R v QF
[2019] NZHC 3058
•22 November 2019
ORDER PROHIBITING PUBLICATION OF NAME(S), ADDRESS(ES), OCCUPATION(S) OR IDENTIFYING PARTICULARS OF DEFENDANTS
UNTIL 4.00 PM, MONDAY 25 NOVEMBER 2019 OR ON EARLIER ABANDONMENT OF AN APPEAL, PURSUANT TO S 200 CRIMINAL PROCEDURE ACT 2011.
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CRI-2018-004-003151
[2019] NZHC 3058
THE QUEEN v
QF, FC and JFL
Hearing: 30 September, 1–4, 7-10, 21 October, and 22 November 2019 Appearances:
DG Johnstone and SS McMullan for Crown DPH Jones QC and M Nelson for JFL and QF K Maxwell for FC
Judgment:
22 November 2019
JUDGMENT OF WALKER J
[Verdicts and Reasons]
This judgment was delivered by me on 22 November 2019 at 1.30 pm
Registrar/Deputy Registrar
R v QF, FC and JFL [2019] NZHC 3058 [22 November 2019]
Verdicts
[1]I have today delivered the following verdicts:
(a)In respect of Ms Fuqin Che:
(i)Charge 1: On one charge under s 101 of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) of structuring a transaction to avoid the application of one or more AML/CFT requirements GUILTY.
(ii)Charge 2: On one representative charge under s 91 AML/CFT Act of failing to conduct customer due diligence GUILTY.
(iii)Charge 3: On one representative charge under s 95 AML/CFT Act of failing to keep adequate records relating to a suspicious transaction GUILTY.
(iv)Charge 4: On one representative charge under s 92 AML/CFT Act of failing to report a suspicious transaction GUILTY.
(b)In respect of Jiaxin Finance Limited:
(i)Charge 2: On one representative charge under s 91 AML/CFT Act of failing to conduct customer due diligence GUILTY.
(ii)Charge 3: On one representative charge under s 95 AML/CFT Act of failing to keep adequate records relating to a suspicious transaction GUILTY.
(iii)Charge 4: On one representative charge under s 92 AML/CFT Act of failing to report a suspicious transaction GUILTY.
(c)In respect of Mr Qiang Fu:
(i)Charge 2: On one representative charge under s 91 AML/CFT Act of failing to conduct customer due diligence GUILTY.
(ii)Charge 3: On one representative charge under s 95 AML/CFT Act of failing to keep adequate records relating to a suspicious transaction GUILTY.
(iii)Charge 4: On one representative charge under s 92 AM/CFT Act of failing to report a suspicious transaction GUILTY.
[2]These are my reasons for my verdicts.
Table of Contents
Verdicts [1]
Table of Contents [2]
Background [3]
Overview of the charges [11]
Outline of Crown case [20
Outline of case for Mr Fu and Jiaxin Finance Limited [22]
Outline of case for Ms Che [25]
The legislation – an overview [40]
Factual narrative [52]
Early interaction with DIA [61]
Global Concept fails on-site inspection [23]
Engagement of Camco Partners [77]
Mr A re-activates contact with Ms Che [82]
Formal warnings to Global Concept [93]
Further scrutiny of Jiaxin [99]
On-site inspection 24 August 2016 [109]
Transactions relating to Mr A – Summary [114]
Bank transfers [114]
Cash or counter deposits [119]
Use of Jiaxin accounts [123]
Scenario One [125]
Scenario Two [126]
Scenario Three [127]
Scenario Four [128]
Charge One – Structuring a transaction – Ms Che [131]
The elements [131]
Did the depositing of cash by Ms Che amount to a transaction which did not
involve the cross-border transportation of cash? [133]
Did Ms Che structure these cash deposits? [140]
Did Ms Che structure them to avoid the application of any requirements of the
Act? [141]
Conclusion for Charge One [146]Analysis [153]
The elements [156]
The nature of Jiaxin’s business and Ms Che’s involvement [160] Did Mr A conduct a transaction or transactions through Jiaxin? [165] Concerted efforts to conceal transactions relating to Mr A from DIA scrutiny and minimise Ms Che’s involvement in Jiaxin [188] Mr Fu’ s own evidence of Jiaxin’s involvement and use of Jiaxin third party accounts [198]
Charges Three and Four – failing to report and keep adequate records about a suspicious transaction (all defendants) [202]
Legal principles – a subjective or objective test? [202]
Elements of Charges Three and Four – Jiaxin [220] Reasonable grounds to consider the transactions suspicious? [224] Are Ms Che and/or Mr Fu liable as parties? [238]
Conclusion on charge four in respect of Mr Fu and Ms Che [248]
Background
[3] This prosecution relates to the business of money remittance and currency exchange in New Zealand. Understanding how money remittance in New Zealand works provides essential context and an appreciation of the impact of the statutory regime under the AML/CFT Act in this sector.
[4] Money remittance or informal value transfer systems, is a broad term encompassing diverse methods of money transfer. In the present context it involves the transfer of money outside formal regulated financial systems. One such system is the informal ‘hawala’ system, with roots in particular historical, cultural and economic backgrounds. Generally, this involves the transfer of funds between originator and remitter in Country A in one currency, and a corresponding transfer between remitter and originator/beneficiary in Country B in another currency. Currency does not cross borders but there is an exchange of value. It is both common and not inherently unlawful in New Zealand. It is particularly used to achieve transfer of money out of China because of tight currency and regulatory controls in that country.
[5] According to the Department of Internal Affairs (DIA), such informal systems of money transfer are attractive to those wishing to launder illicit funds. Money remitters are therefore vulnerable to misuse by money-launderers. This is because, unlike transfers through the formal banking system where the flow of funds is transparent from start to finish, the flow of funds is opaque. Only the individual money remitter has true visibility.
[6] New Zealand banks perceive money remittance as high risk from a compliance perspective. They respond by refusing to open accounts with money remitters or closing accounts which, because of volume and frequency of activity, are suspected of being used to remit funds. This process is known as ‘de-risking’.
[7] This forces money remitters to open and operate multiple accounts in the names of relatives or associates, with their permission. These are referred to as ‘third- party’ accounts. The objective is to disguise the use of the bank account as a money
remittance account so that the bank does not close it. If that occurs, the money remitter is forced to open a new account at a different bank or to find another associate or relative who will permit the remitter to open an account in their name.
[8]DIA is aware of the widespread use of third-party accounts by money remitters.
[9] At its most basic, a money remittance transaction involving transfer of funds from China to New Zealand takes this form:
(a)The originator who wants to transfer funds from China provides the money remitter in New Zealand with a New Zealand bank account number. This is the account into which the remitter will ultimately pay New Zealand dollars;
(b)The remitter provides the originator with a Chinese bank account number into which he or she pays renminbi (RMB);
(c)Once the remitter receives RMB into its Chinese bank account, it transfers the equivalent New Zealand currency (less commission) from a New Zealand account into the originator’s New Zealand account.
[10] Another characteristic of the money remittance sector is that first tier lending tends to be unavailable. Remitters are forced to rely instead on the cashflow of other remitters to settle transactions. Where a remitter has insufficient funds to meet a ‘transfer’, it will call on another remitter to fund the transaction, whether in New Zealand or in China. This is known as brokering. The profit achievable depends on the differential between the exchange rate offered by the broker and the exchange rate that the remitter has offered to its customer.
Overview of the charges
[11] Jiaxin Finance Limited (Jiaxin) is a money remitter and currency exchange business. It is a registered financial service provider on the Financial Services Provider Register. It is a financial institution and a reporting entity for the purposes of the
AML/CFT Act.1 Because of this, it must undertake a wide range of anti-money laundering and countering financing of terrorism compliance activities designed to protect the services it offers from the risk of misuse by those seeking to launder funds.
[12] Qiang (Michael) Fu is the sole director and shareholder of Jiaxin. He actively manages and operates the business with a small number of employees.
[13] Fuqin (Lily) Che is his mother. Her role in the Jiaxin business is disputed. She is experienced in money remittance and currency exchange. Her experience includes managing and operating a predecessor company set up by Mr Fu called Global Concept Capital Investment and Finance Limited (Global Concept) since at least 2012. Ms Che has never been a registered financial services provider.
[14] This is not a money-laundering prosecution. Rather, the nub of this prosecution is whether Jiaxin complied with its obligations under the AML/CFT Act. It faces three representative charges:
(a)Failing to conduct customer due diligence (CDD) under s 91;
(b)Failing to report a suspicious transaction under s 92;
(c)Failing to keep or retain adequate records relating to a suspicious transaction under s 95.
[15] The charges are representative charges in that the offences are alleged to have been committed in similar circumstances between 21 April 2015 and 10 May 2016. This means that the Crown need only prove that Jiaxin failed in its obligations in respect of one transaction in the charging period for each of the charges.2
[16] Jiaxin is charged as the principal, since it is the reporting entity with the primary obligations under the AML/CFT Act. However, its potential liability is also derivative in the sense that the Crown relies on the knowledge and actions of its
1 Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 5 definitions.
2 Criminal Procedure Act 2011, s 20(1).
director, Mr Fu, as attributable to the company. The defence realistically (and properly) accept that Mr Fu’s knowledge and actions are attributable to the company.
[17] Mr Fu and Ms Che face the same charges as Jiaxin. Their liability is also derivative and said to arise by knowingly aiding or procuring Jiaxin to fail its obligations under the AML/CFT Act.3
[18] These charges relate to 311 transactions in the relevant period with a combined value of around $53M. It is important to record that the allegation that Jiaxin did not comply with the AML/CFT regime does not relate to the whole of Jiaxin’s business in that period. All the transactions which are the subject of charges were ultimately carried out on behalf of one individual, whom I will refer to as Mr A in these Reasons for Verdict. I must determine who carried out the transactions for Mr A. Mr A faces charges arising out of an allegedly illegal Chinese pyramid scheme. Authorities in New Zealand suspect that he laundered money to and through accounts in New Zealand.
