The cost of government and local body compliance is strangling New Zealand small and medium-sized businesses (SMEs). It needs to be reduced to assist small businesses to be more viable. Recent changes in legislation have affected SMEs to the point where they’re drowning in paperwork. This matters when small businesses employ 29 per cent of our workforce and contribute over a quarter of our GDP.
The ripple effect includes small businesses going under, as well as being harder to sell, loss of business confidence, landlords quitting the rental market, a reduction in rental properties, increased rents, and elderly people unable to afford to do up their houses or fix their leaky homes.
In the real estate industry our administration costs have increased as a result of the onerous research and compliance responsibilities landed on businesses following the amendments to the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act that came into effect on 1 January this year. Other business sectors are also affected by the Act. This includes conveyancers, many lawyers and accountants, some businesses that deal in expensive goods and betting on sports and racing.
Each year about $1.35 billion from the proceeds of fraud and illegal drugs is laundered through everyday New Zealand businesses.
I’m all for reducing money laundering, there’s been far too much of it in recent years – and the government did little about it for a long time. Money laundering is very bad for our economy and ultimately for our communities. And I suspect it’s still going on, despite all the efforts to stamp it out. But why should a SME like mine have to bear the brunt of the additional administration costs of complying with the Act?
Before we can list a property we now have to investigate the owners, verify their identity and prove they actually own the property they wish to sell. To the majority of sellers, who are law-abiding citizens, I’m sure this feels like an intrusion. It may even feel like we’re using a sledgehammer to crack an egg. But it’s the law.
If the property is owned by a company or a trust even more people’s identities have to be verified. It can take us days to locate trustees, particularly if they’re overseas and/or don’t speak English. Plus we have to get hold of copies of the trust deed.
If we can’t 100 per cent identify the owners, then we can’t list the property, it’s as simple as that.
We also have to verify the identities of any buyers who pay cash deposits of $10,000 or more and find out where their money came from. We have to submit a Prescribed Transaction Report to the Police Financial Intelligence Unit (FIU).
We’ve also had to develop an in-house risk assessment and compliance programme and monitor it regularly, as well as submit an annual report to the Department of Internal Affairs. We’ve had to pay for staff training to get everyone up to speed. Five workshops to date and counting. And who bears the cost of all this extra administrative work and training? Yep, our company. Are we given any help or compensation for the extra paper work involved in doing the government’s work? Zero.
If we don’t comply with our obligations under the amended Act we’ll be clobbered with penalties. This could range from a formal warning to a massive fine and possible imprisonment. I want to help stamp out money laundering, but I know my company is not the only one hurting from the extra costs being incurred.
And the real estate industry is not the only one overwhelmed by red tape. The increasing cost of compliance is a daily reality for most of us in business who are striving to comply with ever-changing standards and expectations.