Penalties totalling $7.5m will be paid to the Crown after two remittance companies breached money laundering prevention laws.

Following a decision from the Auckland High Court, Auckland-based OTT Trading Group (OTT) was fined $3.1m, while Christchurch-based MSI Group Ltd (MSI) was fined $4.4m.

In the case the Department of Internal Affairs alleged both OTT and MSI had breached their obligations between May 2014 and April 2019.

In a decision released today, Justice Graham Lang laid out the pecuniary penalties and restrained OTT from carrying out work of a financial institution.

Advertisement

Auckland-based MSI Financial was owned by Ye Duan and employed Tonghui Qi.

Duan incorporated MSI in 2014 to provide financial services in Christchurch.

However, according to the decision it was never registered as a financial services provider and at no stage submitted an annual report.

Despite that MSI undertook or processed at least $213 million in transactions.

OTT was incorporated later in 2014 and registered as a financial services provider in January of the following year.

"At all material times, Mr Qi was its director and shareholder," Justice Lang said.

"Between 2015 and 2019 OTT processed at least $196 million in customer transactions."

More than a third of these required enhanced due diligence due to their value.

Advertisement

A desk-based review of MSI Financial's compliance in early 2015 discontinued when it told the Department it planned to cease offering financial services at the end of March.

"It did not tell the Department that it planned to transfer its business to MSI and OTT, or that it had any connection with those entities," Justice Lang said.

In February 2015, the Department - unaware of the connection to MSI Financial - contacted OTT querying the nature of its business operations.

"In response, Mr Tonghui Qi sent the Department an email attaching a compliance programme in the form of a slideshow, together with a blank document purporting to be a risk management assessment."

In April 2015, OTT's premises in Mount Albert was visited by a compliance officer who observed material relating to MSI Financial.

"Mr Qi said that OTT was his company although he had also worked for MSI Financial for 10 years and still worked for that company."

Advertisement

It was relayed the Department believed MSI Financial had ceased trading.

"This prompted Mr Qi to begin a lengthy telephone conversation in Mandarin with an unknown individual," Justice Lang said.

A later email from OTT explained it was incorporated so Qi could take over MSI Financial's operations, clients and databases.

It was not mentioned that Duan had incorporated MSI or that it was providing money remittance services in Christchurch.

It later transpired, OTT had not put into place its risk assessment procedures, and its practices were "inadequate or non-existent in terms of due diligence and recordkeeping".

A formal warning asking for the problems to be fixed was issued in early 2016.

Advertisement

A 2017 OTT risk assessment, would disclose for the first time that it had acquired MSI Financial in October 2015.

"It also disclosed that OTT had a customer due diligence agency agreement with MSI that had been formalised in 2015, and that MSI offered its services exclusively to OTT."

In one case, it appeared that nobody from OTT had even met one of its clients, despite the total value of transactions undertaken by that client exceeding $2.5 million, Justice Lang said.

The court heard the Department had been told the relationship between OTT and MSI was based on a verbal agreement rather than a written one.

In September 2017, the Department was then told that MSI had been wound up with its business transferred to OTT earlier that year.

Justice Lang said both OTT and MSI had engaged in repeated, prolonged and serious
contraventions of the law.

Advertisement

"I am also satisfied that, if an injunction is not granted, OTT is likely to continue to contravene the Act."

The MSI Group had already been struck off the Companies Register but was reinstated solely for the purposes of this proceeding.

"I consider it unlikely that MSI will resume trading, or that there is any practical purpose of issuing injunctive relief against it."

OTT was ordered to pay to the Crown a penalty of $3.1m, while the MSI Group would pay $4.485m.