[19] In addition, Ms Che faces a charge of structuring a transaction to avoid the application of AML/CFT requirements. This also relates to a transaction or transactions undertaken for Mr A in which Ms Che made 14 separate cash deposits into Mr A’s New Zealand bank account over 4 days in April 2015. The amount deposited in that period was $710,772.
Outline of Crown case
[20] The Crown case was re-shaped during trial in response to evidence given by Mr Fu. Briefly, it is that Mr Fu and Ms Che together adopted an artificial transaction structure aimed at retaining Mr A’s business, while notionally meeting AML/CFT Act obligations to avoid scrutiny by DIA.
[21] The structure involved casting Mr A as Ms Che’s customer, rather than Jiaxin’s customer, when in fact Ms Che effectively operated as a liaison agent for either or both of Jiaxin and Mr A. In this way, the Crown says that they knowingly sought to avoid Jiaxin having to conduct CDD or enhanced CDD on Mr A and flag to authorities the
3 Crimes Act 1961, s 66(1)(a)(b) or (c).
suspicious nature of Mr A’s transactions. The reality, according to the Crown, was that the transactions at issue were processed through Jiaxin bank accounts and relied on Jiaxin’s operating systems, or the funds required to complete Mr A’s transactions originated from sources declared by Jiaxin to be part of its regular business. The Crown says that the only available inference in all the circumstances is that the transactions were conducted through Jiaxin, that Mr A was a customer of Jiaxin and that any reasonable entity in Jiaxin’s place would know that the transactions had to be reported as suspicious transactions.
Outline of case for Mr Fu and Jiaxin Finance Limited
[22] Mr Jones QC on behalf of Mr Fu and Jiaxin criticises the Crown case as unreal and lacking appreciation of the nature of the hawala system and its intrinsic dependence on trust relationships. He says that Mr Fu clearly wanted to address the AML/CFT compliance issues in early 2015 so that his new business, Jiaxin, would be compliant. For that purpose, he engaged and relied on an external consultant, Camco Partners, because he realised that his own knowledge and ability to meet the regime’s onerous requirements were limited.
[23] Mr Jones emphasises that Ms Che was never part of Jiaxin but operated in her own right independently. She was a customer in Mr Fu’s eyes who arranged and conducted all the transactions involving Mr A, as she had done for many years, using Jiaxin as a broker and passing funds through Jiaxin third party accounts to Mr A. This is borne out by the fact that Mr Fu had no direct contact with Mr A, and never received remittance money directly from any of Mr A’s accounts, only from his mother’s accounts.
[24] He submits that a full understanding of context is vital in the assessment of whether any of the transactions involving Mr A were objectively suspicious, bearing in mind the profile, wealth and reputation of Mr A, and that Mr Fu himself did not consider there was anything suspicious about an individual, wealthy in “Chinese terms”, transacting this amount of money.
Outline of case for Ms Che
[25] Ms Che’s case in a nutshell is that her involvement with Jiaxin was limited, that Mr A was never a customer of Jiaxin and that there was no obligation for Jiaxin to conduct CDD on Mr A. Rather, Ms Che had built up a relationship of trust with Mr A, first when she operated Global Concept, and subsequently in her own individual capacity. She arranged all the payments paid into Mr A’s New Zealand bank accounts and the only accounts which Mr A paid money into in China were operated by her, with the exception of two distinct occasions when she was travelling overseas. On those occasions, she says that her son stood in for her at her direction to operate the Chinese accounts, but only as her son and to assist her, rather than as conducting a transaction on Jiaxin’s behalf. She acknowledged that Mr Fu had given her access to third party accounts used by Jiaxin in New Zealand, but in those instances, the transactions were properly documented with Ms Che recorded as the customer.
[26] In respect of the charge of structuring a transaction to avoid the application of AML/CFT requirements, Ms Che’s case is that there is no evidence of a deliberate decision to structure an amount into fourteen subsequent deposits for any untoward reason and no evidence that the series of deposits at issue started with a sum of
$710,772. Ms Maxwell for Ms Che points to the lack of evidence from the receiving New Zealand bank to say what AML/CFT requirements (if any) applied to this type of cash transaction.
[27] Finally, Ms Che’s case is that none of the transactions fell within the AML/CFT reporting requirements. First, Ms Che says that objectively, a reasonable money remitter in Jiaxin’s circumstances would not have suspected that Mr A’s transactions may be relevant to a money laundering offence. Secondly, neither she nor her son had any concerns about Mr A and specifically did not suspect that these transactions had anything to do with money laundering.
Relevant rules of law and practice
[28] This was a Judge-alone criminal trial. At the outset I identified those matters which I, as fact-finder, had to keep in mind during the trial and as I considered the
verdicts. I set out some of these matters now and address others in these Reasons, where relevant.
[29] The starting point is that the defendants are presumed innocent unless proved guilty. The Crown is required to prove that the defendant is guilty of each of the charges against them. The Crown must prove each element of each charge before I may enter a verdict of guilty on that charge.
[30] Ms Che did not give evidence at trial. She had no obligation to do so. It remains for the Crown to prove the case against her. The fact that she did not give evidence in no way adds to the case against her.
[31] The standard of proof is of course proof beyond reasonable doubt. That is a very high standard. It is only met if the Crown case leaves me sure that the defendants are guilty of a charge. It is not enough for the Crown to persuade me that Mr Fu, Ms Che and Jiaxin are probably guilty or even very likely guilty. On the other hand, I acknowledge that it is virtually impossible to prove anything to an absolute certainty when dealing with the reconstruction of past events and states of mind. The Crown is not required to establish absolute certainty.
[32] A reasonable doubt is an honest and reasonable uncertainty left in my mind about the guilt of the defendants after I have given careful and impartial consideration to all the evidence. In summary, if, after careful and impartial consideration of the evidence, I am sure that any one of the defendants is guilty of a charge, I must find that defendant guilty on that charge. On the other hand, if I am not sure, I must find that defendant not guilty.
[33] I must come to my verdicts solely upon the evidence before me during the trial uninfluenced by any feelings of prejudice against, or sympathy for, the defendants.
[34] All of the charges require the Crown to prove the state of mind of Ms Che and Mr Fu at the time of the alleged offending. The defence accepts that Mr Fu’s state of mind is attributable to Jiaxin. Proving a state of mind inevitably requires the drawing
of inferences, based on all the circumstantial evidence, relevant to the issue of knowledge or intent. As the Court of Appeal observed in R v Coleman:4
… obviously one cannot see into another’s mind. The fact finder must draw inferences as to the accused’s state of knowledge from facts proved. The drawing of inferences inevitably involves the application of common sense and of the fact finder’s knowledge of the world and of how it works to proved facts.
[35] An inference is a conclusion drawn from facts that the fact-finder accepts as reliably established; it is not a guess or speculation.
[36] Both Mr Fu and Ms Che were interviewed at various times by investigators at DIA or New Zealand Customs. The statements made at these interviews were not given on oath. Subject to those qualifications those statements are normal evidence, just like all the other evidence. I assess it accordingly. However, I remind myself that Ms Che’s statements in those interviews is not evidence in relation to Mr Fu.
[37] Mr Fu gave evidence at trial and was cross-examined for many days. He did not have to do so. The fact that he did does not change the burden of proof. The question remains the same – has the Crown proved his guilt beyond reasonable doubt.
[38] I have considered carefully the impact of interpretation. Mr Fu was assisted by a sworn interpreter. Mr Fu is proficient in English, but it is still his second language which undoubtedly impacts nuance. There are also cross-cultural considerations in terms of the manner in which he answered questions. By way of example, it became clear that the answer “I think so” did not necessarily mean that he was hesitant or uncertain in his response. Instead, it was a manner or characteristic of speech.
[39] The Crown suggests that Mr Fu’s explanations of the transactions lacked credibility, were implausible and were fabricated with hindsight. I deal with this submission later in my Reasons. At this stage, I merely remind myself that lies do not by themselves prove the case against Ms Che or Mr Fu and the dishonesty of one party does not inform the case against the other. I accept the Crown submission that dishonesty on the part of a defendant is but one strand of circumstantial evidence that
4 R v Coleman CA180/04, 15 December 2004 at [12].
is relevant to my assessment of guilt. I keep in mind that, before giving weight to any lies, I must be sure that Ms Che or Mr Fu did lie. I am also mindful that people lie for various reasons, including to protect family members to whom they owe familial duty or loyalty. At the risk of stating the obvious, just because a defendant has lied does not mean that he or she is guilty of one or more of the offences with which they have been charged.
The legislation – an overview
[40] The AML/CFT Act was the statutory response to an evaluation of New Zealand’s regime to combat money laundering and terrorist financing by the Financial Action Taskforce (FATF). The FATF is an inter-governmental body established to develop and promote national and international policies. It makes recommendations to governments about the most desirable framework to combat money laundering and terrorist financing.
[41]The express statutory purposes of the AML/CFT Act are:5
(a)To detect and deter money laundering and the financing of terrorism;
(b)To maintain and enhance New Zealand’s international reputation by adopting, where appropriate in the New Zealand context, recommendations issued by the FATF; and
(c)To contribute to public confidence in New Zealand’s financial systems.
[42] The AML/CFT Act received the Royal assent on 16 October 2009, but did not fully come into force until 30 June 2013. There have been subsequent amendments, including amendments coming into force after the relevant charging period in this prosecution. This case will be based on the statutory framework existing at the time of the alleged offences.
5 Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 3(1).
[43] The AML/CFT Act constitutes a significant step up in the regulatory framework governing financial institutions and transactions in New Zealand.6 It imposes stringent duties on reporting entities to achieve the legislative objectives and purposes.
[44] The AML/CFT Act is divided into four parts. Part 1 covers preliminary provisions; Part 2 sets out AML/CFT requirements and compliance; Part 3 concerns the enforcement of those requirements; and Part 4 covers institutional arrangements and miscellaneous provisions.
[45] The AML/CFT requirements and compliance in Part 2 are divided into sub- parts:
(a)Subpart (1) addresses CDD obligations. It prescribes a hierarchy of standards known as simplified, standard and enhanced CDD depending on the nature and circumstances of the customer.
