CLSAP (formerly KVB Kunlun) ordered to pay $770,000 for anti-money laundering breaches
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.
The case was centred on transactions undertaken by a sample of 10 different CLSAP NZ customers, involving transactions totalling approximately $49.5 million, with $40.8 million of that total relating to deposits made by two customers.
CLSAP NZ and the FMA filed an agreed statement of facts in which CLSAP NZ admitted the following breaches:
- 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.
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.
“Taken together these features suggest that KVB’s due diligence non-compliance was not inadvertent; did not arise out of any misunderstanding as to its obligations; or occur as a result of erroneous advice. If the extremely high value nature of two of the transactions (totalling NZD 40.8m) is added to the mix, then there is a clear inference that CDD requirements were subordinated to the continuation of KVB’s relationship with high worth customers,” the Judge said.
Justice Edwards agreed with the FMA’s submission that “KVB’s failure to maintain its records in such a way as to enable them to be viewed immediately upon request, or within a reasonable time, represents a serious failure of its obligations under the Act.
The Judge concluded by saying, “[g]iven the scale, nature and circumstances of KVB’s non-compliance, I am satisfied that this penalty accurately reflects the gravity of the breaches and reflects the principles of deterrence and denouncement.”
Karen Chang, FMA Head of Enforcement, said: “We welcome this ruling as it sends a strong message that there are serious consequences for firms that choose to prioritise profit over requirements under the AML/CFT regime. It’s crucial that firms take their compliance obligations seriously, ensuring that they not only have the right programmes in place, but that these programmes are followed by staff.”
CLSAP NZ, formerly KVB Kunlun New Zealand Limited, is the local subsidiary of the Hong Kong parent, CLSA Premium Limited. CLSAP NZ provides derivatives trading services and is licensed by the FMA as a derivatives issuer but conditions imposed by the FMA prevent the firm from offering derivatives to retail investors.
The directors of CLSAP NZ during the relevant times were Rongjun (June) Zhang, Songyuan Huang (Benny Wong), Stefan Liu, Robert Manwarring Noakes and Richard Clive Pearson. The directors were not parties to the proceedings.