service providers (VASPs) ranked as the most vulnerable sectors – largely due to their enabling of the rapid movement of proceeds out of or into New Zealand.

The RBNZ, a principal overseer of New Zealand’s AML Act, welcomed the release of the FIU-authored report, declaring the findings a “trigger for reporting entities to review and update their respective risk assessments accordingly”.

“The NRA is a key document for New Zealand’s AML/CFT system as a clear understanding of risk strengthens our system’s resilience, enabling direct responses and maximising the benefits of security for both our financial sector and communities,” said RBNZ Manager AML/CFT Supervision Damian Henry.

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New Zealand Money laundering Banking