On 30 September 2017, the High Court imposed NZ$5.29 million of pecuniary (financial) penalties under the Anti-Money Laundering and Countering Financing of Terrorism Act (the AML Act). This is the first such determination under the Act.
The Act seeks to detect and deter money laundering and the financing of terrorism. Reporting entities, which currently comprise financial institutions and casinos, must conduct certain identity and verification checks on their customers (known as "customer due diligence" or "CDD"), report "suspicious transactions" and monitor customer accounts. The Department of Internal Affairs (the
DIA) is one of the three supervisors responsible for monitoring and enforcing compliance.
In this case,1 the DIA alleged that, between January 2014 and January 2015, an Auckland money remittance and forex currency services company (namely, Ping An Finance (Group) New Zealand Company Limited (PA)) and its sole director, Mr Xiaolan Xiao, "failed abysmally" to comply with obligations under Part 2 of the Act. The alleged failures related to 1,588 financial transactions totalling NZ$105.4 million. The DIA identified five causes of action (each being civil liability acts), namely PA:
- failed to carry out customer identity and verification of identity checks as part of CDD,
- failed to adequately monitor accounts and transactions,
- entered into or continued business relationships with persons who did not produce or provide satisfactory evidence of their identity,
- failed to keep transaction, CDD and other records, and
- failed to report suspicious transactions under the Act.
The DIA applied for pecuniary (financial) penalties against PA and injunctions restraining both PA and Mr Xiao from carrying on financial activities covered by the Act. The Court was required to determine whether the allegations were proved on the balance of probabilities. PA and Mr Xiao did not make any representations to the Court.
The Court found the DIA's case to be proved. The judgment concludes there had been "serious, systematic deficiencies in complying with a multiplicity of obligations under the Act" resulting in "widespread contraventions across several key areas which were not isolated or infrequent". Mr Xiao's actions were also strongly criticised in the judgment. He had "misled the Department in the course of its investigation and demonstrated a complete disregard for the Act's requirements, if not a wilful intention to flout them".
The Court agreed with the DIA submission that the failures were at the "higher end of non-compliance with the Act's requirements" and determined that the penalty imposed "must be so significant as to deter and denounce non-compliance; reflect the prescribed maximum penalty; and recognise Parliament's intention that significantly greater penalties should be awarded than in cases under the predecessor legislation, the Financial Transactions Reporting Act 1996".
The Court made orders requiring PA to pay NZ$5.29 million in pecuniary penalties. It also granted the requested injunctions against PA and Mr Xiao.
While the actions of PA and Mr Xiao are certainly at the more serious end of the non-compliance spectrum, this case again demonstrates that New Zealand is serious about AML/CFT measures and the supervisors will take action where there is deemed non-compliance with the Act.
This case serves as a good reminder that reporting entities need to actively monitor their AML compliance function (with senior management involvement). If instances of non-compliance are identified, immediate steps should be taken to rectify the situation.
Separately, we note that material amendments were made to the Act on 10 August 2017 (covered in our August issue of Corporate Reporter). The amendments, once in force, will bring additional businesses into the scope of the Act from
1 July 2018 (lawyers, accountants, real estate agents and high-value dealers). The amendments also made changes that will impact the current "Phase 1" reporting entities (noting in particular, changes to the reliance provisions and "suspicious transaction" (now "suspicious activity") requirements).
Accordingly, this may be a good time for businesses to re-visit their AML compliance function to ensure that they are meeting the applicable requirements under the Act.
If you would like to talk to us further about your AML compliance function, please contact one of our
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.