A Kiwi derivatives trading firm and subsidiary of a Hong Kong company has admitted breaching anti-money-laundering laws after action was taken by the regulator.
CLSA Premium New Zealand Limited (CLSAP NZ) was accused of nearly $50 million in suspicious transactions in a civil case filed in the High Court at Auckland by the Financial Markets Authority (FMA) in June last year.
Today, the FMA said the Auckland-based company has admitted it breached the Anti Money Laundering and Countering Financing of Terrorism (AML/CFT) Act. The markets watchdog had alleged the company failed to comply with its legal obligations between April 2015 and November 2018.
Court documents, viewed by the Herald, show the parties reached a settlement on the basis of an agreed statement of facts on February 18.
The FMA said in today's statement that CLSAP NZ had admitted to failing to conduct customer due diligence, a failure to terminate an existing business relationship, failure to report suspicious transactions or activity and not keeping records in accordance with the law.
A penalty hearing has been scheduled for July 5.
The firm, formerly KVB Kunlun New Zealand Limited, provides various financial services, including broking, financial advice and derivatives trading. It is licensed by the FMA as a derivatives issuer.
CLSAP NZ is the local subsidiary of the Hong Kong parent, CLSA Premium Limited, which also has offices in Sydney and Melbourne. The NZ firm's ultimate holding company is registered in the Cayman Islands, Companies Office records show.
The directors of CLSAP NZ at the time of the breaches were Rongjun (June) Zhang, Songyuan Huang (Benny Wong), Stefan Liu, Robert Manwarring Noakes and Richard Clive Pearson. The directors, however, are not part of the legal proceedings.
Financial statements filed with the Companies Office show CLSAP NZ paid out $10.1m to its owner in the form of a share buyback in December.
CLSAP also failed to obtain an unqualified audit opinion from BDO for its 2019 accounts, leading the FMA in September last year to impose conditions preventing it from offering services to retail investors relating to derivatives trading.
Recently filed 2020 accounts show the company made a $154m loss last year, up from its $14.97m loss in 2019 and that there is material uncertainty over its ability to continue as a going concern.
The company said in its accounts the continuing viability of the company was dependent upon it being successful in retaining its derivatives issuer license for the next 12 months and the settlement of the case with the FMA.
"As a result of the above factors, there is material uncertainty that may cast significant doubt on the company's ability to continue as a going concern and therefore it may be unable to realise its assets and settle its liabilities and commitments in the normal course of business and at the amounts stated in the financial statements."
However, it said the directors believe the company will be successful in achieving favourable outcomes on the matters and that it will have sufficient funds to pay its debts and meet its commitments for at least the next 12 months.
They noted the legal action and trading restrictions related to legacy issues under previous management, the directors had gone through a significant improvement of the companies processes, controls, procedures and compliance-related functions in order to ensure continued compliance with the relevant regulations.
It said its parent company had also pledged support to ensure the company could continue as a going concern.
"At this time, the directors are of the opinion that no asset is likely to be realised for an amount less than the amount at which it is recorded in the financial report at 31 December 2020.
"As such, no adjustments have been made to the financial statements relating to the recoverability and classification of the asset carrying amounts or classification of liabilities that might be necessary should the company not continue as a going concern."
BDO gave a qualified opinion of the 2020 accounts noting that management's ability to access its historical data had been restricted by a third party software provider during part of 2019 forcing the group to migrate to new systems.
"As a result, historical information relating to clients was inaccessible. Management's inability to provide direct access to the systems, restriction of access to client records and supporting documentation meant we were unable to obtain sufficient appropriate evidence around the completeness, existence and accuracy of certain amounts within in the statement of profit and loss and other comprehensive income."
Hiding millions: Fines and bans dished out in AML/CFT cases
Other breaches of the AML/CFT Act since since the specific anti-money-laundering laws were introduced more than a decade ago include a nearly $5.3m fine for Ping An Finance.
The forex firm's director and former Queen St broker Xiaolan Xiao was also convicted of laundering dirty money for a multinational drug syndicate and sentenced to community detention and community work.
In a precedent-setting 2017 judgment, Justice Kit Toogood said Ping An's penalties, including Xiao's ban from trading, were intended to be "so significant as to deter and denounce non-compliance".
He said the company "failed abysmally" to meet the rigorous reporting and monitoring requirements for 1588 transactions totalling $105.4m. Of the transactions, 173 were ruled by the judge to be suspicious and required reporting under the AML/CFT.
Xiao's breaches were revealed following a Department of Internal Affairs (DIA) investigation which began in 2015 and uncovered millions of dollars in off-shore deposits which were never reported to authorities.
An appeal of the fine was dismissed by the Court of Appeal in 2019.
The DIA also accused Qian DuoDuo Limited of not propertly checking more than $100m in in transactions. The DIA sought a fine of about $2.6m but company was hit with a penalty of $356,000 by the High Court in 2018.
Jin Yuan Finance was also ordered by the High Court to pay $4m in 2019 for not complying with the AML regime.
The 2019 trial of Jiaxin Finance, its sole director Qiang Fu and his mum and employee Fuqin Che was the first criminal case of its kind.
The Auckland firm and the mother and son pair were found guilty of failing to keep adequate records for and report 311 suspicious transactions, worth $53.4m.
Che was also found guilty of structuring a transaction to avoid AML/CFT requirements.
The company was fined $2.55m last year, while Che was fined $202,000 and Fu hit with a $180,000 personal penalty.
The $53.4m belonged to Chinese-Canadian mogul Xiao Hua Gong, also known as Edward, who is accused of running a $200m pyramid scheme.
Gong also has nearly $70m in Kiwi assets currently restrained, which are anticipated to be part of what will be a record civil forfeiture application by police.