(b)Subpart (2) places statutory duties on reporting entities to convey to the Commissioner of Police information that comes to their attention in respect of which they have reasonable grounds to suspect it may be relevant to the investigation or prosecution of money laundering, or the enforcement of the Misuse of Drugs Act 1975, the Terrorism Suppression Act 2002, the Proceeds of Crime Act 1991, or the Criminal Proceeds (Recovery) Act 2009.
(c)Subpart (3) specifies that reporting entities must keep records relating to every transaction, with strict requirements of details to allow the ready reconstruction of transactions and the identification and verification of the persons involved.
(d)Subpart (4) provides that every reporting entity must have a compliance programme and a compliance officer and sets minimum standards for such a programme.
6 Department of Internal Affairs v Ping An Group [2017] NZHC 2363; [2018] 2 NZLR 552 at [20].
[46] In Part 3, the AML/CFT Act provides both a civil and a criminal enforcement regime for non-compliance. There is a measure of commonality: s 78 defines the conduct which amounts to a civil liability act and s 91 provides that engaging in a civil liability act knowingly or recklessly amounts to a criminal offence. In a Select Committee briefing on the AML/CFT Bill, the Ministry noted:7
The AML/CFT Bill has constructed the civil breaches and criminal penalties so that breaches or actions that are not as serious, or intentional are civil breaches, while criminal penalties relate to purposeful action (such as obstructing a supervisor) or breaches that jeopardise the integrity of the AML/CFT Bill and its purposes (such as structuring transactions to avoid reporting requirements or failing to submit a suspicious transaction report)
[47] However, there are material exceptions to this general approach in that there are also stand-alone offences relating to ‘suspicious transactions’.8 The fact that there is such a regime treating these offences differently becomes material in the analysis of the mens rea requirements for the charges the defendants face. I discuss this later in my Reasons.
[48]‘Civil liability acts’ are defined in s 78 as:
In this part civil liability act occurs when a reporting entity fails to comply with any of the AML/CFT requirements, including, without limitation, when the reporting entity –
(a)fails to conduct customer due diligence as required by subpart 1 of Part 2:
(b)fails to adequately monitor accounts and transactions:
(c)enters into or continues a business relationship with a person who does not produce or provide satisfactory evidence of the person’s identity:
(d)enters into or continues a correspondent banking relationship with a shell bank:
(e)fails to keep records in accordance with the requirements of subpart 3 of Part 2:
(f)fails to establish, implement, or maintain an AML/CFT programme:
7 AML/CFT Bill: Comparison with Australian Framework, Foreign Affairs, Defence and Trade Committee, 29 July 2019.
8 The reporting scheme was changed from 11 August 2017 by the Anti-Money Laundering and Countering Financing of Terrorism Amendment Act 2017. The amendments included replacing “suspicious transaction reports” with “suspicious activity reports”.
(g)fails to ensure that its branches and subsidiaries comply with the relevant AML/CFT requirements.
[49]Other material definitions in the Act are:9
Customer –
(a)means a new customer or an existing customer; and
(b)includes—
(i)a facility holder:
(ii)a person conducting or seeking to conduct an occasional transaction through a reporting entity:
…
(c)excludes a person or class of persons that is declared by regulations not to be a customer for the purposes of this Act.
facility holder, in relation to a facility–
(a) means the person in whose name the facility is established; or
…
financial institution—
(a)means a person who, in the ordinary course of business, carries on 1 or more of the following financial activities:
(i)accepting deposits or other repayable funds from the public:
…
(iv) transferring money or value for, or on behalf of, a customer:
…
(vii)trading for the person’s own account or for the accounts of customers in any of the following:
(A)money market instruments (for example, cheques, bills, certificates of deposit, or derivatives):
(B)foreign exchange:
(C)exchange, interest rate, or index instruments:
(D)transferable securities:
(E)commodity futures trading:
9 Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 5.
…
(xiii) money or currency changing; and
(b)includes a person or class of persons declared by regulations to be a financial institution for the purposes of this Act; but
(c)excludes a person or class of persons declared by regulations not to be a financial institution for the purposes of this Act.
occasional transaction —
(a)means a cash transaction that occurs outside of a business relationship and is over the applicable threshold value (whether the transaction is carried out in a single operation or several operations that appear to be linked); and
(b)includes a transaction or class of transactions declared by regulations to be an occasional transaction for the purposes of this Act; but
(c)excludes—
(i)cheque deposits; and
(ii)a transaction or class of transactions declared by regulations not to be an occasional transaction for the purposes of this Act.
[50] Money remittance involves “transferring money or value for, or on behalf of, a customer”. Thus, money remitters fall within the definition of reporting entities under the AML/CFT Act.10 DIA is the relevant AML/CFT supervisor.
[51] Central to the AML/CFT regime is the requirement that reporting entities have a robust risk assessment process. It is for the reporting entity itself to gauge its own risk in the formation of its Risk Assessment document. In other words, it depends on a self-assessment guided or informed by Sector Risk information circulated by DIA and New Zealand Police. DIA describes this task as the foundation of an effective AML programme.11 It enables reporting entities to design, implement and maintain a Programme which is the record of internal procedures, policies and controls for managing and mitigating the risk.
10 Section 5.
11 Financial Markets Authority, Reserve Bank and Department of Internal Affairs AML/CFT Programme Guideline (May 2018) at [13].
Factual narrative
[52] Mr Fu was the sole director and shareholder of Global Concept, a money remittance and currency exchange business which went into liquidation in August 2015. He was also sole director of Global Concept Capital Markets Limited (GCCM), a registered financial service provider, between February 2011 and October 2012. His mother became the sole shareholder of GCCM in October 2012. GCCM was struck off from the Companies Register on 25 February 2014 but temporarily re- registered between March and August 2015.
[53] Global Concept operated out of premises on Dominion Road. Mr Fu described Global Concept as Ms Che’s business despite the shareholding and directorship. He explained that she had full operational control of the business from at least January 2012 when he left New Zealand for a lengthy period. When he returned in April 2013, he left the running of Global Concept to his mother.
[54] Ms Che met Mr A sometime in 2011 and began conducting currency exchange or remittances on his behalf from the Dominion Road office. Mr A was a customer of Global Concept. Mr A is described as a wealthy Chinese individual living in Canada. Mr Fu described him as a billionaire.
[55] Mr Fu incorporated Jiaxin in August 2014. In September 2014, Mr Fu bought an existing money remittance business trading as Jiaxin Finance. He took over the customer base of a few thousand customers along with an electronic ‘deal-capture’ platform from the vendor (which was not related to Mr Fu or his mother.)
[56] For a short period, Jiaxin’s registered office was the same Dominion Road premises as Global Concept, but this changed in or around 22 September 2014. I accept that the reason for the change was because the company was incorporated before the handover of the Jiaxin business by the vendor. The Jiaxin business, as purchased, had operated from premises in Queen Street, with three branch offices in Northcote, Botany and Newmarket. At least until sometime between September and November 2015, only the Northcote and Botany branch offices continued. In the period between September and November 2015, the Dominion Road office formally
became a branch office of Jiaxin, with Jiaxin signage installed in November 2015. The relationship between the Dominion Road office and Jiaxin before this is contested.
[57] Global Concepts had a Risk Assessment document dated September 2013 which was provided to DIA in early March 2015. Mr Fu’s evidence was that this document was in fact only created in 2014, despite its date. He says that, in the second half of 2014, he became aware in broad-brush terms of a need to have “paperwork” for the AML regime. He visited AML Solutions, an external consultancy working in the AML compliance field. He met with them. He filled out a form explaining Global Concept’s operation. Once the form had been returned to AML Solutions, he was presented with a draft Risk Assessment document which he adopted. He says at that time he understood very little of his discussion with AML Solutions or the compliance requirements – “perhaps five per cent”.
[58] This Risk Assessment template or base document became the template for subsequent Jiaxin Risk Assessments. It assumes importance in the chronology.
[59] Between December 2014 and January 2015, Mr A transacted a considerable volume of business with Ms Che at Global Concept. Global Concept transferred just under $2 million to him via third party accounts. These third-party accounts were accounts used by Global Concept but also by Jiaxin. There were also substantial cash or counter deposits into Mr A’s accounts, some of which included reference to “JX” as a transaction narration.
[60] By this time, the AML/CFT regime had been in force for about 18 months. Global Concept and Ms Che had been operating as money remitters for many years. There can be little dispute that they were operating over that period without any real appreciation of the AML/CFT requirements under the new regime.
Early interaction with DIA
[61] On 4 March 2015, Mr Milnes from DIA visited Jiaxin’s premises at Queen Street as part of a “meet and greet” exercise. He was unaware of the change in ownership. He spoke with Mr Fu. Mr Fu described the Jiaxin business as an expansion of Global Concept’s business operating under Jiaxin Enterprise Limited, another
company with Mr Fu as sole shareholder and director. Mr Fu stated to Mr Milnes that Jiaxin had an AML/CFT Risk Assessment and Programme prepared for him by AML Solutions and that he understood he had to implement this Programme to comply with the AML/CFT requirements.
[62] That Jiaxin was intended to be an expansion of the Global Concept business is consistent with records found on Ms Che’s iPhone which recorded a range of transactions on Jiaxin’s deal capture platform from 13 February 2015 onwards. Those records describe the “operator” as “Lily”, which is Ms Che’s anglicised name. Mr Fu insisted during his evidence that his mother was not capable of using the system and could only have requested her employee, Charlie, to use that transaction platform. It is also consistent with my clear impression from the evidence that these businesses were regarded by Mr Fu and his mother as one family run business. As an example, as at March 2015, Global Concept’s daily banking was undertaken through the bank account of Jiaxin Enterprises Limited.
[63] A few days after Mr Milne’s visit, Mr Fu emailed DIA with Jiaxin’s Risk Assessment dated 12 September 2014 in response to DIA’s request. This is the document that Mr Fu says he copied from the Global Concept Risk Assessment, modifying it in 11 places to make it specific to Jiaxin. The cover page reads “Prepared with the assistance of AML Solutions”.
