09.09.2021

AML/CFT guidance with the High Court’s decision in Reserve Bank of New Zealand and TSB Bank Limited

On 31 August 2021, the High Court of Wellington released its decision on the Reserve Bank of New Zealand v TSB Bank Limited.

The case concerned acknowledged breaches of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (Act) by TSB Bank Limited (TSB).  These breaches gave rise to civil liability; accordingly, the Reserve Bank of New Zealand (RBNZ) and TSB sought an order from the High Court to impose an agreed penalty of $3.85 million.  The Court concluded that TSB was entitled to a greater discount on the total penalty for cooperation and early admission, and reduced the penalty to $3.5 million.

This was the first civil proceedings taken by the RBNZ under the Act.  The decision provides valuable guidance not just for future judgements but also for negotiations between reporting entities and the AML/CFT supervisors.

In this article, we provide a brief overview of some of requirements of the Act and discuss the above decision.  If you would like to read the case, a copy can be found here.

Anti-Money Laundering and Countering of Financing and Terrorism Act

The Act came into full force on 30 June 2013.  The purpose of the Act is to detect and deter money laundering and the financing of terrorism, to maintain and enhance New Zealand’s international reputation, and to contribute to public confidence in the financial system.  To facilitate this, the Act imposes certain requirements on ‘reporting entities’.  In brief, reporting entities are generally businesses that manage financial transactions on behalf of clients (such as financial institutions and real estate businesses).  Some of the Act’s requirements include:

  • conducting customer due diligence;
  • keeping proper records of transactions, customers and suspicious activity reports;
  • reporting suspicious activity;
  • conducting and reviewing risk assessments for all regulated aspects of their business; and
  • maintaining adequate and effective systems for a complete and regularly reviewed compliance programme (AML/CFT programme).

 The AML/CFT supervisors – RBNZ being one of the three – are tasked with monitoring, investigating, and enforcing reporting entities’ compliance with the Act’s requirements.  If a reporting entity fails to comply with any such requirement, the relevant AML/CFT supervisor may take a range of actions, including issuing a formal warning and applying to the Court for a pecuniary penalty. 

The Act specifies certain pecuniary penalties can be imposed depending on the nature of the breach, being a maximum of either $100,000 or $200,000 for an individual, or $1,000,000 or $2,000,000 for a body corporate or partnership.  These penalties are calculated on a per breach basis, and can cumulate where there are multiple breaches.

Reserve Bank of New Zealand v TSB Bank Limited

Facts

TSB is a New Zealand owned bank, it provides retail banking in New Zealand and operated a realty business up until 22 October 2020.  At the time of the proceedings, TSB was a reporting entity for both its banking services and its realty operations up until 22 October 2020.  TSB was therefore subject to the requirements of the Act. 

In the proceedings, there was no suggestion that TSB was involved in financing terrorism, money laundering or was intentionally failing to comply with the Act.  Rather, the case was concerned with aspects of TSB’s risk assessment and AML/CFT Programme being inadequate and not being reviewed when they should have been.  TSB admitted to the following breaches:

  • in its AML/CFT programme it did not have adequate and effective procedures, policies and controls for monitoring and managing compliance with, and the internal communication of and training in, those procedures, policies, and controls;
  • it failed to review and maintain its AML/CFT programme;
  • it failed to conduct an adequate risk assessment in respect of its realty operations; and
  • it failed to have regard to certain countries it deals with in conducting its risk;

RBNZ and TSB together, agreed a penalty of $3.85 million for these breaches was appropriate and sought an order from the High Court accordingly.  The High Court assessed the proposed penalty and ultimately reduced it to $3.5 million. 

Quantum

In determining the quantum of the penalty, Mallon J noted that TSB as a registered bank, has a larger and more central role in New Zealand’s financial systems relative to other reporting entities.  The Court assessed TSB’s culpability as being at the higher end.  Moreover, TSB had received a formal warning from RBNZ in 2016.  While TSB had commissioned a report from Deloitte following that warning and had taken steps to address compliance issues, for various reasons certain relevant information had not been considered by the Board when considering whether a new Compliance Roadmap had been approved.  Consequently, the Court agreed that the proposed uplift of 5% (for two of the breaches) and 10% (for one of the breaches where there had been specific notice) was appropriate.  

