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Wednesday, December 2, 2015

New Zealand Kills Off iPredict Betting Market

We can't have people laundering $28, can we?


When I visited Australia and New Zealand back in 1991 they seemed like much freer countries than America. Probably they still are. But I was disappointed to see this:

Over the past seven years, the team at Victoria Link have been running New Zealand’s only prediction market, iPredict. It is one of only three “commercial” prediction markets operating globally. We’ve really enjoyed turning it from research into a practical tool which has become part of the New Zealand political narrative.

Prediction markets function based on the assumption that people will be more accurate when they back their opinion with money. There is a wide academic field studying this, and it could one day result in more accurate forecasting of a huge variety of events and even change how governments make decisions.

As prediction markets do not comfortably fit within any existing regulatory boxes, we have been working closely and positively with the Financial Markets Authority (FMA) to enable us to operate economically within the financial market regulations.

Regrettably the Ministry of Justice has not been so positive. We applied for an exemption from the Anti-Money Laundering and Countering Financing of Terrorism Act. We believed we would secure an exemption due to the limited possible investment into iPredict trades and the small nature of the Prediction market transactions.

Our application has been declined by the Minister, Simon Bridges, on the grounds that we are “a legitimate money laundering risk”. This is essentially because we have no customer due diligence checks. He considered the level of regulatory burden is proportionate to the risk. He formed these views without any discussions with us.

We are an academic not-for-profit organisation and our agreement with the FMA dictates we place caps on transactions. For example, over the past seven years, we have handled a total of 3,782 withdrawals, with an average trader net worth of $41. Our withdrawal process is lengthy and we are a low risk of money laundering.

Because the cost of compliance is too high, we are forced to wind up operations in NZ.

It seems that it’s not just the US government that is anti-science — other governments are too.

Over at the blog Offsetting Behavior, they printed an email from Glenn Boyle, who helped set up iPredict:

When we were setting iPredict up between 2005 and 2008, all the holdups were technological and financial, not regulatory. Liam Mason and others at the Securities Commission were generally helpful and tried to eliminate roadblocks rather than put them in our way, and there certainly didn’t seem to be any impediments thrown at us by ministers.

I recall the money laundering bogeyman coming up only once, and then only in jest. I don’t remember the exact wording, but it was something along the lines of “you’ll probably get hit with money laundering charges if the Americans invade or we ever elect a communist government.” Ouch…

This wasn’t taken seriously at the time though. Looking back through all the various memos etc I prepared during the 3+ years iPredict was being set up, I can’t find any reference to money laundering regulation at all. I guess we were naive!

Ironically, it was a conservative government that put iPredict out of business.

Can’t have people laundering $41, which is what, $28 in US money?

This post first appeared at the Money Illusion. 

 


  • Scott B. Sumner is the director of the Program on Monetary Policy at the Mercatus Center and a professor at Bentley University. He blogs at the Money Illusion and Econlog.