High Court considers penalty for CLSAP NZ anti-money-laundering law breaches over $50m in transactions

A Kiwi derivatives trading firm and subsidiary of a Hong Kong company will have to wait to learn its penalty for breaching anti-money-laundering laws.

CLSA Premium New Zealand Limited (CLSAP NZ) admitted it fell foul of Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act in a High Court settlement with the Financial Markets Authority (FMA) earlier this year.

The firm, formerly KVB Kunlun New Zealand Limited, provides various financial services, including broking, financial advice and derivatives trading. It is licensed by the FMA as a derivatives issuer.

The Auckland-based company was accused of failing to comply with its legal obligations between April 2015 and November 2018 – resulting in nearly $50 million in suspicious transactions.

As part of its agreement with the markets watchdog, CLSAP NZ admitted to failing to conduct customer due diligence, a failure to terminate an existing business relationship, failure to report suspicious transactions or activity and not keeping records in accordance with the law.

Today, the parties gathered in front of Justice Rebecca Edwards to discuss the penalty for the company.

Counsel for the FMA, Sam McMullan argued CLSAP NZ’s breaches had risked public confidence in New Zealand’s financial systems.

He asked Justice Edwards to impose a significant penalty – the maximum available to the court being $7m – to act as a deterrence from simply being considered a company’s cost of compliance.

According to court documents obtained by the Herald, the total value of the transactions identified in the agreed statement of facts for CLSAP NZ’s breaches was $49,551,425.

A redacted amount of the total related to just two customers. The court heard today the customers were high-net-wealth individuals, however, none of CLSAP NZ’s clients’ identities can be reported due to confidentiality orders.

During the relevant period, CLSAP NZ had a business relationship with between 21,000 and 37,000 customers each year, court documents state. About 95 per cent of CLSAP NZ’s clients were resident in or had a connection with China during the relevant period, while the rest were predominantly Australian and New Zealand residents.

CLSAP NZ’s counsel, Jenny Cooper QC, argued there were a “small number of incidents which do not reflect the overall conduct of the company or culture”.

She described CLSAP NZ as a responsible firm which “did take genuine steps to comply”.

“Nevertheless the company does responsibly accept it did fail to meet its obligations.”

Cooper added the case was “very different” to other AML/CFT breaches, such as the Ping An Finance and Qian DuoDuo Limited cases – both of which involved thousands of transactions not subjected to adequate scrutiny.

There were instances of inappropriate conduct by individuals at CLSAP NZ, including interference by a former director, but they were no longer at the company, Cooper said.

And she explained the breach of failing to conduct customer due diligence related to only one client.

“There is no evidence of any actual money laundering having occurred as a result of these breaches,” Cooper told the court, adding the risk of damaging the reputation of New Zealand’s financial markets was negligible.

Court documents show the FMA had issued the company a formal warning in 2014, which said the regulator had reasonable grounds to believe it had engaged in conduct constituting a civil liability act under the legislation. It led to a special audit and a CLSAP NZ board-appointed committee, responsible for overseeing compliance and internal controls functions from 2016.

But McMullan said the committee “wasn’t picking up every breach that it ought to have”.

Justice Edwards reserved her decision and indicated she would “take a little bit of time”.

“I do understand that all parties will want to finalise this matter and have it behind them.”

All three of CLSAP NZ’s New Zealand resident directors were in court for the hearing.

CLSAP NZ is the local subsidiary of the Hong Kong parent, CLSA Premium Limited, which also has offices in Sydney and Melbourne. It’s ultimate holding company is registered in the Cayman Islands, Companies Office records show.

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