The SFO estimates up to $5 Billion per year can be siphoned from NZ government agencies. As New Zealand has never had an Independent Anti-Corruption Agency, what proportion of New Zealand’s debt can be contributed to corruption and undetected fraud across government agencies?
A core function of a democratic government is to govern for the good of the people. This includes collecting taxes as and when they fall due. By using taxpayer funds to invest in infrastructure, including healthcare, education, housing, roading, etc – the government and its people are collectively investing in the future of the country and its people. This assists to ensure a country can maintain its operational costs without incurring unmanageable debt.
But some people don’t like paying taxes so they may set out to avoid taxes or to evade taxes. Avoiding taxes results in tax-structures being set-up for the purpose of significantly reducing the tax that is required to be paid. Some tax structures are set up to enable no tax payments at all. These structures take advantage of loopholes in country tax laws. Using these jurisdiction loopholes, the tax structure requires the transition of funds to hop into and out of certain countries where these loopholes appear, before finding the structure’s nest of rest.
Tax-structures to avoid paying taxes are more common in the white-collar industry which is typically occupied by salaried workers with higher education requirements.
Accordingly, for any government to adequately govern a country and ensure investment in the people of that country, the government must think smart, operate analytically and have monitoring systems that have capability to detecting white-collar criminals.
Domestic white-collar criminals seek ways to exploiting their residency or citizenship tax status by operating under a tax structure to avoid or evade tax payments. When such tax payments are avoided, the country’s infrastructure suffers.
Often white-collar criminals operate under the umbrella of an elite corporate status and ride a tax-dodge corporate status whilst earning a highly regarded corporate status.
Therefore, where tax dodging structures are established for the purpose of avoiding or evading taxes, the government needs to have motivation and capability to take decisive action to prevent white-collar criminals from exploiting these loopholes.
Not having ability or the will to combat financial crime will only result in white-collar criminals succeeding and poverty increasing. Therefore, all governments must have preventative action in place before ensuring it is able to preserve government revenue for investment into operational expenses. In simple terms, managing government revenue and expenses assists to better manage domestic and foreign debt levels linked to that country.
Should a country’s government turn a blind eye to this ‘fiscal’ problem, then all sorts of adverse incidents would occur.
Unintended corruption often results from politicians and public servants failing to adequately manage conflicts of interests. Failing to adequately manage conflicts of interest often leads to an act of corruption (either knowingly or unknowingly).
When government officials operate without adequate policies and controls to manage conflicts of interests, this will likely result in domestic and trans-national criminals exploiting those weaknesses.
Not adequately managing the risks of corruption will result in funds destined for country infrastructure being siphoned offshore and away from the wellbeing of the country’s residents and citizens.
In summary, governments that fail to protect government funding and tax revenue are failing to perform in their statutory function to govern for its people. This is why transparency and accountability are important factors in demonstrating governance.
Acting as the international watchdog to combat money laundering (ML) and financing of terrorism (FT), the Financial Action Task Force (FATF) uses the term “Politically Exposed Person” as a risk-based concept.
The FATF describes three levels of Politically Exposed Persons (PEPs) as:
1. Foreign PEPs – individuals entrusted with prominent public functions by a foreign country, e.g.:
2. Domestic PEPs – this includes individuals holding entrusted prominent functions in the same categories as a Foreign PEP but with the role held being in the ‘home’ or domestic country.
3. International Organisation PEPs – persons entrusted with senior management functions in an international organisation (e.g., directors, deputy directors, members of the board).
The FATF definition of PEPs includes ‘Related Persons’ which means ‘Family Members’ and/or ‘Close Associates’. A Family Member includes a spouse, partner, children, parent etc. A Close Associate includes close business relationship, persons who have joint beneficial ownership or who are beneficial owners of legal entities.
This international standard of treating PEPs as a higher risk to facilitating corruption and fraud, recognises PEPs hold positions that create more opportunity to be targeted by white-collar criminals, including transnational organised criminal groups.
PEPs may receive dirty funds from taking bribery and procurement kickbacks or from misappropriation of public funds from state-owned enterprises or government sponsored projects.
Other forms of PEP corruption can include favouring friends, relatives or political allies in hiring, promoting or in their appointment to roles, regardless of merit. PEP corruption can also represent as improper political interference to sway official decisions.
Finally, but not least, political corruption can result from a PEP failing to manage a conflict of interest to obtain a personal business advantage. This may include using insider information, insider financial markets trading, or from influencing regulations that benefit a personal interest.
Any political position that has the ability to steer or approve large financial decisions are exposed to the risk of abuse of political or government power.
Abuse of political or government power may arise from access to state resources or decision-making on the allocation of state resources, including control or influence over public funds, contracts, licenses, privatisations, concessions, and procurement.
FATF and other international bodies have documented many major corruption and grand corruption cases involving PEPs. These cases have reinforced the risk-based approach for treating PEPs as higher risk. This PEP risk is linked to facilitating Money Laundering (ML) and/or the Financing of Terrorism (FT).
