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Kiwibank blocked from closing money remitter's accounts

Kiwibank blocks from closing money remitter's accounts

By Paul McBeth

July 1 (BusinessDesk) - Kiwibank has been blocked from closing E-Trans International Finance's bank accounts after the money remitter challenged the state-owned lender's move in the High Court.

In March, the Wellington-based bank told E-Trans it was going to close the firm's accounts because its business as a remitter posed too great a risk and burden to Kiwibank under the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT), which places stricter controls on cash flows. E-Trans opposed the decision, saying it breached the Code of Banking Practice, and sought a court order to keep the accounts open pending a full hearing in the High Court in Auckland.

In a June 23 judgment published on the Ministry of Justice's website, Justice Mary Peters sided with E-Trans, restraining Kiwibank from closing any and all accounts and facilities with the company until the outcome of the money remitter's proceedings. The company sends money mainly to Asian countries on behalf of its New Zealand clients.

Justice Peters said the balance of convenience fell in E-Trans' favour because the legislation was in effect when E-Trans opened its most recent account, and because the company would probably have to close without an account at a major trading bank.

"That outcome should be avoided if E-Trans establishes a serious issue to be tried, as it has," the judge said. "I have considered whether damages would provide an adequate remedy to E-Trans. I am not satisfied that they would, given the consequences to which I have referred."

The AML/CFT legislation came into effect in mid-2013, increasing the monitoring of financial firms in a bid to stamp out as much as $1.5 billion of money laundering. Lenders bear the cost of increased compliance.

E-Trans shareholder and director Xiaohua Sun told the court in evidence that eight of 15 specialist money remittance and currency exchange providers trading in Auckland had their bank accounts closed, forcing them to scale back their operations.

"On the evidence before me there is no prospect of E-Trans opening an account or accounts with another major trading bank if Kiwibank closes the accounts," the judge said.

Kiwibank argued that the burden and risk under the legislation arising from E-Trans' custom was disproportionate to the return, though the money remitter disputes the lender's analysis of the business and burden imposed by the act.

"Moreover, E-Trans has previously expressed a willingness to compensate the bank for additional costs if needs be," Justice Peters said.

The matter was scheduled to be called today where the parties were to file papers setting out the directions sought from the court.


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