To help inform the Phase 2 proposals, two studies were undertaken. These studies were for different purposes.
The business compliance cost study estimated the financial cost to many Phase 2 businesses if they had to comply with the provisions in the current AML/CFT regime.
The cost and benefit analysis estimated the economic impact on the wider economy. Information from the business compliance cost study was used in the cost benefit analysis.
To help estimate the cost to business, a survey was sent to lawyers, accountants, conveyancers, real estate agents, jewellers and motor vehicle dealers via their respective representative bodies.
It asked businesses to estimate how much it would cost them to meet the full range of obligations in the current Act.
Based on the survey results and other information, low-end and high-end estimates were calculated for each sector.
Since that initial research was done, the Government has taken steps to minimise compliance costs and provide options to further reduce and eliminate red tape. For example, the proposed obligations for high value dealers reflect the specific money laundering risks faced by that sector. Also, options that allow businesses to work with others to meet their obligations (such as by forming a designated business group) will be extended to Phase 2 businesses and professions. For more details, go to:
The survey was designed, conducted and analysed by Deloitte on behalf of the Ministry of Justice. You can read the report at:
The cost benefit analysis estimated the overall impact on the economy. Overall, it shows the benefits outweigh the costs, especially when broader strategic benefits are included.
Based on the business compliance cost study mentioned above, the analysis suggested the maximum cost could be $1.6 billion over 10 years if most Phase 2 businesses had to comply with the current Act.
The analysis estimated that Phase 2 of the AML/CFT reforms will disrupt about $1.7 billion of illegal drugs and fraud crime over a 10 year period, This is reflected in the benefit cost ratio (BCR) figures of close to 1 (that is, a BCR of 1 means for each dollar spent, there‘s a dollar of benefit).
The broader strategic benefits were not included in the final BCR figure, because the underground nature of crime makes it difficult to calculate values (for example, it’s hard to know the full size, scale and impact of profit-motivated crime and money laundering because it’s not always detected or reported).
However, conservative estimates suggest that Phase 2 may also prevent up to $5 billion in broader criminal activity (for example, because offenders will have less money to reinvest into illegal ventures or will be deterred from committing crime) and reduce about $800 million in social harm related to the illegal drug trade.
Other strategic benefits were not costed, including the impact on New Zealand’s international reputation and the impact on tax evasion.
For more details, go to:
The analysis was undertaken by Ernst & Young on behalf of the Ministry of Justice. You can read the report at:
The two studies were for different purposes and use different methodologies, which means their numbers cannot be directly compared.
In particular, the 2 studies calculated costs in different ways, so multiplying the annual business compliance costs by 10 does not equal the 10-year cost in the cost benefit analysis.
In part, this is because the BCC’s methodology assumed all business would incur all costs at the same time. However, the CBAx calculations recognise that businesses’ costs will actually be spread out over several years, as different sectors will have to start complying with the Act at different times.
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