What is money laundering and terrorist financing?

Money laundering is the process criminals use to ‘clean’ the money they make from crimes such as fraud, drugs and tax evasion. By making the money look like it comes from a legitimate source, they can cover their tracks and avoid detection.

They do this by buying, selling and channelling funds through things such as property, expensive goods and financial services. They then spend the money or use it to fund criminal activities.

Money laundering makes it harder for authorities to find out where ‘dirty’ money comes from, stop crime, prosecute criminals, and seize illegally earned money and assets.

People who finance terrorism use money laundering methods to channel funds to violent causes.

How big is the problem in New Zealand?

Money laundering is happening every day across the country.

It’s estimated about $1.35 billion from fraud and illegal drugs is laundered through legitimate businesses in New Zealand each year.

However, the true cost and impact is many times that figure when you factor in all the crimes that generate “dirty” money and the suffering they cause.

For example, tax evaders and international criminals try to take advantage of our clean reputation to launder funds through New Zealand businesses. Crimes like illegal drugs take a human toll on victims, other vulnerable people and the wider community.

How do criminals launder money?

Criminals exploit weak points in the financial network. For example, they target businesses or professions that don’t confirm customers’ identities, or don’t have the right checks and balances in place to detect suspicious transactions, behaviour or financial arrangements.

Criminals use different methods to launder the proceeds of their crimes. They may buy and sell assets like property and expensive goods like cars or jewellery, or channel funds through financial structures such as companies or trusts.

Money laundering generally involves complex series of transactions. By moving funds around different parts of the financial system, they disguise who and where it came from – making their illegally earned ‘dirty’ money appear legitimate or ‘clean.’

At one end of the spectrum, organised crime groups may use sophisticated schemes to move large amounts of money. Criminals at the lower end of the spectrum — say, tax evaders and low level drug dealers — will use simpler methods.

Depending on the amount of money they want to launder and how they earned it, criminals may:

  • try to hide their identity by using companies and trusts to own or buy assets
  • carry out a series of transactions with a bank or business that are below the monetary thresholds that trigger money laundering ‘red flags’
  • buy foreign currency or send money overseas to move it through accounts and financial products, which makes it hard to trace
  • pay cash for a house or car, then sell it and use or bank the money
  • buy gambling chips then redeem them in different currencies or denominations.

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