Auckland company Ping An fined $5.29 mln for 'calculated and contemptuous disregard' for anti-money laundering laws

Ping An, a Queen Street, Auckland-based money remitter and foreign currency service provider, has been fined $5.29 million for "serious and systemic deficiencies" in complying with anti-money laundering laws.

A High Court judgment in a case brought by the Department of Internal Affairs against Ping An Finance (Group) New Zealand Company Ltd and its director Xiaolan Xiao, is the first determination of financial penalties claimed under the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act), which came into force in 2013.

The Department of Internal Affairs, one of New Zealand's three AML/CFT Act regulators, alleged that, between January 2014 and January 2015, Ping An and Xiao "failed abysmally” to comply with requirements of the AML/CFT Act with respect to 1,588 financial transactions involving a total of $105.4 million.

“In all, 173 transactions presented to the Court by the Department contained several indicia of suspicious transactions, including 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. 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," Justice Kit Toogood said.

In addition to the fine, Justice Toogood granted injunctions restraining Ping An and Xiao, until further court order, from carrying out any financial activities that would cause either of them to be deemed to be a financial institution under the section 5 of the AML/CFT Act.

Examples of suspicious transactions cited in Justice Toogood's judgement include;

(a) On 19 May 2014, four transfers from ......................to Ping An, totaling $170,000;
(b) On 11 June 2014, a $50,000 cash deposit by Mr Xiao to a customer, ................... ;
(c) On 9 July 2014 a $200,000 transfer from a customer, ..................., ................... to Ping An, followed by a $600,000 transfer from the same person to Ping An on 10 July 2014;
(d) On 24 July 2014, a $444,444 wire transfer from Ping An to a customer, .............. ....., followed by three separate payments from Ping An to that customer on 28 July of $150,000, $250,000 and $300,000.

 The full judgment is here and below is a press release covering the key points.

MEDIA RELEASE
This summary is provided to assist in the understanding of the Court’s judgment. It does not comprise part of the reasons for that judgment. The full judgment with reasons is the only authoritative document. The full text of the judgment and reasons can be found at www.courtsofnz.govt.nz

Background

This High Court judgment is the first determination of pecuniary (financial) penalties claimed under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the Act). The Act, which did not come fully into force until June 2013, creates onerous reporting and record keeping requirements for the financial sector in an effort to detect and deter money laundering and the financing of terrorism.

The case, involving transactions totaling over $100 million, arises from an investigation by the Department of Internal Affairs, which is responsible for enforcing the Act, into the activities of Ping An Finance (Group) New Zealand Company Limited (PA) and its sole director Mr Xiaolan Xiao.

Ping An is a New Zealand incorporated company that has carried on business providing money remittance and foreign currency services from offices above Auckland’s Queen Street. Mr Xiao is a New Zealand citizen born in Beijing, China. He is and has been the sole director of Ping An since its incorporation. He has also been the sole shareholder since 5 May 2015, prior to which he was a co-shareholder with various people, including a Ms Xu. During the investigation period, the company had three frontline employees and, according to Mr Xiao, was not a complex business, obtaining new customers by word-of-mouth.

The Department alleged that, between 1 January 2014 and 9 January 2015, PA and Mr Xiao, the second respondent, “failed abysmally” to comply with requirements of the Act with respect to 1,588 financial transactions involving a total of $105.4 million.

Specifically, the Department alleged PA failed to meet its statutory obligations to:

 carry out customer identity and verification of identity checks as part of customer due diligence;

 adequately monitor accounts and transactions;

 keep transaction, customer due diligence, and other records;

 report suspicious transactions in breach of relevant AML/CFT requirements in Part 2 of the Act.

The Department also alleged PA entered into or continued business relationships with persons who did not produce or provide satisfactory evidence of their identity.

Procedure

For the purposes of claims for pecuniary penalties under the Act, it is for the High Court to determine whether these allegations were proved on the balance of probabilities – the requisite standard in civil actions. In this case the respondents did not make any representations to the Court. If proved, the Act provides for a range of financial penalties and entitles the Court to issue injunctions.

Finding

The Court found the DIA’s case against Ping An to be proved. In a detailed judgment analysing each of the alleged breaches, Justice Toogood concluded 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.”
The Court described as an aggravating factor the fact that Mr Xiao, 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.

“His failures as a director and manager of the business led directly to the scale and severity of Ping An’s breaches. 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.

“In all, 173 transactions presented to the Court by the Department contained several indicia of suspicious transactions, including 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. 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.”

With respect to the company’s failure to report suspicious transactions despite the presence of external indicia that indicated they qualified as such, the Court noted that Mr Xiao and his then fellow shareholder Ms Xu were directly involved in the activities giving rise to suspicion.

Penalty

The Court found that the failure of Mr Xiao and his company to meet their obligations under the AML/CFT Act was at the higher end of non-compliance with the Act’s requirements.

It 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.

The Court made orders requiring Ping An to pay a total of $5.29 million in pecuniary penalties. It also granted injunctions 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 s 5 of the Act.