In their second assessment on money laundering and financing terrorism, police say most of the laundering is from drugs and fraud.
Drugs account for $750million, fraud for $500m and other offences such as burglary another $100m.
Police’s Financial Intelligence Unit manager Andrew Hill said the actual figure were likely to be much higher.
“We can only estimated the generated value,” he said.
“What the [money launderer] has to do is put the money through as many transactions as they realistically can to distance themselves from the criminal origin of the money.”
Mr Hill said said money laundering caused real harm to New Zealand.
“These crimes cause direct financial losses to individuals, community harm, and in some cases loss of human life.
“Successful money laundering allows criminals to enjoy profits and furthers the cycle of criminality by making funds available for reinvestment in crime.
“High-profile money laundering and criminality cases also cause reputational damage, particularly on New Zealand’s brand as a good place to do business.”
The threats also come from outside New Zealand, with instances of foreign criminals using New Zealand to set up companies and trusts in order to hide illicit funds.
Mr Hill said New Zealand was also at risk from terrorists seeking to use the country as a conduit for its financing operations or to raise funds here.
The International Monetary Fund estimates 2 percent to 5 percent of global GDP – or $US2trillion – is related to criminal activity.
In New Zealand, the figure is estimated at 1 percent of GDP.
“It’s lower [in New Zealand] than what other countries experience but still significant,” Mr Hill said.
Successive governments have toughened up rules as part of global efforts to combat money laundering.
Anti-money laundering and countering the financing of terrorism legislation are now in place, and further measures to tighten up the rules are in train.
“We’ve been really pleased with the response from professions in coming on board to ensure those sectors are protected from money laundering and terrorism financing,” Mr Hill said.
Police also launched its first dedicated money laundering investigations team in April 2017.
Mr Hill said the number of charges had risen from four a month before the eight-strong team started last year, to around six a month, mainly related to drugs.