Lan’s Enterprise Limited Training Program
2024 Q1 Training
22 November 2019
This is NOT a money-laundering prosecution. Rather, this case tests whether the Company complied with its obligations under the AML/CFT Act.
First criminal prosecution under New Zealand’s AML/CFT regime.
By this logic, the dealers, the compliance, the management and the director could all be liable should the Company be found to be failing its obligations under the AML/CFT Act.
Personal liability follows corporate liability.
Section 101 - Mother only
Structuring a transaction to avoid the application of AML/CFT requirements
Section 91 - All defendants
Failing to conduct customer due diligence as required under the Act
Section 92 - All defendants
Failing to report a suspicious transaction to the Commissioner
Section 95 - All defendants
Failing to keep or retain adequate records relating to a suspicious transaction
If a job is worth doing, it’s worth doing right.
Partial compliance is insufficient. One compliance failure can result in criminal prosecution despite otherwise compliant systems.
Definitions, scope, application of the Act
Subpart 1: Customer Due Diligence obligations (simplified, standard, enhanced)
Subpart 2: Suspicious transaction reporting duties
Subpart 3: Record-keeping requirements for transactions
Subpart 4: Compliance programmes and compliance officers
Civil and criminal enforcement regimes for non-compliance
Section 78: Defines civil liability acts
Section 91: Civil liability act done knowingly or recklessly = criminal offence
Supervisory bodies, miscellaneous provisions
DIA resurrected its interest in the Company after contact by Police investigating Mr A (high net worth client - $36.2 million in transactions).
23 June 2016: DIA notified Company of on-site inspection
24 August 2016: Inspection conducted with specific focus on Mr A’s transactions
DIA required documents including employee lists, training logs, and bank account lists
7 September 2016: DIA served notice requiring production of documents
Request included: All records (standard and enhanced CDD) relating to customers, enabling transaction reconstruction, including originator and beneficiary information
“A person commits an offence if the person structures a transaction (other than a transaction that involves the cross-border transportation of cash) to avoid the application of any AML/CFT requirements.”
Applies when dealers:
Verdict: Mother found GUILTY on Charge 1
Reporting entity must conduct CDD on:
Section 11(2): A customer who is an individual shall be treated as the beneficial owner UNLESS the reporting entity has reasonable grounds to suspect that customer is not the beneficial owner.
Recklessness established by:
Unreasonable action: One that a reasonable and prudent person doing their best to comply with the law would not take.
Company failed to conduct CDD on Mr A as required.
All defendants found GUILTY on Charge 2:
A reporting entity commits an offence if:
“A reporting entity commits an offence if the reporting entity fails to keep or retain adequate records relating to a suspicious transaction.”
Judge’s finding:
“The most telling indicia is the volume and frequency of remittances over an extended period without any stated or recorded commercial objective other than the inherent purpose of removing money from China.”
Volume and frequency at the centre of this matter.
Company found GUILTY:
Director and Mother found GUILTY:
First determination of pecuniary penalties under AML/CFT Act
[2017] NZHC 2363 - Money remitter case
Established the objective test for suspicious transactions
“The test of whether a transaction is ‘suspicious’ is objective, and not subjective.”
Reporting entities must report any transaction that is “objectively suspicious.”
“Where an objective observer would conclude that reasonable grounds for suspicion were known to the reporting entity, it is no defence that the reporting entity did not actually consider the transaction to be suspicious.”
Your personal opinion does not matter. The standard is what a reasonable observer would conclude.
“The obligation to report must be held to arise when the reporting entity either becomes aware of the facts constituting the reasonable grounds for suspicion, or by reasonable diligence would have become aware of them.”
Wilful blindness is not a defence.
The Crown suggested that the director’s explanations of the transactions:
Judge determined that the defendants did lie.
“The defendants’ fate were decided when they lie.”
“Half measures availed us nothing.” Even with mostly compliant systems, one significant failure can result in criminal prosecution.
Directors, compliance officers, managers, and dealers can all be held personally liable through derivative responsibility.
Your subjective belief about whether a transaction is suspicious is irrelevant. What matters is what a reasonable observer would conclude.
Repeated transactions over extended periods without clear commercial purpose are highly suspicious, especially when involving funds leaving the country.
Fabricating explanations or lying to investigators destroys credibility and determines your fate. Honesty and transparency are paramount.
Treating any client as exempt from AML/CFT obligations (claiming they’re “personal” clients, not company clients) is unlawful and will be prosecuted.
Failing to maintain adequate records compounds other violations. Documentation is your defence and legal obligation.
This was New Zealand’s first AML/CFT Act criminal prosecution
Derivative liability extends to all staff levels
The objective test for suspicion applies
Volume and frequency are telling indicia
Credibility determines outcomes
Partial compliance is not compliance
As a financial institution committed to upholding the highest standards of integrity and compliance, we must remain vigilant and steadfast in adherence to AML/CFT obligations.
Stay focused on the bigger picture: regulatory compliance and ethical conduct over immediate profits.