New Zealand Law Society - $5.29 million in penalties for AML/CFT compliance failure

$5.29 million in penalties for AML/CFT compliance failure

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Pecuniary penalties totalling $5.29 million have been imposed on New Zealand company Ping An Finance (Group) Ltd for failure to comply with its obligations under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

Delivering his judgment in the High Court (Department of Internal Affairs v Ping An Finance (Group) New Zealand Company Ltd [2017] NZHC 2363), Toogood J pointed to "serious, systemic deficiencies" by the company in complying with a multiplicity of obligations under the Act which resulted in widespread contraventions across several key areas which were not isolated or infrequent.

He said the company's sole director and shareholder, Xiaolan Xiao, misled the Department of Internal Affairs in the course of its investigation and demonstrated a complete disregard for the Act's requirements "if not a wilful intention to flout them".

Overall, Ping An failed to keep appropriate records for 1588 transactions totalling $105,413,026.44, the identity and verification of 362 customers, and the establishment and continuation of 122 business relationships. 

The department presented 173 transactions in evidence which contained several indicators of suspicious transactions.

"Nevertheless, Ping An failed to submit a single suspicious transaction report in respect of any of the 1588 transactions it conducted during the relevant period. It is not difficult to infer that the company's non-compliance amounted to a calculated and contemptuous disregard for the AML/CFT requirements, and that non-compliance was a cultural norm within the business," Toogood J said.

Ping An was incorporated in 2009 and provided money remittance and foreign currency services from offices in Queen Street, Auckland.

Toogood J found that the failure of the company and Mr Xiao to meet their AML/CFT obligations was at the higher end of non-compliance with the Act's requirements.

"I have determined that any pecuniary penalty imposed under the Act 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," he said.

Broken down, the pecuniary penalties were $1,495,000 for failing to conduct customer due diligence, $575,000 for failing to adequately monitor accounts and transactions, $575,000 for entering into or continuing a business relationship with a person who does not produce or provide satisfactory evidence of the person's identity, $1,150,000 for failing to keep records, and $1,495,000 for failing to report suspicious transactions.

Toogood J also granted an injunction restraining Ping An and Mr Xiao, until the further order of the Court, from carrying out any financial activities that would cause either of them to be deemed to be a financial institution as defined in section 5 of the Act.

The respondents are also required to pay the department scale costs calculated on a category 2C basis across all steps in the proceeding, and disbursements.