Kiwibank said it considered the money remitting business of E-Trans posed too great a risk or burden to it under anti-money laundering rules that came into force in 2013.
Kiwibank said it considered the money remitting business of E-Trans posed too great a risk or burden to it under anti-money laundering rules that came into force in 2013.
Kiwibank breached its legal duties by adopting a blanket policy refusing services to money remitters because of concerns over risks under anti-money laundering rules, the High Court heard this morning.
Auckland-based E-Trans International Finance - a foreign exchange dealer and money remitter - was told by Kiwibank in March last year of a decision to close its accounts.
The state-owned bank, which E-Trans had banked with since 2004, said it considered the business posed too great a risk or burden to it under anti-money laundering rules that came into force in 2013.
These rules require financial institutions such as banks or casinos to perform due diligence on customers, monitor accounts and report suspicious transactions to the police.
E-Trans was told in an email last year that Kiwibank had changed its policy towards money remitters and that its accounts would be closed in April.
E-Trans then went to the High Court and got an interim injunction to keep its accounts open.
Whether or not that will remain the case will likely depend on the outcome of a six-day hearing that kicked off this morning with duelling Queen's Counsels.
E-Trans is represented by Jim Farmer and Kiwibank by Tom Weston.
Kiwibank's position is that it can close down customer accounts without reason when giving 14 days' notice, the court heard.
It can't say 'we're very poor - sorry we can't carry out our obligations, we've got to get rid of a whole group of customers because it's too costly'.
However, Farmer argued that Kiwibank had breached its statutory duties under anti-money laundering rules by adopting a "blanket de-risking policy" of not allowing any currency remitters to use its services.
Farmer pointed to a statement from the Reserve Bank last year which he said chided banks for such a policy.
"We've suffered loss as result of that policy because we're going to be put out of business if that's allowed to happened," Farmer said."
Farmer said that anti-money laundering laws required banks to perform an individual risk assessment in respect of each of its customers.
"Avoidance of those obligations by adopting the policy that Kiwibank and other banks had adopted and thereby using the Act as an unprincipled justification for closing E-Trans' account will cause loss to E-Trans by virtue of putting it out of business," Farmer told the court.
We've suffered loss as result of that policy because we're going to be put out of business if that's allowed to happened.
Farmer said that although there was an attempt by Kiwibank to say there were specific reasons as to why it decided to close E-Trans' accounts, this was nothing more than Kiwibank and other banks' policy of not dealing with money remitters.
For Kiwibank to say that it didn't have the resources to carry out its obligations under the law, "doesn't bear scrutiny", he said.
"It can't say 'we're very poor - sorry we can't carry out our obligations, we've got to get rid of a whole group of customers because it's too costly'," Farmer told Justice Paul Heath, who is hearing the case.
Farmer said having a bank account was an essential part of E-Trans doing business.
Kiwibank had become the bank of "last resort" for money remitters because the larger financial institutions "had got in earlier with their policy of blanket de-risking".
But of the 100 or so money remitters that were with the state-owned bank, only three remain, Farmer said.
He said reporting entities under anti-money laundering laws were required to co-operate with each other.
"If Kiwibank has a concern about monies passing through that [E-Trans] account or a particular source, it should talk to E-trans...Kiwibank at no time has ever adopted that common sense - and we would say statutory - requirement of co-operation with E-Trans," he said.