[64]The September 2014 Risk Assessment stated, among other things:
(a)Mr Fu is the AML/CFT Compliance Officer;
(b)The registered office and place of business is 295 Dominion Road, Mt Eden;
(c)Jiaxin has five employees and approximately 1,000 clients;
(d)Jiaxin’s minimum transaction size for remittances is $100 and the maximum transaction size is $200,000. Most remittance transactions are between $500 and $20,000;
(e)Jiaxin’s minimum transaction size for exchange is $100 and the maximum is $200,000. Most currency exchange transactions are between $1,000 and $30,000.
[65] Part 2 of the document refers to the “risk-based approach” prescribed by the AML/CFT regime. It records that, despite a “risk-based approach”, the AML/CFT Act sets out minimum requirements in various areas such as minimum CDD and in respect of record keeping.
[66] The document records that Jiaxin has worked with AML Solutions to enhance understanding of the requirements of the Act, including the characteristics that potentially make a business vulnerable to money laundering or the financing of terrorism, such as cash transactions, products favouring anonymity, trusts and other complex client structures and dealings with jurisdictions without strong AML/CFT controls. This is plainly an overstatement in that Mr Fu says that he approached AML Solutions for Global Concept, rather than Jiaxin, the involvement with AML Solutions was minimal and AML Solutions was not engaged by Jiaxin.
[67] The document identifies risks particularly relevant to the money remittance and currency exchange sectors based on the FIU National Risk Assessment 2010, the industry risks identified in DIA AML/CFT Sector Risk Assessments, and other materials identified by AML Solutions. It records that DIA has assessed the money remittance and currency exchange sector as high risk and medium risk respectively from the AML/CFT perspective. It identifies specific money laundering or financing of terrorism risk areas including:
(a)The use of wire transfers to transfer proceeds of crime from one person to another via money remittance services;
(b)The use of electronic transfers to transfer the proceeds of crime from one bank account to another via financial institutions;
(c)The structuring or refining of cash transfers/remittances under reporting thresholds to avoid detection;
(d)Sub-agents operating on a commission-based system and therefore being less likely to reject or report potential suspicious activity;
(e)The lack of set limits on the maximum amount customers can remit in one transaction; and
(f)Inadequate CDD measures, and in respect of the currency exchange sector;
(g)The structuring of transactions under reporting thresholds to avoid detection.
[68] In a paragraph headed “Our approach to assessing the likelihood of ML/FT occurring within aspects of our business”, the September Risk Assessment states:
Our approach has been to make a subjective, qualitative judgment on the likelihood of ML/FT occurring within each aspect of our business.
It further records:
We note that DIA has assessed our business sectors to be high-risk and medium-risk respectively. In the light of this, we anticipate that DIA will expect us to implement robust AML/CFT systems, will closely scrutinise us and will be minded to take action if we fall short.
[69] One of the matters in the September Risk Assessment under the sub-heading “Regulatory Risk” is “failing to report suspicious transactions”. Part 3 of the Risk Assessment identifies sector risks and explains how Jiaxin addresses each risk. One of those identified sector risks is lack of set limits on the maximum amount customers can remit in one transaction. In response, Jiaxin’s comment is:
Not applicable. However we note that the maximum transaction amount is
$200,000 which is high and requires robust CDD measures.
[70] In a Schedule titled “ML/FT vulnerabilities within each aspect of our business”, the Risk Assessment concludes that the money remittance and currency exchange businesses have a medium risk score and the risk score for China is high.
Global Concept fails on-site inspection
[71] In preparation for an on-site inspection of Global Concept by DIA on 31 March 2015, Ms Che prepared document records for inspection. There is no evidence to suggest that Mr Fu was involved in that preparation exercise. In a WeChat exchange with an associate, she complained:
Che: DIA people will come to inspect our work tomorrow. Che: I was preparing documents in the office.
Other person: Very troublesome
Che:It’s really difficult to do a business now, every aspect of your business will be supervised.
[72] Mr Fu was however at the on-site inspection by DIA with an employee, Xincheng (Charlie) Cheng. Ms Che did not attend. Mr Holmes of DIA spoke with Mr Fu. When asked about his understanding of his obligations under the AML/CFT Act, Mr Fu replied “know your customer, know where the money is coming from.” When asked how many staff work at Global Concept, he told Mr Holmes that “Charlie and Yong Wang” were his current staff. He candidly advised that he had a limited understanding and knowledge of deeper AML/CFT issues such as enhanced CDD, but confirmed to Mr Holmes that he had read the Global Concept’s Risk Assessment and Programme documents.
[73] Mr Milnes, of DIA, was presented with folders containing Global Concept transaction slips, application forms and CDD documents for each of January, February and March 2015. He was told (although the evidence is unclear by whom), that the balance of the records was held by “the accountant.” Mr Milne’s evidence is that he was told that the transaction records were comprehensive for the three-month period they covered. In short, that the folders contained all the transaction records printed from electronic records Global Concept kept for each customer.
[74] The transaction records provided in the folders across this three-month period comprised a total of only 37 transactions. None related to transactions for Mr A. A subsequent reconstruction of the bank accounts of Mr A by DIA determined that nine payments were made by Global Concept to Mr A in January 2015. It is clear that the
records were incomplete. Mr Fu denies knowing at the time that the records were incomplete.
[75] Mr Milnes also spoke with Mr Cheng who told him that Global Concept had another employee called Lily. When asked, Mr Fu explained to Mr Milnes that Lily is his mother and “an additional staff member who helps sometimes when he’s not there.” Mr Fu advised that only he and his mother had access to the bank accounts. It is apparent that Mr Fu attempted to minimise Ms Che’s involvement in Global Concept and that his explanations of her involvement were, at best, a deliberate understatement.
[76] It was also apparent at the end of the inspection that Global Concept had not passed and was considered to be non-compliant by DIA. DIA provided a draft Onsite Inspection Report to Mr Fu on 9 April 2015 and invited comment. This draft confirmed the scale of Global Concept’s compliance failings. It referred to the prospect of a formal warning for civil liability breaches. It also recorded Mr Fu’s advice to DIA that Global Concept was closing down and he was establishing two other financial service providers, Jiaxin Finance Limited and Jiaxin Enterprise Limited at a central city location. The report notes advice given to Mr Milnes that many of Global Concept’s CDD records on its server were stolen during a burglary in late 2014, although it does not record which of Mr Fu or Mr Chang advised him of this. This is inconsistent with the only Police report of a burglary at the Dominion Road premises dated September 2015. Finally, it is also recorded that “there was no consideration as to whether the person for whom CDD had been conducted may be acting on behalf of a customer”. In my assessment, the reality was that Ms Che continued operating Global Concept after the introduction of the new AMC/CFT regime in the same way she always had. This is not perhaps unsurprising for a small business run by someone with a limited understanding of English in the early stages of a stricter compliance regime.
Engagement of Camco Partners
[77] On 10 April 2015, one day after receipt of the draft Onsite Inspection Report, DIA notified Mr Fu that it intended to review Jiaxin’s business. This notification must
have increased the pressure on Mr Fu who, by this stage knew that he was out of his depth. Mr Fu engaged Dean Crowle of the consultancy Camco Partners to get things in place in readiness for the DIA inspection.
[78] Mr Crowle is, and was at the time of his engagement, an experienced consultant in the field of anti-money laundering. As with all advisors in the field, and even DIA, his experience under the new legislative requirements was limited, given the recency of the AML/CFT Act. He attended Jiaxin’s office in Queen Street regularly in the first months after his initial engagement to come to grips with the Jiaxin business, dealing with Mr Fu and Ms Wang, an employee of Jiaxin to whom Mr Fu delegated administrative tasks. He described his engagement as an ‘ad hoc’ arrangement, providing services as and when needed, rather than under a term engagement. Mr Crowle’s firm advice to Mr Fu was to consolidate the business operations to avoid duplicating compliance AML/CFT costs.
[79] Mr Crowle advised DIA on 23 April 2015 of his engagement and the steps he was taking to “remedy deficiencies”. He told DIA that Global Concept would close and all the Jiaxin business would be brought under one entity (initially Jiaxin Enterprise Limited but later changed to Jiaxin). Mr Fu’s description of Mr Crowle’s role in compliance differed from Mr Crowle’s evidence.
[80]The gist of Mr Crowle’s evidence was:
(a)At the time that he became involved, Jiaxin was conducting CDD but not enhanced CDD.
(b)One of the issues facing Jiaxin was the inability of the existing “deal capture” system used by Jiaxin to provide real time reporting. This meant there was nothing to suggest that Jiaxin transactions were being monitored once processed. The Jiaxin deal-capture system only recorded the buy and sell data of the currency transaction and the settlement details. It was not capable of producing a report to allow monitoring to take place, an essential requirement of the AML/CFT Act.
(c)He recommended setting up a new Daily Transaction Monitoring spreadsheet (DTM Spreadsheet) held in Google Drive to enable all staff across all branches to share transaction information. The information to be recorded included customer name, and deal number generated from the “Deal capture system”, account number, branch and staff identification, currency, amount, origin of receipt, details of where it was sent, and purpose of transaction. Mr Crowle described this as a ‘real time’ system by which he meant that when a transaction is updated, all staff and Mr Fu could view it online as it was being updated. This could also in theory be accessed by Camco Partners who had log in access, but it was not regularly monitored by them.
(d)There were slight but ultimately immaterial differences between Mr Fu’s description of this system and Mr Crowle’s evidence. I say immaterial because Mr Fu conceded that the DTM Spreadsheet was utilised for a limited time only and was not automatically populated. It wholly depended on staff inputting transaction data as and when they had time from the “deal capture system”. There was no evidence that any transactions relating to Mr A were recorded on the DTM spreadsheet.
(e)Camco Partners provided on-going formal and informal AML/CFT training to staff of Jiaxin and Mr Fu. This training included how to spot suspicious transactions and behaviour. Mr Crowle directly discussed with Mr Fu Camco Partners internal audits of Jiaxin’s systems, CDD obligations and suspicious transaction reporting including the on-line reporting system for suspicious transactions named goAML.
(f)Any revisions or updates to Jiaxin’s Risk Assessment or any information generated at DIA’s request was sent to Mr Fu before being provided to DIA.
