'Always on the lookout': Anti

Lawrence carries a lot on his shoulders, and the thousands of dollars of cash in his backpack are just a symbol of it.

He walks into a dairy in south Auckland, chomping on a stick of gum with a singular earbud in his right ear to catch any phone calls.

He beams a big smile, scuttles behind the counter, unzips his bag and asks after the owner's grandchildren.

Behind the counter, he pulls out what looks like a money counting machine and attaches a nine-volt battery to some cords that dangle out the side.

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You wouldn't think it to look at him, but he's terrified.

Lawrence is not his real name but a pseudonym that Stuff has given to protect him.

"I’m always on the lookout ... just seeing if anybody is watching and making sure no-one is following me."

The dairy owner pulls out several wads of banknotes and Lawrence starts counting totals with the machine and writing them down.

Customers come in; they buy Coca-Cola, chocolate bars, some chips. They cast Lawrence a look. Some of them see the cash but don't pay him much more attention.

Lawrence counts, then counts again, and counts a third time, and then he starts counting each note by hand. After he counts it all a fourth time, he hands the dairy owner back a $50 note.

The owner looks at him in shock and in slight disbelief that he almost gave Lawrence $50 more than he should have.

The dairy owner explains that customers kept interrupting him while he was counting the cash for about half an hour that day, and then police came in to do a check-up after a spate of robberies in the area – which interrupted his counting again.

You might wonder why they need to count all of these notes by hand in the first place.

Dealing in cash is a dangerous business, and in the digital age, plenty of businesses can survive without any of their employees touching a single banknote.

But Lawrence's business, which helps people transfer money to the Pacific Islands, at a cost and convenience that mainstream banks can't match, isn't one of them.

It used to be able to operate through the banking system, but banks view businesses like his as too risky to have bank accounts.

It is all thanks to anti-money laundering compliance rules, but critics say the problem is not so much the rules themselves but how New Zealand banks have chosen to interpret them.

The rules were supposed to clamp down on financial crime by requiring banks, and other reporting entities, to know where customers’ cash is coming from.

But critics say the rules have had little impact on transnational crime, made life more dangerous for people like Lawrence and costlier for people in the Pacific Islands for whom every extra cent paid in transaction fees matters.

The amounts involved in these money transfers are small in terms of the millions of dollars New Zealand banks shuffle around every day, but in the Pacific Islands they are large. Numbers from the World Bank in 2014 show remittances from New Zealand made up 25% of Tonga's gross domestic product and more than 15% of Samoa's.

CompliancePlus director ​Uddhav Kirtikar spent three-and-a-half years helping the Financial Markets Authority implement New Zealand's Anti Money Laundering and Countering Financing of Terrorism (AML-CFT) Act. He was the lead writer for the AML-CFT guidelines published jointly by the authority, the Department of Internal Affairs and the Reserve Bank of New Zealand.

These days he is one of the compliance regime's fiercest critics.

"To operate a financial services business in New Zealand is extremely difficult because the banks decide who can get a bank account or not. They become a lot more powerful than the Government.

"How does the Reserve Bank sit back doing nothing [as the banks take over the role of] gatekeeper of the financial system?"

​New Zealand Bankers Association chief executive ​Roger Beaumont says banks are making AML-CFT decisions by looking at the risks associated with each individual entity.

"Our banks operate in a competitive environment and are very much in the business of attracting and retaining customers. Banks also take their legal obligations very seriously," Beaumont says.

"The drive for business is balanced with the need to identify and manage risk, including compliance with the regulatory framework in which they operate, especially AML-CFT legislation.

"These are commercial decisions for the banks themselves, made on a case-by-case basis," Beaumont says.

The core principle behind AML-CFT guidelines is that banks should know their customers. That means taking the right steps to establish the identities of people looking to transfer money and flagging any transactions that look suspicious.

Money remittance companies, as reporting entities, are also required to do this when they take money from people.

Lawrence says they do it out of self-interest too, because if something goes wrong with a transaction then they need to know who to contact.

Here is how a typical money remittance transaction works.

Someone working in New Zealand wants to pay their grandmother's grocery bill at a supermarket in Samoa. They go to someone like Lawrence and his company to make the transfer because they know it has an existing relationship with the supermarket in Samoa.

This is less hassle and less costly than going to a bank, because it means their grandmother on the other end doesn't have to travel to a bank branch of a New Zealand bank in the Pacific Islands – which may not be located in her village – to withdraw the money.

The person pays Lawrence's firm the money, and Lawrence tells his staff in Samoa to pay out the equivalent amount to the supermarket.