However, Mallon J considered that following receipt of a further report from Deloitte in 2019, TSB took immediate steps to improve compliance with the Act.  The Court therefore took the view that the proposed 20% discount for TSB’s full cooperation and early complete admission was not sufficient.  The Court noted that the High Court’s decision would provide precedent for future negotiations between AML/CFT supervisors and reporting entities.  The Court was cognisant that discounts should be set at an appropriate level to encourage cooperation and negotiated resolutions in future instances.  Accordingly, the Court adjusted the discount to 25% in light of TSB’s “full cooperation and early and complete admissions”.

Summary

This case demonstrates that the consequences of breaching the Act are severe, and that enforcement may be taken.  As Geoff Bascand, the Deputy Governor and General Manager of Financial Stability at RBNZ, said:

“The AML/CFT Act came into effect eight years ago and we expect firms to be aware of, and to comply with, their obligations”

Parties are on notice that they ought to have robust systems and processes in place by now to ensure compliance with the Act.  Where issues of non-compliance are identified, parties are best placed to act swiftly to remedy those breaches and cooperate fully with the AML Supervisors.

If you have any questions regarding AML/CFT compliance, please get in touch with our Business Advice team or our Disputes Team.

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Kerry
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

Related Articles / Insights & Opinion

Efficiency in Focus: The High Court at Auckland’s New Commercial List
On 13 June 2025, Justice Fitzgerald announced the introduction of a new Auckland High Court Commercial List (Commercial List) which is expected to come into operation in October 2025.  Justice Fitzge...
17.07.2025 Posted in Disputes
Supreme Court Defines the Scope of Duty and Damages in Professional Negligence: Routhan v PGG Wrightson Real Estate Ltd [2025] NZSC 68
In a significant judgment with implications for professionals who provide advice or information, the Supreme Court of New Zealand in Routhan v PGG Wrightson Real Estate Ltd [2025] NZSC 68 has clarifie...
15.07.2025 Posted in Disputes
construction meeting e
Referring to Other Documents and When to Bring Proceedings: The High Court Provides Useful Guidance in Issuing and Relying on Payment Schedules
The High Court has provided useful guidance for contractors in issuing and assessing payment schedules under the Construction Contracts Act 2002 (CCA) in its recent decisions in Chillex Services Ltd v...
10.07.2025 Posted in Construction
Rewriting the Risk: Lessons from John Sisk & Son Ltd v Capital & Centric (Rose) Ltd [2025] EWHC 594 (TCC)
A recent decision by the English High Court, John Sisk & Son Ltd v Capital & Centric (Rose) Ltd [2025] EWHC 594 (TCC), considered the interpretation of a risk allocation provision under a besp...
09.07.2025 Posted in Construction & Disputes
Can Contractors Terminate for Repeated Late Payment? Key Lessons from Providence v Hexagon
The decision of the English Court of Appeal in Providence Building Services Ltd v Hexagon Housing Association Ltd [2024] EWCA Civ 962 provides important guidance on a contractor’s termination right...
09.07.2025 Posted in Construction & Disputes
Property
Make Your Premises Good Again
With all the time, effort and cost that goes into taking on a new lease of commercial premises, what happens when it comes time to move on can seem unimportant. It is not surprising, then that make-go...
25.06.2025 Posted in Property
Flooded car
Flooding due to overland flow paths and damaged drainage
Persistent heavy rainfall across the country often results in damage to property due to flooding caused by overland flow paths and defective drainage.  But who is responsible for the cost of the dama...
17.06.2025 Posted in Climate Change & Property
SEND AN ENQUIRY
Send us an enquiry

For expert legal advice, please complete the form below or call us on (09) 375 8700.