15.04.2021

How to break up with a suspected money launderer: High Court Guidance

The High Court has provided guidance on how to end a business relationship with a suspected money launderer.

Ending a business relationship with a suspected money launderer does not excuse a reporting entity from an obligation to repay its debt to its customer. A reporting entity which suspects that its customer is a money launderer must stop acting for that customer and return the customer’s funds. This is what the NZHC has held in Arjang v NF Global Limited.

The key issue of the case related to whether customers of NF Global Limited (NF Global) had the ability to call for repayment of their debts by NF Global and were creditors notwithstanding that NF Global suspected they were money launderers.

The Court held that NF Global must repay its debts to its customers, notwithstanding NF Global’s money laundering concerns and its requirement to terminate its business relationships with those customers pursuant to section 37(1)(b) of the Anti-Money Laundering and Counter Financing Terrorism Act 2009 (Act).

Facts

NF Global offered an online payment platform where customers lodged funds with it to make international transfers.  This made NF Global a reporting entity. Accordingly, it was required to comply with the obligations under the Act, which include completing customer due diligence (CDD) checks.  This involves the reporting entity being satisfied that a customer is who they claim to be, and in some instances, where the customer’s funds come from.

Customers lodged funds on NF Global’s platform and subsequently asked for their money back. NF Global refused to pay.  The customer then served a statutory demand and brought a proceeding to liquidate NF Global on the ground that it could not repay their debts.

NF Global’s defence for non-repayment was that it could not discharge its CDD obligations in respect of the customers in accordance with the Act.  It claimed that as NF Global was required to terminate its relationship with those customers in this circumstance, the customers could not call on NF Global for the repayment of their debt.

High Court Guidance 

The Court rejected NF Global’s claims and provided guidance on what NF Global should have done when it was unable to conduct CDD on its customers in accordance with the Act.

  • Under section 37(1)(b) of the Act, NF Global was required to terminate its business relationship with the customers. This meant NF Global could no longer carry out transactions for those customers or continue charging them fees.
  • Past transactions were not required to be undone.
  • In the absence of a contractual provision allowing NF Global to keep the money on termination of the business relationship under section 37 of the Act or any restraining or forfeiture orders, NF Global was required to return all of the customer’s funds on termination of the business relationship. Even if not all funds were suspect, NF Global was not permitted to retain any of the customer’s funds.
  • NF Global was required to return the funds to the customer, not to the source, unless the customer directed the funds to be repaid to the source. As an extra layer of precaution, NF Global could have asked the customer to designate a NZ bank account or a solicitor’s trust account as the destination account for the returned funds.

The Court also provided that where NF Global terminated its business relationship with a customer pursuant to section 37 of the Act, it could not be liable for breach of contract for terminating that relationship under section 9(2) of the Act.

Key takeaways

Where a reporting entity is unable to conduct CDD on a customer in accordance with the Act, it must terminate the business relationship.  This means the reporting entity must not provide its services to the customer anymore (e.g. provision of credit, remittance of funds).  They must also stop charging fees (e.g. lending fees, account fees) to the customer.

Generally, a customer is entitled to have the funds returned to it on termination of the business relationship with a reporting entity, notwithstanding a reporting entity’s money laundering concerns in respect of the customer.The requirement to repay is subject to any contractual right to the contrary and any restraining or forfeiture orders.

If you would like any assistance or advice regarding your obligations under the Anti-Money Laundering and Counter Financing Terrorism Act 2009, including how to conduct customer due diligence, preparing a risk assessment and programme for your business, please get in touch with Sarah Gibbs or Christine Leung of our Business Advice Team or your usual contact at Hesketh Henry.

 

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

Fern forest NZ
Bioenergy in New Zealand: Fuels for the Future?
The energy transition from combustion fuels to low carbon alternatives is viewed as critical in the race to cut global CO2 emissions and reach climate targets.  We look at some of the opportunities p...
14.11.2023 Posted in Business Advice & Climate Change & Forestry
Will Wide BW
A well drafted will is a craft
The New Zealand do-it-yourself “DIY” attitude and way of life is not limited to home improvements, but sometimes also extends to wills.  Recently we had a DIY $5.99 fill in the blanks will acros...
07.11.2023 Posted in Private Wealth
rsz large pillars
Health and Safety: The Consequences of Dishonesty
Siddhartha Gautama said that lies are like huge, gaudy vessels, the rafters of which are rotten and worm-eaten, and that those who embark in them are fated to be shipwrecked.  Two remarkable health a...
03.11.2023 Posted in Employment & Health & Safety
Properly sequencing your Construction Adjudications: Henry Construction Projects Ltd v Alu-Fix (UK) Ltd
According to the UK’s Technology and Construction Court (TCC) (in Henry Construction Projects Ltd v Alu-Fix (UK) Ltd [2023] EWHC 2010) valid payment claims must be paid before the underlying merits ...
30.10.2023 Posted in Construction & Disputes
Key change to rules on distribution of surplus assets under the new Incorporated Societies Act 2022
On 5 October 2023, the new Incorporated Societies Act 2022 (2022 Act) came fully into force, replacing the Incorporated Societies Act 1908 (1908 Act). One of the key requirements under the 2022 Act is...
18.10.2023 Posted in Business Advice
Construction Framework Wide BW
Major milestone passed – NZS3910:2023 expected in time to fill Christmas stockings
As the most widely adopted standard form construction contract in NZ, NZS 3910 was more than ready for updated conditions given the changes in the industry since its last review in 2013.  After almos...
09.10.2023 Posted in Construction
Time is money – availability provisions in employment agreements and the requirement to compensate
What happens when an availability provision is non-compliant because it does not allow for compensation, but the employee is not “required” to work additional hours?  Can the employee still be sa...
21.09.2023 Posted in Business Advice & Employment
SEND AN ENQUIRY
Send us an enquiry

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