Big crime business: Wringing out the money launderers

Drugs, illicit tobacco and organised crime are big business – and so is asset recovery, with millions of dollars in cryptocurrency, cash and even land being forfeited. But with police often under the pump and
other agencies facing cutbacks, is the law working as well as it could be, getting support it needs, and keeping up with criminal masterminds?

For some, the price of doing business is the risk of murder, jail, or getting a hiding. But having your assets seized is another. And the Criminal Proceeds (Recovery) Act or CPRA has netted more than $200 million in its 10 largest forfeitures alone.

Bank accounts, cryptocurrency, houses and farm properties, some worth tens of millions of dollars, have been forfeited. It sometimes takes different agencies working together to bring these cases to court. And it can take years for those cases to conclude.

Despite the rise of cryptocurrency, a detective well-versed in the underworld’s money laundering schemes says cash is still king most of the time.

“It is honestly cash, and it’s the markets that are driven by illicit cash. And the key market in New Zealand with illicit cash is the drug market,” Detective Inspector Christiaan Barnard says.

“Another emerging market that is cash-dominated is illicit tobacco, and we’re seeing that through seizures at the border. Obviously, the criminal penalties are nowhere near as great as drug dealing but there’s still a strong financial incentive to evade duty.”

Barnard is the Central Asset Recovery Unit field crime manager.

He says both vapes and cigarettes are widely available on the black market. A 2022 University of Auckland study estimated 143 million illicit cigarettes were sold in New Zealand that year – about 8.4 per cent of the market. This “chop-chop” tobacco trade could be worth $100 million or more each year.

Regardless of the product, dirty money is not always spent at casinos, strip clubs, or shady jewellery shops. For a lot of entry-level drug industry participants, cash goes on mundane items and the players are not living Tony Soprano lifestyles.

“If you’re looking at your low-level drug dealers, they are individuals that are typically living a cash-intensive lifestyle. They’re funding their day-to-day living through their drug dealing but they’re not realising the benefits through the acquisition of assets. Or if they do, in a very modest way. You’re talking about cars and maybe some electronic goods.”

A rash of recent jewellery smash-and-grabs and ram raids have gained national attention. And some criminals do favour investing dirty money in international fashion brands, jewellery, or precious metals.

But not everyone wants to adorn themselves with gold chains. And for financially successful criminals, spending all your cash on supermarket groceries may not be practical. Barnard says criminals are increasingly turning to help from legitimate businesses and professionals.

Shell companies

“Current trends we’re observing are the use of legal arrangements around creation of shell companies and the use of trust and company service providers,” Barnard says. “And they’re typically not being honest with the trust companies.”

Another area of interest is in money remittance.

“That makes use of international funds transfers, informal exchanges … and also cryptocurrency is a popular form of doing that,” Barnard says.

“And at the other end you’ve got your co-mingling, where a criminal may approach a legitimate business and enter into an agreement with the owner to say: We’ll give you X amount of dollars if you co-mingle these funds with your legitimate income. We have seen that with cash-intensive businesses.”

Still, washing money anywhere is rarely straightforward – unless you want to get caught.

Barnard says regardless of the income source, he’s seeing increased sophistication in money laundering.

“Criminals are waking up to the fact that simply trying to get money into a bank account and then trying to [take it out] is not desirable because there’s a high chance you’re going to lose It through criminal proceeds action.”

Criminals in this context again need to co-opt professional facilitators – and these relationships have varying levels of trust and transparency.

The deceived, the blind and the complicit

“We’ve got those who are being deceived by their clients, we’ve got those that are being wilfully blind, and then you’ve got those that are complicit. All of them are a concern. Some of them … there’s a need to engage and educate but for others the criminal investigation approach is most prudent,” Barnard says.

A criminal investigation approach was taken for the likes of Auckland lawyer Andrew Simpson, who laundered money for the Comanchero Motorcycle Cub and was jailed in 2020.

