The details of a judgment in a case brought by the FMA highlight the importance of good governance and director education. In the details below I draw your attention particularly to the comments by the judge in the last five paragraphs in the quoted section below.
CLSAP Premium New Zealand Limited, formerly known as KVB Kunlun, has been ordered by the FMA to pay $770,000 for anti-money laundering breaches under the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act. The FMA made a case in the Auckland High Court in June claiming that CLSAP NZ didn’t comply with its obligations under the AML/CFT Act between April 2015 and November 2018. The FMA’s case was focused on transactions undertaken by 10 CLSAP NZ customers. The FMA and CLSAP NZ filed an agreed statement of facts where CLSAP NZ admitted:
- failures to conduct enhanced customer due diligence in relation to 12 transactions;
- failure to conduct customer due diligence in relation to one customer;
- failures to terminate existing business relationships when customer due diligence could not be completed;
- failures to report suspicious transactions / activity on nine occasions; and
- failure to keep records as required under the AML/CFT Act
“CLSA Premium New Zealand Limited (CLSAP NZ) has been ordered to pay a total pecuniary penalty of $770,000 for breaches of the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act, following proceedings brought by the Financial Markets Authority – Te Mana Tātai Hokohoko (FMA).
The FMA filed proceedings in June 2020, in the Auckland High Court, alleging CLSAP NZ failed to comply with its obligations under the AML/CFT Act between April 2015 and November 2018. These were the first court proceedings brought by the FMA under the AML/CFT Act.
In a judgment determining the penalty, Justice Edwards noted CLSAP NZ’s failure to obtain any evidence of source of wealth or source of funds for some of the transactions where enhanced customer due diligence was required and “the inadequate information obtained when it was sought, is particularly concerning.”
The Judge said although CLSAP NZ had an AML/CFT programme, policies, and dedicated compliance staff, the mitigating effect of those features on the penalty was undermined by several factors:
CLSAP NZ was warned by the FMA about its substandard AML/CFT programme in 2014 and, despite improvements, the FMA identified further issues in 2018
CLSAP NZ’s executive directors interfered with compliance, including by suspending information collected on source of wealth/funds in 2017, and one director vouching for a customer’s source of wealth/funds
Two CLSAP NZ compliance officers resigning over the relevant period due to disagreements with CLSAP NZ directors, with one director saying a “bendier” compliance officer was required
When one customer refused to provide information sought, CLSAP NZ was willing to accept inadequate information, including objectively suspicious information, to retain business.”
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