After a hearing at the High Court at Auckland in July to discuss what the penalty would be for the company, which is the local subsidiary of the Hong Kong parent CLSA Premium Limited, Justice Rebecca Edwards delivered her decision last week.
The FMA, which filed proceedings in June last year, sought a global penalty of $1.2m for all four breaches, court documents read, while CLSAP NZ argued $420,000 was appropriate.
Ultimately, Justice Edwards reached a total penalty of $770,000 for the Auckland-based firm, formerly known as KVB Kunlun New Zealand Limited, which failed to comply with its legal obligations between April 2015 and November 2018.
The case, which the FMA said was the first it had brought under the AML/CFT, centred on transactions undertaken by a sample of 10 different CLSAP NZ customers, involving transactions totalling $49,551,425.
About $40.8 million of the total related to deposits made by just two customers. The court heard in July 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.
In her judgment, Justice Edwards said CLSAP NZ's failure to obtain any evidence of source of wealth or funds for some of the transactions where enhanced customer due diligence was required "is particularly concerning."
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, the judge said.
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 also interfered with compliance, including by suspending information collected on source of wealth and funds in 2017, and one director vouched for a customer's source of wealth.
Two CLSAP NZ compliance officers also resigned over due to disagreements with company directors, with one director saying a "bendier" compliance officer was required.
And 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," Justice Edwards said.
"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."
FMA head of enforcement Karen Chang said today the ruling sent a strong message there are serious consequences for firms which choose to prioritise profit over AML/CFT requirements.
"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," she said.
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.
But the directors were not parties to the proceedings.
In a statement today, CLSAP NZ chairperson David Wallace said its owners have made significant, wide reaching changes to completely transform the company over the past two years and ensure high standards of ongoing compliance.
He said the company accepted the penalty and since the time of the breaches it had appointed a new board and management team, replacing all previous office holders, and invested heavily in quality compliance.
"We understand the need to ensure full compliance. The practice and the culture of the
company have completely changed since the time of these breaches. We are very serious
about complying with both the letter and the spirit of our obligations," Wallace said.
The company's shareholder, CLSA Premium, which is listed on the Hong Kong Stock Exchange, had also committed to working through all issues in addressing previous failings, he added.
CLSA Premium deputy CEO Feng Yuan said: "We have every confidence in the new board and management of CLSAP NZ to build on the substantial programme of positive change that is already in place."
CLSAP NZ also said it had transitioned from serving a clientele that was almost entirely based in China to one largely domiciled in New Zealand.
An independent review of its compliance programme was also undertaken, with BDO, Grant Thornton and Strategi appointed as external auditors. Their recommendations were being fully implemented, the company said.
