Two companies fined $7.5 million for breaching money laundering laws

Wednesday, 22 July 2020

Failing to check customers’ identities and the source of their money has seen heavy fines imposed on two companies.

Two remittance companies have been fined a total of $7.5 million for breaching laws to prevent money laundering.

The Auckland High Court has fined Auckland-based OTT Trading Group Ltd $3.1m and Christchurch-based MSI Group Ltd $4.4m.

The penalties resulted from civil proceedings by the Department of Internal Affairs taken under the Anti-Money Laundering and Countering Financing of Terrorism Act.

OTT and MSI were part of a group providing money remittance and foreign exchange services in New Zealand and Australia.

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The Department of Internal Affairs says an estimated $1.3 billion from fraud and illegal drugs was laundered through New Zealand businesses every year.

Director of the Department of Internal Affairs anti-money laundering group Mike Stone said such businesses were at high risk of being used by criminals to disguise and conceal the proceeds of crime, and OTT and MSI repeatedly tried to avoid scrutiny and assurance checks.

Breaches of the act had occurred over a five-year period, and he said “aggravating conduct” included multiple attempts to mislead the department.

A restraining injunction was granted against OTT, and followed similar injunctions in May against three individuals associated with both companies: Tonghui Qi, Lee Chon Woon, and Ye Duan.

According to the judgmentt, MSI was incorporated in 2014 but was never registered as a financial service provider, and never submitted an annual report, despite undertaking or processing at least $213m in transactions.

Department officials investigating MSI in 2017 were told it converted New Zealand currency into Chinese currency and had about 2000 customers, some of whom brought cash to the company premises, while others transferred it to MSI’s bank account.

Checking of MSI transactions showed many lacked any verification of the customer’s identity, and customers were not asked to provide evidence of the source of their funds.

A staff member told investigators that MSI had been wound up and its business transferred to OTT, which also regularly failed to conduct even standard due diligence of customers, and did not complete enhanced due diligence on transactions totalling more than $60m.

Efforts were made to mislead the department by disguising the relationship between OTT, MSI Financial and MSI Group, and to hide the true nature of the group’s activities.

Stone said the department gave OTT and MSI many opportunities to meet their obligations, but those attempts were ignored or obstructed, and it will seek enforcement of the penalty and costs.

He said an estimated $1.3 billion from fraud and illegal drugs was laundered through New Zealand businesses every year.

It was important to maintain trust and confidence in the integrity of the financial system, and businesses that breached money laundering laws would face enforcement action.