The FATF principles recognise if corruption occurs through a PEP, the sums involved are often large and need laundering. This money laundering cycle is commonly referred to having three cycles referred to as: (i) placement, (ii) layering and (iii) integration.
As Politically Exposed Persons often use the money laundering or financing of terrorism cycles to fund and hide their crimes, the FATF places responsibilities on its member countries to detect such funding of these crimes.
Countries that are most often exposed to loss of national funds are developing countries where governance systems or governance structures are unlikely to be operating well or operating at all. An example of such a case includes Nigeria where the former miliary head of state, Sani Abacha, was considered one of the twentieth century’s most corrupt dictators. The value of embezzlement was alleged to be between US$2-5 billion. Abacha, and his family, allegedly routed the stolen funds through shell companies and trust structures which were located in Liechtenstein, the United Kingdom and the United States. Authorities in Jersey later returned hundreds of millions of dollars to Nigeria.
A case closer to New Zealand’s shores is the investigation by the Australian Independent Commission Against Corruption into Eddie Obeid. Obeid was a former long-serving New South Wales (NSW) Member of Parliament. On 19 July 2021, he was convicted for conspiracy to commit misconduct in public office relating to a corrupt coal exploration license deal. This mining coal deal ultimately netted Obeid and his family around $30 million. Obeid secured the $30 million coal exploration license via corruptly leaked information from then-Minister, Ian MacDonald. Obeid also faced conviction over Circular Quay leases, highlighting a pattern of state capture where he exploited his influence for family profit. He was subsequently sentenced to seven years in jail with a non-parole period of five years and three months.
What New Zealand’s Inland Revenue Department does behind closed doors, the public are not privy too. However, what other government departments do to protect against white-collar crime, serious fraud and corruption – the public are privy too. Publicly available information can be gleaned from government agency publications and from disclosures pursuant to requests under the Official Information Act.
To further understand New Zealand’s risk exposures to undetected corruption and serious fraud, an examination can be made on New Zealand’s likely inherent risks. Once the inherent risks are identified, examining what types of controls are in place for detecting, monitoring and reporting, can then be examined. Should it be that the evaluation identifies weak, or no controls are in place, then the likelihood of New Zealander’s being the victims of financial harm from loss of state funds would be inherently ‘very high’.
When President Donald Trump was elected for his second term in early 2025, on his first day in office, he issued an executive order to implement Operation DOGE (Department of Government Efficiency). Operation DOGE had the purpose of modernising US Federal technology and software and maximising the US government efficiency and productivity levels.
Specifically reliant on Artificial Intelligence (AI), Operation DOGE analysed vast amounts of government data to pinpoint potential budget reductions and was reported to have saved billions of dollars.
Prior to Trump’s second term of administration, the US Treasury had already implemented the use of technology, especially AI and machine learning, to fight financial crime, fraud and corruption. In doing so, US Treasury recovered billions after analysing vast datasets, identifying suspicious patterns, and improving payment integrity across US Federal programs. One of these initiative federal programs was the Office of Payment Integrity.
The greatest tool at the fingertips of New Zealand government to detect dirty funds escaping New Zealand’s shores is the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the AML/CFT Act).
Though the AML/CFT Act received Royal Assent on 16 October 2009, the AML/CFT Act did not begin implementation into New Zealand’s registered banks and other financial institutions until 30 June 2013. The 5-year lead-in period between 2009 to 2013 recognised the NZ government and its financial services industry required time to prepare for these significant changes to detect money laundering and financing of terrorism.
NZ government also required additional time to develop its ‘AML/CFT Supervisory Model’.
Its intended AML/CFT Supervisory Model presented many challenges due to several government agencies being appointed with responsibilities across various business industry sectors.
AML/CFT Supervision however was not completely foreign to New Zealand. The New Zealand Reserve Bank operated with a Banking Supervision model and New Zealand’s industry was operating under the Financial Transactions Reporting Act 1996 (the FTR Act). However, the FTR Act was later identified by the Financial Action Task Force as having many deficiencies, including a glaringly obvious problem of New Zealand operating without any established systems for the registration and licensing of financial market participants.
New Zealand’s greatest deficit in having capability of detecting corruption and fraud within government agencies or across ‘politically exposed positions’ arises from its lack of technological systems. By not taking advantage of today’s low cost technology, New Zealand’s government is failing to operate efficiently.
To detect funds escaping government coffers through misappropriate, corruption or otherwise, requires government to monitoring and report. To monitor and report on financial crime risks requires the use of technology systems that can demonstrate efficiency for detection of country risks such as incoming and outgoing cargo, whether by passenger, boat or plane.
Simple use of technology has been demonstrated to improve public service efficiency. Why therefore does New Zealand government agencies not invest in financial crime technology?
