Director loses challenge to $5.3m fine under anti-money laundering laws

The High Court said Xiao "failed abysmally" to meet the rigorous reporting and monitoring requirements of the regime in transactions totalling $105.4 million. Photo/File.

Finance company director Xiaolan Xiao has lost his challenge to a $5.3 million fine imposed under anti-money-laundering laws, with his arguments against the judgment rejected by the Auckland High Court.

Last September, Justice Kit Toogood ruled that Ping An Finance, a company that facilitated remittance of foreign funds and operated out of offices in central Auckland, "failed abysmally" to meet the rigorous reporting and monitoring requirements of the regime in transactions totalling $105.4 million.

The judge described a pattern of "calculated and contemptuous disregard" for the law as "a cultural norm" in the company, and said Xiaolan Xiao had also misled the authorities by claiming his company would cease trading from April 1, 2015, when there was clear evidence that it had continued to do operate including channelling funds through personal bank accounts. In a hearing on March 2, Xiao applied for that judgment to be set aside, saying there had been a miscarriage of justice.

That judgment was the first under the then-four-year-old anti-money laundering and financing of terrorism regime, and the judge said the penalties, including Xiao paying costs and Ping An Finance and Xiao being banned from continuing to offer financial services, were intended to be "so significant as to deter and denounce non-compliance."

The breaches were pursued under the civil rather than criminal provisions of the law, which require a less demanding level of proof than prosecution seeking a prison sentence. The Department of Internal Affairs investigation that uncovered the breaches found a failure to "keep appropriate records of 1,588 transactions, the identity and identification of 362 customers, and the establishment and continuation of 122 business relationships".

Xiao argued that the DIA's methodology and proceeding was "cavalier", and said the department misrepresented facts, abused its position and made racist inferences in the case through the media. He also said he hadn't received an email notifying him that DIA had applied to the court to obtain a judgment in the case.

Justice Toogood, in this latest judgment, said he was "wholly satisfied" that Xiao had received the email and he didn't find Xiao to be a convincing witness.

"Most significantly, Mr Xiao has not provided any evidence or reasoned grounds to support a challenge to the findings in the judgment," Justice Toogood said. "He has said only that the department's methodology and proceeding was cavalier and that he had a substantial defence."

The judge said he was satisfied that the statement of claim and notice of proceeding had been duly served in Jan. 2017, that neither the company nor Xiao had filed or served a statement of defence, and that Xiao understood the likely consequences of not filing a defence.

There was no procedural irregularity, the judgment was properly founded on the evidence, and there was no reasonable basis to conclude a miscarriage of justice, he said.

DIA is entitled to costs, the judge said, adding that he was putting Xiao "on notice" that if the parties cannot agree and the department has to formally apply for costs and is awarded them within the High Court Rules 2016, he will allow DIA costs on the costs application.