(g)Mr Crowle met Ms Che only twice at Queen Street, in casual circumstances. He was unaware that Ms Che had access to Jiaxin bank accounts until he attended a DIA interview in August 2016.12
(h)As far as Mr Crowle knew, Jiaxin operated from Queen Street with branch offices in Botany and Northcote. He was unaware of any Jiaxin activity from Dominion Road, and unaware that Ms Che continued to operate in some capacity from that premises. He had been led to believe from discussions with Mr Fu that there was no reason to keep Global Concept going.
[81] Mr Fu suggested a more active role for and responsibility on the part of Camco Partners than Mr Crowle accepted. In my assessment, Mr Crowle gave careful evidence. He readily acknowledged the limits of his recall of events. Where there was a clear inconsistency between Mr Fu and Mr Crowle’s explanations as to Mr Crowle’s role, I found Mr Crowle’s description to be more accurate. At no time was he Jiaxin’s compliance officer, despite Mr Fu portraying him as such to DIA. I have concluded that his role was as it was described in the various Jiaxin Risk Assessments:
Jiaxin Finance has enaged (sic) Camco Partners (May 2015) to assist Jiaxin Finance and its AML/CFT Compliance Officer to review its Risk Assessment and AML/CFT Compliance Programme and make changes to refelect (sic) its operation and associated risks. Camco Partners will also assist the AML/CFT Compliance Officer on an on-going basis.
Mr A re-activates contact with Ms Che
[82] In early April Mr A re-engaged with Ms Che by WeChat message. This was the first WeChat contact from him since mid-January 2015. The message asked if Ms Che was still in the business of money remittance. When she assured him that she was, he messaged: “Situation in the country is not stable”.
[83] On 20 April 2015, Mr A again messaged Ms Che by WeChat, telling her that he was in New Zealand and asking how the exchange rate was. Ms Che asked for identification information by WeChat. The Crown submits that her casual response in
12 Consequently there was no reference to this in Jiaxin’s Risk Assessments.
this WeChat thread illustrates nonchalance around the accuracy of the identification information he was asked to provide. I found the messages ambiguous. I accept that the WeChat message could just as easily be understood as Ms Che being relaxed as to the method of providing the identity. I read nothing into this.
[84] Nonetheless, Mr A’s response “Amazing” expresses either surprise or approval. The information requested by Ms Che was minimal. There was no request, for instance, of details of Mr A’s Chinese bank accounts used to fund remittances which may have been required for compliance under s 49(2)(e) of AML/CFT Act.
[85] A series of transactions for Mr A between 21 April and 24 April 2015 followed in which Ms Che made 14 separate cash deposits totalling $710,722 into Mr A’s bank accounts. The amounts deposited were broken up and varied in value without any obvious pattern or trend except that none were over $100,000 and one was $99,000. On multiple occasions, the cash was deposited at different but closely situated ANZ Bank branches, within minutes of each other. These deposits comprise the first charge against Ms Che.
[86] Further cash or counter deposits into Mr A’s account were made in a series of 26 transactions between 4 May and 13 May 2015 to the value of $1.2M.
[87] Mr Fu says that around this time he was still in discussion with his mother about closing Global Concept. He says that he had resolved to close it down to avoid duplicating compliance costs, but he regarded it as his mother’s business. He told her to stop using the Jiaxin electronic transaction system and to refer customers to Jiaxin at one of Jiaxin’s branches.
Mr Fu commences recording of transactions relating to Mr A
[88] On 18 May 2015, Mr Fu exchanged messages with Ms Che on WeChat in which he expressed concern about the business she had undertaken:
Mr Fu: you have taken a lot like this, how am I going to issue them Ms Che: I don’t have large one
Ms Che: if you don’t want it, give it to me, I don’t have enough Mr Fu: then let [cheng Xin] come and get it
Mr Fu: they are keeping a very close on me (sic)
Ms Che: OK
[89] Just one day later, Mr Fu started to document transactions conducted through Jiaxin third party accounts involving Mr A. The Crown describes this action by Mr Fu as pivotal. These documents were produced for the first time at trial. Their existence had not previously been disclosed or mentioned to DIA.
[90] On or about 26 May 2015, Mr Crowle of Camco Partners completed the revised Jiaxin Risk Assessment and Compliance Programme (May Jiaxin Risk Assessment). This recorded the Head Office of Jiaxin as 187 Queen Street. Other material differences include a more detailed process explaining remittance. There was specific reference to Jiaxin’s use of third party bank accounts, recording that “all clients transact and deal with Jiaxin Finance and by agreement the other account is used to remit funds. All transactions are recorded along with bank remittance details so ML risk is mitigated”. Reference to the maximum transaction amount of $200,000 was retained in the May 2015 Jiaxin Risk Assessment. The Risk Assessment also refers to agency arrangements in place in China because New Zealand companies cannot hold Chinese bank accounts.
[91] The May 2015 Jiaxin Risk Assessment was sent to DIA on 4 June 2015. A day before it was sent by Mr Crowle, he emailed Mr Fu for confirmation of the maximum transaction size and asked Mr Fu to let him know if any changes should be made. There was no evidence of a written response from Mr Fu to Mr Crowle, however Mr Crowle gave evidence that he discussed this with Mr Fu and received confirmation.
[92] On 6 July 2015, DIA provided feed-back on Jiaxin’s Risk Assessment and AML/CFT Programme. It identified only minor deficiencies and requested rectification of these by 7 August 2015. Among other things, DIA referenced the omission of Chinese domestic bank accounts in the Risk Assessment, the insufficient acknowledgement of financial institutions dealt with and inadequate consideration of
ongoing account monitoring. DIA concluded however that suspicious transaction reporting was adequately addressed in the Programme. These issues were addressed by Mr Crowle and a revised Risk Assessment was produced (August 2015 Jiaxin Risk Assessment). This Risk Assessment added the names on the accounts held with Chinese banks, the names of banks and brokers used in New Zealand to receive and make payments and the names on accounts held with New Zealand banks.
Formal warnings to Global Concept
[93] On 13 July 2015, the DIA issued written formal warnings to Mr Fu and Global Concept stating that the DIA had reasonable grounds to believe Global Concept had failed to:
(a)conduct customer due diligence;
(b)adequately monitor accounts and transactions;
(c)keep records in accordance with the requirements of the Act;
(d)establish, implement or maintain an AML/CFT programme.
[94] DIA required Global Concept to immediately rectify all areas of non- compliance and provide written confirmation that this had occurred by 3 August 2015. It required Global Concept to establish, implement and maintain a fully compliant Risk Assessment and AML/CFT programme warning that “continuing to engage in conduct constituting a civil liability act may result in civil or criminal penalties”. DIA’s warning included the following option:
Alternatively, and further to [Global Concept’s] notification that it intends to close down, the Department requires Global Concept to confirm in writing within ten working days the steps it is taking to close Global Concept down, including when Global Concept will stop offering financial services, confirmation that it has de-registered from the Financial Service Providers Register and an undertaking (made in accordance with s 81 of the AML/CFT Act) that Global Concept will no longer offer any financial services subject to the AML/CFT Act without written approval from the Department.
[95] On 28 July 2015, Mr Fu emailed the DIA and advised that Global Concept had ceased trading on 8 April 2015 and had not offered financial services since that date.
[96] On 29 July 2015, Mr Fu emailed DIA stating that he had advised the Companies Office to de-register Global Concept and attaching confirmation. The attachment from the Companies Office is in oddly inconsistent terms. While headed ‘Notice of Intent to De-register’, the body of the letter from the Companies office states that the Registrar is:
... satisfied that this financial service provider has been registered because of a false and misleading representation or omission as to membership of, or the need to be a member, of an approved Consumer Dispute Resolution Scheme.
[97] This letter was not put to Mr Fu in cross-examination. As he had no opportunity to explain it, I give no weight to it.
[98] On 28 August 2015, Mr Fu electronically submitted Global Concept’s Annual Report for the period 1 July 2014 to 30 June 2015. One of the questions asked of Mr Fu was whether Global Concept’s Risk Assessment met the requirements of s 58 of the AML/CFT Act? Mr Fu ticked, “Meets Some”. In response to whether the requirements of s 57 of the Act were met, he ticked the response, “Meets Some”. He recorded that “DIA review found some areas that required addressing”. These responses contrast with the Global Concept Annual Report for the period 1 July 2013 to 30 June 2014 in which Mr Fu recorded that Global Concept’s AML/CFT Programme met all the requirements of s 57 of the AML/CFT Act.
Further scrutiny of Jiaxin
[99] There was a further DIA on-site inspection of Jiaxin in or around October 2015. The DIA inspector involved has since passed away and no records of that inspection remain but Mr Crowle attended that inspection. His evidence is that Jiaxin received a favourable verbal report after Mr Fu showed the DIA inspector the DTM Spreadsheet, being the system of transaction reporting instigated by Camco Partners. This tends to confirm that for the most part Jiaxin had compliant systems.
[100] From the point of view of DIA oversight, matters then went quiet until June 2016. At that point, DIA resurrected its interest in Jiaxin after contact by Police as part of an investigation into the financial activities of Mr A.
[101] This turn of events prompted notification to Jiaxin on 23 June 2016 of a further on-site inspection, to be conducted on 24 August 2016. As the inspection was conducted against the background of what DIA had learned from Police, it was consequently more focused. The letter flagged DIA’s intention to test or review a sample of Jiaxin’s business records for consistency with its AML/CFT programme and compliance with the AML/CFT Act. It required Jiaxin to provide various documents, including a list of current employees or agents contracted or on commission, its training log and a list of domestic New Zealand bank accounts Jiaxin uses for financial transactions connected in any way to Jiaxin.
[102] Mr Crowle provided documents on behalf of Jiaxin in early August 2016. These included Jiaxin’s July 2016 Risk Assessment, Programme, Suspicious Transactions Policy, CDD Policy, training register and account information. He recorded that providing a current client list was somewhat difficult and proposed instead that DIA select clients from the DTM Spreadsheet to test the programme as this represented active clients.