AUSTRAC is Australian’s government agency appointed for monitoring of AML/CFT compliance laws. Whereas AUSTRAC makes use of technology, New Zealand does not (as revealed in the 2021 New Zealand FATF Report).
For a government to be realistic in preventing crimes such as money laundering and financing of terrorism, technology is required. Technology provides the necessary analytical tools to efficiently receive, report and disseminate information linked to financial crime.
In line with recommendations from the Financial Action Task Force, member countries must operate with systems that have ability to efficiently receive reports of Suspicious Activity. These reports are provided by financial institutions. Upon ‘Receipt’ of reports of Suspicious Activity, a country’s Financial Intelligence Unit must then have systems that effectively analyses, and disseminates information arising from that report.
This FATF Recommendation is known as FATF REC 29. (FATF REC 29) which states at page 25:
OPERATIONAL AND LAW ENFORCEMENT: REC 29. Financial Intelligence Units
Countries should establish a financial intelligence unit (FIU) that serves as a national centre for the receipt and analysis of: (a) suspicious transaction reports; and (b) other information relevant to money laundering, associated predicate offences and terrorist financing, and for the dissemination of the results of that analysis. The FIU should be able to obtain additional information from reporting entities, and should have access on a timely basis to the financial, administrative and law enforcement information that it requires to undertake its functions properly.
NZ’s FIU is appointed to the NZ Police. The NZ Police FIU is responsible for the receipt, analysis and dissemination of suspicious activity information and has had this role since around 1996. However, the NZ FIU has not invested in financial crime technology. Instead it still heavily relies on labour-intensive and data analysis tools such as Microsoft spreadsheets.
Recognition of New Zealand’s deficiencies in financial crime systems for detecting and reporting began in In 2005 following New Zealand’s FATF country member inspection.
Subsequent to that inspection, on 12 August 2005, the International Monetary Fund (the IMF) published a ‘Country Report’ of New Zealand’s status.
When referencing NZ’s capabilities of meeting expectations of operating with systems to receive, analyse and report on financial crime intelligence, the IMF stated at paragraph 25-
“While relevant data is recorded on a database and analysed by the FIU, the functionality of the database is very limited and the retrieval of these statistics is difficult. There is a project to improve the FIU database, and it is important that the whole information technology infrastructure for the FIU is urgently extended and remodelled, so that the FIU can properly perform its functions, including electronic receipt of STR.”
Despite this warning in 2005, some 16-years later, and in April 2021, the FATF identified New Zealand had not made much headway to ensure it operated with an adequate and properly resourced Financial Intelligence Unit.
At paragraph 162 of the 2021 FATF NZ country inspection report confirms –
“Data analysts are using SQL Server Management Studio to extract data and are using Microsoft Power BI and SAS Data Analytics to analyse and visualise the data. However, FIU analysts are not supported by automated analytical software tools that allow for integration and crossmatching of data coming from different sources, and have to consult and cross-check SARS with other data manually. This significantly reduces their efficiency and may result in missed opportunities to enrich their analysis with relevant information from other data sources, such as PTRs and cash declarations. There are plans to update the analytical system by acquiring automation tools. This, together with the expansion of direct LEA access to the FIU database, would enable the FIU’s analytical staff to spend more of their time on developing deeper analysis, and less on gathering and checking data, and responding to routine information requests.”
And at paragraph 159 of the same report, the FATF reports that 80% of suspicious activity reports were not being individually reviewed –
“… Approximately 20% (142) of reported SARs are prioritised by these tools and escalated for further review by an analyst. The remaining 80% of reports are not individually reviewed, ..”
Instead of taking advantage of simple automated technology systems that are proven to deliver efficiency, accountability and transparency, New Zealand plods along like an under developed Pacific Island.
It is clear from results of Trump’s Operation DOGE that should governments adopt technology, government efficiency will result. Yet, New Zealand, for whatever the reasons, chooses to continue using public service functions that rely on labour-intensive processes and high operational costs. Whereas other countries are transitional into the digital age for governance systems for government, NZ instead continues to operate like a developing economy.
Instead of investing in technology systems to reduce government operational costs, NZ has instead slashed the public servant labour force in which the government was heavily reliant on in order to obtain its operational efficiency.
Where is the common sense in NZ government? Where is the demonstration of governance in New Zealand government policies to fiscally protect New Zealanders for today and in the future?
Now that New Zealanders are being disclosed the extent of the catastrophic debt that New Zealand is in, its working population is having to come to grips of needing to remain in the workface longer than originally anticipated. This is a result of NZ’s identified shortfall in its Superannuation kitty.
Given that New Zealand has never operated with an Independent Anti-Corruption Agency, how much of this fiscal problem that New Zealanders can be contributed to the white-collar criminals that stole funds from coffers of NZ government?
Election year in 2026 is shaping about to be all about walking the talk and not talking the talk.
What NZ Political Party will be the first to implement a well-governed Independent Anti-Corruption Agency and demonstrate it is serious about protecting New Zealanders for today and into the future?