Sometimes people might go into a dairy to deposit the money, because some dairies act as agents for money remittance companies.

Money remitters in Samoa then find a matching transaction going in the other direction, for example, a supermarket in Samoa looking to buy a shipping container of agricultural products from Fonterra in New Zealand.

Matching these transactions up is the art and science of money remittance, which allows money to cross borders without any banknotes physically changing hands.

But money remitters still need to deposit cash into bank accounts in New Zealand to make this work, because they need to pay businesses and people here.

When these money remitters go in to deposit cash, banks look at these deposits of cash and view them as risky because they do not know where each dollar came from.

Money remitters are required to keep records of the identities of the people and institutions who make these deposits, but the bank just sees strange irregular deposits and wonders why they are taking a potential AML-CFT risk on a remittance company that is trying to compete with it in the money transfer market.

So they ban firms like Lawrence's from setting up bank accounts, which means money remittance companies have to deal in cash and manually deposit money by physically going to a bank.

​Kirtikar argues banks are going well beyond what they need to do when they stop money remittance companies from having bank accounts.

By blanket "de-banking" institutions, ​​Kirtikar says they are effectively preventing suspicious transactions from being detected or traced.

He argues suspicious transactions should go through the regulated financial system because that means there are records that can be traced back once a crime has been proven.

But if people operate outside the formal banking system, it is harder to trace those transactions once a crime has been committed.

​KlickEx Pacific chief executive Robert Bell has dealt with these issues for many years.

In his teenage years he set up a money transfer system to the Pacific Islands based on text messages, and he worked for HSBC on a system to facilitate money transfers to the Pacific before creating his own money transfer business, which was named as one of the Financial Times’ fastest growing companies in the Asia-Pacific region in 2018, alongside Pushpay.

​Bell says governments and regulators overseas have gone further than New Zealand's in trying to warn banks not to close down the bank accounts of agencies like money remitters.

The G7's Global Financial Action Taskforce made a statement as far back as 2014 warning banks against de-banking institutions such as money remittance companies.

The United States Financial Crimes Enforcement Network says banks only need to know how the business models of particular money remittance companies operate, rather than whether they comply with US anti-money laundering laws.

Bell says the banks make an argument that they could lose their banking relationships with US banks if they do not strictly comply with AML-CFT, but he says those relationships are worth billions of dollars and there is little danger of these disintegrating over a handful of money remittance companies.

He says strangling money remittance companies through the AML-CFT Act is a type of "financial terrorism on small countries".

And he can't help but see that there are advantages for the banks in denying money remitters bank accounts.

By forcing such transactions to take place using cash, they drive up the costs of transferring money through these services, reduce competition in the money transfer market, and make it more appealing to use established banks to transfer money to the Pacific Islands, even if the fees are higher.

For their part, the New Zealand Government and the Reserve Bank have acknowledged the importance of money remittance companies being allowed to operate out of New Zealand and into the Pacific.

Money remittance organisations were classified as an essential service during the Covid-19 lockdowns, and Reserve Bank governor Adrian Orr issued a statement last year urging banks not to blanket de-risk by denying money remittance companies bank accounts.

"Anti-money laundering laws are not an excuse to ‘de-bank’ or ‘de-risk’ from the Pacific Islands," Orr said.

"The Pacific Islands are generally lower risk countries. In fact the Australian to Pacific remittance corridor was assessed as presenting a low risk of money laundering and terrorism financing, according to Austrac, the Australian government agency responsible for detecting criminal abuse of the financial system."

Bell acknowledges the Reserve Bank has put out "beautiful press releases" about the issue, but to his mind it has not gone far enough.

It is why his company is taking part in a judicial review action against the Reserve Bank, alongside Ink Patch Money Transfer, Samoa Money Transfer and Samoa Finance Money Transfer.

The case was heard before a High Court judge in April and revolves around directions to banks that the Reserve Bank is choosing, or not choosing, to make when it comes to how banks interpret AML-CFT rules.

In recent months this court case is what has given Lawrence hope that things might change.

Lawrence is in is 20s, but his life these days doesn't involve a lot of socialising or partying like others of his age.

He tries to stay away from nights out because he doesn't want to get sick.

Lawrence knows that if he takes a sick day then his partner, or somebody else, will have to take over the process of collecting the money and dropping it off – and he doesn't want to put them in danger.

The rest of his day is spent worrying about what he can do to keep costs low.

He is conscious that every payment he picks up is coming from someone equally hardworking who trusts him to keep his overheads down so that their family in Samoa can have more money to live on.

"Once you get in charge of all this cash, you just have to have the discipline because then you realise this is actually other families’ money."