[103] The July 2016 Risk Assessment reintroduced the Dominion Road office as a branch of Jiaxin.
[104] The account information provided to DIA was headed “List of Accounts used by Jiaxin” and listed names and bank account numbers. Another list described as a ‘broker list’ naming Credit Investments, Lans and Kunlun as Jiaxin’s brokers, was also provided.
[105] As it transpired, the bank account list omitted some accounts used by Jiaxin. These undisclosed accounts happened to be those largely used in respect of transactions relating to Mr A. The broker list made no mention of Ms Che. This may be explicable on the basis the list was limited to brokers who provided funds to Jiaxin
rather than entities to whom Jiaxin provided brokering services. However, the organisational chart of staff made no mention of Ms Che, nor did the training registers.
[106] For the first time, the July 2016 Risk Assessment recorded that Jiaxin had agreed with the FIU to report transactions where the amount exceeds USD50,000, using the online system goAML. This altered the approach from the May 2015 Risk Assessment where transaction limits of $200,000 were set (in response to the identified sector risk).
[107]At no time did Jiaxin report any transactions relating to payments to Mr A.
[108] In August 2016, Jiaxin passed an independent audit of its Risk Assessment and Programme.
On-site inspection 24 August 2016
[109] DIA undertook its on-site inspection on 24 August 2016. Mr Fu and Mr Crowle were present. Mr Milne of DIA also spoke with the Jiaxin administrator, Ms Wang. He asked for a check of the Jiaxin system to find records “relating to a customer named [Mr A]”. No customer record in his name was located on the system.
[110] Mr Holmes of DIA interviewed Mr Fu. Mr Crowle also attended the interview. No interpreter was present. Mr Holmes advised Mr Fu that he was not required to answer questions if the answer might incriminate him. Mr Fu confirmed that he was content to speak with Mr Holmes. He answered all questions put to him, although the accuracy and adequacy of his answers is challenged by the Crown. Mr Fu explained:
(a)The use of third party bank accounts was not the subject of formal arrangements although he was working with lawyers to design documentation;
(b)He and Ms Wang monitored transactions that go through the DTM Spreadsheet;
(c)Only he and Ms Che had online access to bank accounts;
(d)In respect of the Jiaxin Enterprise Limited bank account, 99 per cent of the transactions related to Jiaxin customers and the other one per cent to transactions “done by my mum”;
(e)In respect of the accounts in the name of his brother in law, Bin Zhang, 99 per cent of the transactions related to “my customers”;
(f)In respect of bank accounts in the name of Zong Heng Guo Ji Ltd, 99 per cent of the transactions through this account were for Jiaxin and one per cent for his mother;
(g)The accounts in the name of his uncle, Fulin Che, were “complicated” and he started using them once banks had closed down other accounts. He said earlier transactions in those accounts related to his mother and only the later transactions to him;
(h)The Global Concept business is closed;
(i)The role of his mother in the business was as processor of settlement transactions when he was not at the company and that this was occasional when he was “away overseas or sick”;
(j)In around September 2015, Jiaxin commenced to report transactions as suspicious where the amount exceeded USD50,000, as provided for in the most up-to-date Risk Assessment.
[111]Near the end of the interview Mr Fu was asked about Mr A:
Q:Can you explain to me who [Mr A] date of birth [ ] is please, is he a customer of any of the entities we have talked about today?
A: No
He was immediately given an opportunity to add anything further. He did not do so. Mr Crowle’s evidence is that this was the first time he learned of Ms Che’s use of and access to Jiaxin accounts.
[112] After the on-site inspection, DIA opened a full investigation because it was dissatisfied with the explanations provided. On 7 September 2016, DIA served a notice under s 132(2)(a) of the AML/CFT Act requiring Jiaxin to produce documents. The request was in these terms:
For each of the [listed transactions]:
Copies of all records, including standard and enhanced CDD, relating to the customer(s) that resulted in this payment and to enable the transaction to be readily reconstructed. This should include information regarding the parties to the transaction and including the originator and beneficiary, whether in China or elsewhere.
Three of the listed transactions related to payments to Mr A.
[113] Mr Fu provided a USB stick with the documents on 7 October 2016. He summarised the contents in a covering letter. For the three transactions involving payments to Mr A, Mr Fu wrote “No Records held as not a client of Jiaxin Finance.”
Transactions relating to Mr A – Summary
Bank transfers
[114] Between April 2015 and May 2016, there were approximately 311 transactions in which money was transferred to Mr A’s bank accounts in New Zealand from bank accounts associated in some way with Jiaxin. The total amount of money transferred was approximately $36.2M.
[115] DIA forensic accountant, Ms Milne, carried out a comprehensive reconstruction of these transactions cross-referencing the receipts in Mr A’s bank account with transactions recorded in the bank statements for each of the Jiaxin bank accounts identified by Mr Fu. These included bank accounts in the name of a Jiaxin associated company such as Jiaxin Enterprise Limited, and the third-party accounts used by Jiaxin. Ms Milne identified that, of the 11 bank accounts used to transfer funds to Mr A’s accounts, eight had been nominated by Mr Fu as Jiaxin accounts in its Risk Assessment of July 2016 and confirmed in a response to DIA in August 2016.
[116] Ms Milne identified three additional accounts used to transfer funds to Mr A. The name of the account holder of these accounts (Zong Heng Guo Ji Ltd) matched the name of one of the Jiaxin accounts, but the accounts had not been identified by Mr Fu as a third party account used by Jiaxin. The signing authority to operate each of these additional accounts was held by Ms Che and Mr George Massold. Each of these three Zong Heng accounts were used, not only to remit funds to Mr A, but also used to remit funds to accounts to which Jiaxin disclosed accounts had remitted funds. To illustrate, approximately $4.8M was transferred from one of the undisclosed Zong Heng accounts to Mr A’s bank accounts in multiple transactions (representing 18 per cent of the total received by Mr A through bank transfers in this period). In the same period, this undisclosed Zong Heng account was also used to transfer a total of approximately $21M to nearly 200 further accounts, of which about 111 had also received funds from Jiaxin’s undisclosed accounts. Further, the same Zong Heng account was listed as a recipient/payee in the summary of transactions undertaken for Jiaxin by Lan’s Enterprises, one of Jiaxin’s named brokers.
[117]Broken down by time periods, Ms Milne’s analysis is, in summary:
(a)Between 21 April 2015 and 7 August 2015, six of the Jiaxin accounts remitted approximately $16.4M to Mr A across 39 different payment days. On 34 of those days the same account was used to process a payment to a Jiaxin client;
(b)Between 6 November 2015 and 4 February 2016, two of the undisclosed Zong Heng accounts and the disclosed Zong Heng accounts transferred just over $17.3M to Mr A. This amounted to 48% of the total remitted to Mr A in the charging period;
(c)Between 2 May 2016 and 10 May 2016 four bank accounts were the source of approximately $2.3M remitted to Mr A. Most of these funds were sent from a Jiaxin account - Queennz Trading Limited - over 3 separate days. On each of these days money was also sent to other individuals from this account.
[118] Ms Milne’s analysis also showed that over the period of the charges, Jiaxin transferred approximately $145.2M to about 860 clients. Transfers to Mr A (whether as a client of Jiaxin or not) comprised approximately 25 per cent of this business. Seventy seven percent of the funds transferred to Mr A’s accounts originated from sources declared by Jiaxin to be part of their regular operating business, including from Jiaxin’s disclosed brokers.
Cash or counter deposits
[119] Between 21 and 24 April 2015, Ms Che made 14 separate cash deposits totalling $710,722 into the ANZ Bank account of Mr A. These deposits are the subject of the first charge, which Ms Che faces.
[120] There were four other cash or counter deposits totalling $72,000 into Mr A’s ANZ account in this same period but no evidence of photographed receipts on Ms Che’s iPhone. However, a WeChat message between Ms Che and Mr Fu suggests that Ms Che arranged for Mr Fu to make the first cash deposit:
Ms Che: Transfer $53,000 to this account. Ms Che: [Mr A].
[121] DIA’s analysis of cash or counter deposits on these dates into Mr A’s account show deposits of $25,000 and $28,000 on 21 April 2015. The deposit reference on Mr A’s bank statement is “jx”, clearly a reference to Jiaxin.
[122] Cash deposits into Mr A’s bank account continued through 4 May 2015 to 13 May 2015 in a series of 26 transactions, including numerous transactions during the same day totalling $1.2M.
Use of Jiaxin accounts
[123] At trial, Mr Fu explained the use of Jiaxin accounts to transfer money to Mr A. His explanation marked a critical point in the case. To avoid any comprehension difficulty I requested that his evidence be delivered in Mandarin and interpreted by the sworn interpreter. Up to that point Mr Fu had delivered much of his evidence in English although the questions had been put to him in English and then interpreted
and his answers in English had been interpreted in Mandarin. This was primarily for Ms Che’s benefit.
[124] Mr Fu explained that there were four different scenarios in which Jiaxin had involvement with remittances to Mr A arranged by and for Ms Che operating in her individual capacity.
Scenario One
[125] In this scenario, Mr A paid RMB into an account controlled by Ms Che in China in order to have funds remitted to him in New Zealand dollars into his New Zealand bank account. Ms Che funded this settlement through a third-party broker such as Credit Investments. She “sold” the RMB to Credit Investments, depositing the RMB into a Credit Investment account in China and providing to Credit Investments the account number of a New Zealand bank account shared with Jiaxin and Mr Fu. That account transfers the funds to Mr A’s bank.
Scenario Two
[126] This scenario is a variant of the first scenario. The difference is that Ms Che used a Jiaxin controlled account such as JJXX Trading Limited in New Zealand, rather than a shared account. In this instance, Mr Fu completed the transaction using his own log-in (although it is also practically possible that he provided the access passwords to Ms Che).
Scenario Three
[127] Ms Che received RMB from Mr A and instead of using Credit Investments as broker, Ms Che used Jiaxin as broker. She paid RMB into a Jiaxin controlled account in China with Mr Fu giving her a rate and arranging payment to a nominated account in New Zealand, whether directly to Mr A or to a Jiaxin third party account in New Zealand.