“You used your specialist knowledge as a lawyer to advise on structuring the laundering scheme across the multiple trust accounts you set up,” Justice Gerard van Bohemen told Simpson at the time.

Police that year raided Comanchero-linked properties and restrained $650,000 worth of assets. But that’s small compared to the millions restrained in the biggest cases since the CPRA took effect 15 years ago.

‘Blunt tool’

City Chambers barrister Katie Hogan has worked as a civil litigator and Crown prosecutor and has specialist knowledge of money laundering cases.

“It’s a pretty blunt tool,” she says of the CPRA. Hogan says in the early years, many cases were easy pickings. “The police were focusing on the most obvious criminals … There was a lot of drug dealing, there was a lot of benefit fraud.”

The law provides for restraint and forfeiture of property derived from criminal activity. These prosecutions are civil cases, not criminal – so need only meet the balance of probabilities, not the higher threshold of reasonable doubt.

Now she says there are more money laundering cases, and some people caught up in that world are learning how blunt the CPRA can be.

Let’s say someone launders $60 million. They’ll receive only a fraction of that from their overlords or clients, Hogan says. But current New Zealand case law lets police restrain and forfeit anything that passes through someone’s hands.

She says our money-washer could be subject to a profit forfeiture order. Even though he pocketed just $600,000 in this caper, that order will impose a debt of $60m for which our man will be liable, a debt to the state for the rest of his life.

Hogan says the law is moving into more nuanced areas but currently favours police or prosecutors so much that there’s a risk of overreach or injustice.

“When police first restrain property, the test for restraining orders is even lower than the balance of probabilities.”

She says many accused people aren’t keen to fight these cases because chances of winning are low and anything said in their defence during a civil case could be used against them in criminal proceedings.

Hogan says she’s had cases where innocent parents invested in their children’s property, then found the entire house restrained when one of the kids was caught up in crime.

Hogan says at the end of these cases, police often agree to give the parents’ share of the house back, but case law around this and some related areas is evolving.

Most people, she says, would rather go to jail for two years than have the criminal fortune and property they built up taken away from them.

Something in the water

Anecdotally, cocaine is on the rise – but you don’t have to rely on rumours.

Wastewater testing covering 75 per cent of the population has shown rising consumption of cocaine in some recent months. But it’s still not as widely-used as ecstasy, which is not as popular as meth.

“From a consumption perspective, methamphetamine remains the dominant illicit drug,” Barnard says.

And he says cannabis is still a big market as well, with significant revenue.

Just as meth remains the most widely-trafficked serious drug, cash is still dominant for many dealers.

Barnard says a case in one provincial town after thieves targeted an ATM shows how cash can be a dealer’s lifeblood, and its absence a dealer’s downfall.

“They destroyed the town’s only ATM. One thing we detected through the reporting that we received is there was a significant spike in transactions to one particular local through the banking system … and that was the local drug dealer.”

The highly traceable back transfers led to search warrants being executed and the dealer getting charged.

How it’s seized

Police say the CPRA is intended to deter serious criminal activity and reduce criminals’ ability to benefit from organised crime and meth offending.

Whatever is seized goes to the Official Assignee (OA), who takes control of the asset. Court proceedings can take years so the OA needs to preserve the value of assets.

Barnard says cars and motorbikes typically depreciate, even if well looked-after, so police will often seek early sale orders to preserve value. Barnard says the OA will charge for vehicle storage and maintenance costs too, and try to recoup all the costs of asset management.

When a case is successful, the money goes into the Proceeds of Crime Fund.

Typically, once a year, eligible agencies make applications to get money from that fund. A variety of groups are eligible – many but not all of them from the crime and justice sector.

“It does vary year to year but typically it’s around some type of investment that’s going to support rehabilitation or combat the effects of organised crime,” Barnard says. “So you’ve had quite a variety of successful applications.”

Recipients…