'Contemptuous disregard' earns $5.3M fine in first for anti-money laundering regime

Friday 29th September 2017

A Chinese-born New Zealander has been fined $5.3 million, ordered to pay costs, and been prevented from continuing to provide financial services in the country's first award of financial penalties for breaches of the four-year-old anti-money laundering and financing of terrorism regime.

Ping An Finance, a company that facilitated remittance of foreign funds and operated out of offices in central Auckland, "failed abysmally" to meet the rigorous reporting and monitoring requirements of the regime in transactions totalling $105.4 million, said Justice Kit Toogood, who described a pattern of "calculated and contemptuous disregard" for the law as "a cultural norm" in the company.

The breaches were pursued under the civil rather than criminal provisions of the law, which require a less demanding level of proof than prosecution seeking a prison sentence. The Department of Internal Affairs investigation that uncovered the breaches found failure to "keep appropriate records of 1588 transactions, the identity and identification of 362 customers, and the establishment and continuation of 122 business relationships".

There was evidence of "unnecessary use of several transactions to pay or receive funds from a single customer on a single day or within a short period; the presence of very large transactions; and significant high-value cash deposits".

There had been "serious, systemic 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".

Xiaolan Xiao had also misled the authorities by claiming his company would cease trading from April 1 2015, when there was clear evidence that it had continued to do so, including channelling funds through personal bank accounts.

The $5.3 million penalties were split into five categories: $1.5 million for failing to conduct due diligence on customers, $575,000 for failing to adequately monitor transactions, another $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, $1.2 million for failing to keep records and a further $1.5 million for failing to report suspicious transactions.

Xiao had shown a "complete disregard for the Act's requirements, if not a wilful intention to flout them". It was aware that such obligations existed because it prepared documentation intended to indicate compliance.

"Ping An has never taken responsibility for its manifold breaches of obligation, nor offered cooperation in rectifying them," Justice Toogood said in a 50-page judgment made public today. "The absence of any acknowledgement of the compliance failures, lack of contrition and failure to cooperate are best considered as the absence of mitigating factors, rather than aggravating factors."

The penalties were intended to be "so significant as to deter and denounce non-compliance" and Justice Toogood interpreted the relevant legislation, passed in 2009 but only in force since 2013, as allowing him to ban Ping An Finance and Xiao himself from continuing to offer financial services "until further notice of the court".

Apparently taking its trading name from one of the world's tallest buildings, the Ping An Finance Center in the Chinese city of Shenzhen, the business recorded its registered office at 220 Queen Street, according to the Companies Office, whose records show Xiao as its sole current director and shareholder and that it changed its name from Forex Finance in 2014. A second director, Xiaoxi Xu, who is listed at the same residential address as Xiao, was removed as a shareholder in 2013 but is referred to in the judgment as having been involved "in the activities giving rise to suspicion".

(BusinessDesk)

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