Scenario Four
[128] Mr Fu described this as a ‘special case’ during Ms Che’s absence between 14 and 28 June 2015. He explained that Ms Che left him with the U-Shield authentication devices for her Chinese bank accounts and he carried out her instructions to conduct a scenario one or two transaction, using a remitter such as Credit Investments. Funds were remitted into Mr A’s account in New Zealand directly or to a Jiaxin third party account.
[129] Mr Fu’s evidence is that all remittances to Mr A fell into one of these transaction scenarios, but Jiaxin received commission only in respect of the scenario three transactions and only scenario three transactions were conducted by Jiaxin.
[130]I turn to the specific charges.
Charge One – Structuring a transaction – Ms Che
The elements
[131]Section 101 of the AML/CFT Act provides:
101Structuring transaction to avoid application of AML/CFT requirements
A person commits an offence if the person structures a transaction (other than a transaction that involves the cross-border transportation of cash) to avoid the application of any AML/CFT requirements.
[132]The elements of this charge, which Ms Che faces alone, are whether:
(a)The depositing of cash for Mr A amounted to a transaction which did not involve the cross-border transportation of cash;
(b)Ms Che structured those cash deposits; and
(c)Ms Che structured them to avoid the application of any requirements in the AML/CFT Act.
Did the depositing of cash by Ms Che amount to a transaction which did not involve the cross-border transportation of cash?
[133] Between 21 April 2015 and 23 April 2015, 14 separate cash deposits were made into an ANZ account of Mr A. A photographic image of each of the 14 deposit slips was located on Ms Che’s iPhone which had been cloned by NZ Customs Service when Ms Che was stopped at the border. The deposit slips matched the counter deposit entries in Mr A’s bank account.
[134]The 14 deposit receipts identified the following deposits:
Date Time Bank Branch Amount 21/04/2015 13:35 ANZ 231 Dominion Road, Mt Eden $70,000.00 21/04/2015 13:48 ANZ Store 424A L1 Westfield, St Lukes 80 St Lukes Road $60,000.00 21/04/2015 13:58 ANZ Shop 529
Westfield, St Lukes 80 St Lukes Road
$40,000.00 21/04/2015 16:22 ANZ 231 Dominion Road, Mt Eden $80,000.00 22/04/2015 12:34 ANZ 231 Dominion Road, Mt Eden $70,000.00 22/04/2015 14:38 ANZ 985 Dominion Road Mt Roskill $50,000.00 22/04/2015 15:00 ANZ 22 Stoddard Road, Mt Roskill $10,000.00 22/04/2015 15:17 ANZ 231 Dominion Road, Mt Eden $40,000.00 22/04/2015 15:24 ANZ Shop 529
Westfield, St Lukes 80 St Lukes Road
$40,000.00 22/04/2015 15:56 ANZ 231 Dominion Road, Mt Eden $50,000.00 23/04/2015 15:20 ANZ 231 Dominion Road, Mt Eden $99,000.00 24/04/2015 13:29 ANZ 231 Dominion Road, Mt Eden $60,000.00 24/04/2015 16:13 ANZ 231 Dominion Road Mt Eden $21,772.00 24/04/2015 16:30 ANZ Store 424A L1 Westfield, St Lukes 80 St Lukes Road $20,000.00
[135] Each deposit slip identified the same ANZ account of the recipient and is date and time-stamped. The deposits were spread over five ANZ branches over four days.
Some of the deposits were made within 10 minutes of each other at ANZ branches within close proximity. The metadata indicates that the image on the iPhone was, in some instances, ‘created’ within minutes of the time stamp on the deposit. There was no evidence however as to whether the metadata recording the “create” date established that the image had been taken on Ms Che’s iPhone, or sent to the iPhone and the image saved.13
[136] Ms Che acknowledged to DIA through her solicitor that she made cash deposits into Mr A’s bank account between 21 April 2015 and 10 May 2016. The bank records of Mr A indicated that there were numerous cash deposits into the account totalling more than $7M between December 2014 and May 2016. Some of these deposits recorded the reference “jx” or “cx” against them, but the 14 deposits which are relevant here did not record any reference. It is possible that the physical act of depositing (whether some or all deposits) was made by Ms Che’s employee. This is suggested by a WeChat exchange between an employee and Ms Che on 21 April 2015:
Che: Send me the transaction receipt once you have done. Che: Done.
Employee: Wait, there is a problem, I am asking city (branch) how to resolve.
[137] I am satisfied, however, based on the totality of the evidence, that the depositing was carried out under Ms Che’s instruction and on her behalf, if not by Ms Che herself.
[138] A transaction is defined in the Act to mean, among other things, any deposit whether in cash or in other states.
[139] The deposits of cash into Mr A’s bank account are clearly each a transaction which did not involve the transportation of cash across borders. The question is whether they collectively comprise one transaction since the structuring relied on by the Crown is the splitting of the sum of $710,772 into multiple deposits, spread over five branches of the same bank over a period of four days.
13 Statements from forensic witnesses setting out the process of extraction of data and chain of custody from NZ Customs and Police were taken as read by agreement of the parties.
Did Ms Che structure these cash deposits?
[140] Ms Maxwell for Ms Che submits that, unless there is sufficient proof that the amount of $710,772, was the start point (by which I understand her to mean the total to be deposited in accordance with Mr A’s instructions) it cannot be said that there was any structuring of “a” transaction. I disagree. The common elements of each individual deposit over this short period and the way they were carried out were so similar that they can only reasonably be seen to be linked or as a series forming part of one transaction. This is particularly the case in respect of the sub-set of deposits made in quick succession on the same day. I am satisfied that this element is established to the required standard of proof.
Did Ms Che structure them to avoid the application of any requirements of the Act?
[141] This element requires me to be sure that Ms Che’s purpose or intention in structuring the deposits in this way was to avoid the application of any requirements of the AML/CFT Act. The Crown says that the requirements that Ms Che sought to avoid was any obligation on the part of the ANZ to report the transactions or conduct enhanced customer due diligence.
[142] It is highly probable that receiving banks have thresholds for cash deposits within their own AML programmes which trigger scrutiny of transactions, however no evidence of this sort was presented to me. There was also no evidence that banks had at that time threshold limits for the depositing of cash which might explain the commercial necessity to break up deposits. There is no discernible pattern in the size of the deposits save that no deposit exceeded $100,000 and one deposit was just under
$100,000.
[143]A WeChat message thread between Mr A and Ms Che on 20 April 2015 read:
Mr A: How the exchange rate today? Mr A: I am in New Zealand. Mr A: Contact when you can. ... Mr A: Going to the bank tomorrow afternoon. Mr A: Transferring money these couple of days.
Mr A: You ready? Lily Che: I am ready. Mr A: I will get a cellphone number, it’s easier. Mr A: Send me your account. Lily Che: Yes. Mr A: Yep. Lily Che: I can also give you others. Mr A: Ok. Mr A:: 2. Lily Che: Ok. Mr A:: When I finished transaction will message you. Lily Che: Ok. Lily Che: Right no problem. Mr A:: OK. Lily Che: I will be home all night. Contact me when you done transferring. ... Mr A:: I will go and transfer some money. Lily Che: Call me when you done transfer. Lily Che: Ok. Lily Che: Arrived Xiaohua. Mr A:: Ok. Lily Che: OK Mr A:: It will be best if it’s bigger limit. Lily Che: Ok. Lily Che: I will let you know tomorrow once I tried it out.
21 Notes of evidence page 475, lines 19- 30; and notes of evidence page 473 lines 21– page 474 line 9.
22 Notes of evidence page 435 lines 16, 25-29.
…So theoretically, I had no idea what had happened on the China side, but in order to produce such a receipt, I must provide a China bank account in order for this slip to go through. That’s why I would then choose, or pick a China bank account that Jiaxin was using at the time, and an appropriate exchange rate..
…But if you’re asking, is actual account receive the Chinese dollar in China, no
[182] Yet, Mr Fu strove to distinguish between the scenarios in his evidence. He asserted that where Jiaxin did not receive RMB into its Chinese accounts and did not offer an exchange rate, Jiaxin made no profit or commission and so Jiaxin was not ‘involved’ in the transaction. According to Mr Fu, it was only in Scenario three that Jiaxin received commission and was therefore involved.
[183] In my judgment, the mere fact that Jiaxin did not offer an exchange rate did not necessarily mean that it received no benefit out of a transaction. Whether or not Jiaxin received a commission or profit also does not determine the question of whether a transaction is conducted through an entity. In my assessment, the transaction record created by Mr Fu in fact had three primary purposes – to aid reconciliation for settlement of remittances to Mr A, to ascertain profit through exchange rate arbitrage and to create a documentary trail recording Ms Che as customer.
[184] Though immaterial to this issue, I am also satisfied that Jiaxin did likely benefit from the transactions with Mr A in other Scenarios. By way of example, Mr Fu completed a series of transactions for Mr A between 14 June to 28 June 2015 while Ms Che was overseas. During this period, the narrations on Mr A’s New Zealand bank account included the initials “JX” or “Jiaxin”.
[185] Mr Fu created a Jiaxin record referencing a payment of NZ$1 million into Mr A’s ANZ account on 16 June 2015. The document purports to indicate the payment of RMB 4,420,000 into a Chinese bank account controlled by Mr Fu as part of the settlement of payment of the NZ$1 million into Mr A’s ANZ account. The payments into Mr A’s account were made in two instalments on the same day. Both payments were made from the JJXX Trading Limited account which Mr Fu claimed he had sole access to. Cross-referencing this payment date with the Schedule produced by Mr Miao of Credit Investments Limited shows that this payment of New Zealand
dollars was funded by Credit Investments Limited. The transaction list provided by Mr Miao to DIA confirms the rate of conversion to fund the 16 June 2015 transaction at 4.41. The rate recorded on the Jiaxin record is 4.42. If the Jiaxin record is accurate, it indicates a commission or profit for Jiaxin based on the exchange rate differential.
