False passports used to obtain mortgages

The situation reported in the national press recently of false passports and other identification documents being used to obtain substantial loans is a timely reminder for financial institutions of their obligations in respect of suspicious financial transactions.

Financial institutions and other persons, such as lawyers and accountants, who are involved in managing funds on behalf of others currently have obligations under the Financial Transactions Reporting Act 1996 (the FTRA) to verify customers' identity and to report suspicious financial transactions.

A mortgage scam recently reported in the media involved the successful obtaining of bank mortgages totalling over $500,000 through the presentation of false identification documents such as passports and IRD certificates. The customer only gave a cellphone number and a post office box address by way of contact details and was unable to be located.

The FTRA does not set out any specific guidance as to what documentation is reasonably capable of establishing identity, what signs of alteration to a document should be checked, or when a transaction may be suspicious. The onus is currently on financial institutions to monitor market developments and determine what is reasonably capable of establishing a person's identity and whether any transaction is suspicious1.

Following the publication of a lukewarm report on New Zealand's observance with its recommendations to counter money laundering and terrorist financing by the Financial Action Task Force, an international inter-governmental body, the Government has announced that regulation in this area will be increased. Financial institutions should consequently expect a higher level of scrutiny of the level of compliance with their obligations under the FTRA.

Draft legislation dealing with the proposed increased regulation is expected to be available within the first half of this year. It remains to be seen whether this will provide further practical assistance for financial institutions in recognising and defeating fraud and forgery techniques or greater certainty for compliance with their legal responsibilities.

 

1 However, the New Zealand Police Financial Intelligence Unit has released guidelines to assist New Zealand financial institutions on complying with the requirements of the FTRA.

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