AML/CFT Phase 2 costs and benefits reports

To help inform the Phase 2 proposals, several studies were undertaken. Two studies were conducted in 2016, which provided initial estimates of costs and benefits.

We then worked with affected sectors to better understand how the changes will impact their businesses and refined options to help them meet their obligations.

This has reduced the predicted compliance costs – the initial estimate of up to $1.6 billion over 10 years has been lowered to between $800 million and $1.1 billion.

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Cost benefit analysis

The latest analysis shows the benefits outweigh the costs, especially when broader strategic benefits are included.

It’s estimated the cost to business sectors could be in the order of $0.8 to $1.1 billion over 10 years.

In terms of benefits, 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 just over 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.

The estimated compliance cost is lower than an initial estimate calculated last year, which 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 main reason for the difference is because fewer businesses than first thought will have to comply with the Act (for example, many dealers in expensive goods will probably not accept large cash transactions) and it’s likely more businesses will use provisions that help them to reduce their compliance costs (such as setting up designated business groups that allow companies to work with others to meet their AML/CFT obligations).

For more details, go to:

Costs and benefits of AML/CFT laws

You can read the latest analysis at:

Cost benefit analysis AML/CFT Phase 2 [PDF, 105 KB]

The initial analysis was undertaken by Ernst & Young on behalf of the Ministry of Justice. You can read the report at:

Cost benefit analysis [PDF, 296 KB]

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Business compliance cost study

To help develop initial estimates of 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) have been extended to Phase 2 businesses and professions. For more details, go to:

Working with others to reduce your anti-money laundering compliance costs

The survey was designed, conducted and analysed by Deloitte on behalf of the Ministry of Justice. You can read the report at:

Business compliance cost study [PDF, 491 KB]

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Technical note

The two studies were for different purposes and use different methodologies, which means their numbers cannot be directly compared.

In particular, the two studies calculated costs in different ways, so multiplying the survey study's annual business compliance costs by 10 does not equal the 10-year cost in the cost benefit analysis study.

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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