[186] On 18 June, Mr Fu created a Jiaxin record indicating a receipt of RMB 2,370,000 into the same Chinese bank account, along with a receipt of RMB 2,000,000 into another Chinese bank account. The exchange rate noted on the Jiaxin record was 4.37. The record notes a payment to Mr A of NZ$1M from a Jiaxin third party account in multiple instalments over two days, accompanied by the narration “CHE, Fulin jx”. Again, this payment was funded by Credit Investments Limited and its summary of transactions confirmed a rate of 4.365 which was consistent with a WeChat message between Mr Fu and Ms Che on 17 June 2015. This exchange rate difference suggests a profit of RMB 21,850.
[187] Mr Fu discussed this transaction with his mother by WeChat in these terms on 18 June 2015:23
Mr Fu: how much are we giving [Mr A] today? Ms Che: give him 1 million
Concerted efforts to conceal transactions relating to Mr A from DIA scrutiny and minimise Ms Che’s involvement in Jiaxin
[188] I am satisfied that Mr Fu and Ms Che adopted a course of conduct to consistently conceal transactions relating to Mr A from DIA.
[189] During the inspection of Global Concepts, the “remarkably tidy and organised”24 folder of documents purporting to represent transactions over January- March 2015 omitted any transactions with Mr A. Additionally, Global Concepts made sure that transaction records were not provided for earlier periods. This can only have been deliberate on the part of Ms Che who was well aware of the scale and frequency of transactions conducted for Mr A. In the period 12 December 2014 to 9 January
23 Mr Fu in his evidence took issue with translations of the WeChat messages where subject pronouns were used in the English translation.
24 As described by DIA witness, Mr Milnes.
2015, there were up to 25 payments totalling $1.879 million made to Mr A through Global Concept third party accounts, including nine transactions totalling $687,030 during January 2015.
[190] Mr Fu did not disclose the extent of Ms Che’s involvement in Global Concept when interviewed by DIA. He excluded her from his description of staff. He only conceded any involvement by his mother when one of the employees mentioned a staff member called Lily. At that point, Mr Fu described his mother’s involvement in the business as limited to helping sometimes when he was not there. This was false. By his own account at trial, Global Concept was his mother’s business from at least 2012 and she was doing the main work there even after his return to New Zealand.
[191] At no time did Mr Fu refer to Ms Che in any Jiaxin Risk Assessment or Organisational chart, whether in the capacity of a staff member or broker. Mr Crowle was unaware of Ms Che’s access to and use of Jiaxin bank accounts until the interview with DIA in August 2016.
[192] When interviewed by DIA on 24 August 2016, Mr Fu reiterated that his mother processed settlement transactions for him, as an account settlement person, when he was “not at the company” through illness or overseas travel. He described these times as “occasional”. When asked whether Mr A was a customer, Mr Fu answered no. Then when asked whether he had anything else he wished to tell DIA, he answered, No.
[193] Mr Fu did however state in the interview that 1 per cent of the transactions going through certain Jiaxin disclosed third party accounts related to “my mum’s business”. Asked whether the transactions in the accounts in the name of JJXX Trading Limited related solely to financial transactions associated with customers of Jiaxin, he said that he believed 100% of the transactions related to “my” customers.
[194] I consider Mr Fu’s responses to DIA were misleading and replete with half- truths. At no time did he fully disclose the nature of his dealings or his mother’s dealings relating to Mr A.
[195] Mr Fu’s written response on 7 October 2016 to DIA’s requisitioning of records relating to a sample of 30 identified payments was equally untruthful. In respect of three transactions identified by DIA in which Mr A received payments, Mr Fu stated “No records held as not a client of Jiaxin Finance”. As discussed above, Jiaxin did hold records relating to transactions with Mr A, including the three transactions in the DIA sample list, each with Ms Che recorded as the customer.
[196] The requisition notice was worded broadly to include “Copies of all records….relating to the customer(s) that resulted in this payment and to enable the transaction to be readily reconstructed.” At trial, Mr Fu disavowed understanding the full extent of the request; however, his written responses for two unrelated transactions are revealing. While stating, “No records held as Liling Kang is not a client of Jiaxin” Mr Fu went on to fulsomely explain that Ms Kang is a director of a company with whom Jiaxin did business and provided documents for that business held under another director’s name.
[197] The contrast between Mr Fu’s responses shows his reluctance to reveal anything of Jiaxin’s involvement with Mr A. As Mr Fu conceded on cross- examination, at no time did he tell DIA that Mr A “had conducted transactions that he had recorded.” By August 2016, his reluctance on this score was no doubt influenced by the fact that the Police had recently executed a search warrant of Mr Fu and Ms Che’s home in connection with their investigation of Mr A.
Mr Fu’ s own evidence of Jiaxin’s involvement and use of Jiaxin third party accounts
[198] At trial, Mr Fu admitted that payments to Mr A went “through” Jiaxin in the sense that Jiaxin third party accounts (being accounts controlled by Jiaxin) were the paying entities. He also admitted that he processed all the payments to Mr A for each of the 51 transactions for which a Jiaxin record was created. While his evidence on this issue was inconsistent and contradictory, I ultimately understood him to mean that he was responsible for creating the Jiaxin record. He agreed on cross-examination that if Ms Che was a customer of Jiaxin, as he suggested she was, transactions undertaken by her would form part of Jiaxin’s business. He admitted that a transaction reference
“jx” in Mr A’s account means “I make that transaction”. He admitted that there were transactions that were subject to Jiaxin’s AML/CFT programme involving Mr A.
[199] In essence, this was a concession that a substantial number of transactions were conducted through Jiaxin and the nub of the contest was only as to whether Mr A or Ms Che conducted them.
[200] For all the stated reasons and considering the totality of the evidence and my findings as to the reliability of certain evidence, I am left sure by the Crown case that Charge two is made out against all three defendants.
[201]Accordingly, I find Jiaxin, Mr Fu and Ms Che guilty of Charge two.
Charges Three and Four – failing to report and keep adequate records about a suspicious transaction (all defendants)
Legal principles – a subjective or objective test?
[202] Before I turn to my analysis of the facts I must ascertain the elements of the offences relating to suspicious transactions, both in respect of the principal (Jiaxin) and the alleged parties, Ms Che and Mr Fu. The relevant issues are whether ss 92 and 95 (as enacted during the relevant charging period) employ a subjective or objective test and what the mens rea requirement for party liability in respect of these offences is. The answers require a more detailed analysis than is usual in the delivery of verdicts, because this is the first time these issues have arisen in a criminal prosecution under the Act.
[203]The sections read:
92 Failing to report suspicious transaction A reporting entity commits an offence if—
(a)a transaction is conducted or is sought to be conducted through the reporting entity; and
(b)the reporting entity has reasonable grounds to suspect that the transaction or the proposed transaction is or may be—
(i)relevant to the investigation or prosecution of any person for a money laundering offence; or
(ii)relevant to the enforcement of the Misuse of Drugs Act 1975; or
(iii)relevant to the enforcement of the Terrorism Suppression Act 2002; or
(iv)relevant to the enforcement of the Proceeds of Crime Act 1991 or the Criminal Proceeds (Recovery) Act 2009; or
(v)relevant to the investigation or prosecution of a serious offence within the meaning of section 243(1) of the Crimes Act 1961; and
(c)the reporting entity fails to report the transaction or the proposed transaction to the Commissioner as soon as practicable, but no later than 3 working days, after forming that suspicion.
...
95 Failure to keep or retain adequate records relating to suspicious transaction
A reporting entity commits an offence if the reporting entity fails to keep or retain adequate records relating to a suspicious transaction.
[204] I note offences relating to suspicious transactions are standalone. Other offences under the Act provide that engaging in conduct constituting a civil liability act is an offence if a reporting entity engages in that conduct knowingly or recklessly. There is even an equivalent civil liability act relating to suspicious transactions replicating the proscribed conduct.25 This must be construed as a deliberate response to the mischief intended to be protected against under the suspicious transaction reporting regime (STR). The STR offences can be committed without any mens rea requirement of knowledge or recklessness.
[205] The requirement in s 92(b) is that the reporting entity has reasonable grounds to suspect that the transaction is or may be relevant to the listed matters. Those matters include the investigation or prosecution of any person for a money laundering offence. The nub of s 92 is whether the reporting entity has reasonable grounds to suspect. In this context, “has” merely means “in possession of” but what are “reasonable grounds”
25 Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 40.
It must be established whether the assessment is objective or subjective and to what extent context informs the assessment.
[206] At first blush, there is an internal inconsistency in s 92. The phrase “reasonable grounds to suspect” does not suggest that a reporting entity does in fact have suspicions. It does not say that the reporting entity “suspects on reasonable grounds” but neither does it employ more clearly objective phraseology such as “there are reasonable grounds to suspect”. Section 92(c) defines the offence as the failure to report the transaction as soon as practicable, but no later than three working days, after forming that suspicion. The suspicion referred to must logically relate back to the “reasonable grounds to suspect”. However, the use of the word “forming” is more compatible with a subjective requirement, namely that the reporting entity suspected based on those reasonable grounds. On this interpretation, if the reporting entity did not form that suspicion, whether deliberately by avoiding consideration of the issue or not, no offence has been committed.
[207] This question was addressed in the civil liability context by Toogood J in Department of Internal Affairs v Ping An Finance (Group) New Zealand Company Ltd.26 The judgment followed a formal proof in respect of five civil liability acts, including the then civil liability equivalent of s 92. As it was the first case brought under the Act to reach determination, Toogood J analysed the Act thoroughly in defining the scope of the obligations under the Act.
[208] Like the present defendants, Ping An Finance (Group) New Zealand Company Ltd was a money remittance and currency exchange business and a reporting entity under the Act. The second defendant was the sole director and shareholder. Unlike the present defendants, Ping An had demonstrated serious, systemic deficiencies across the whole of its business and Toogood J found that non-compliance with the Act’s requirements was a cultural norm within the business.
[209] In his analysis of subpart 2 (ss 40-48) of the Act, Toogood J specifically addressed the question of the requisite test for failure to report suspicious transactions.
26 [2017] NZHC 2363, [2018] 2 NZLR 552.
[210] Toogood J considered it arguable on the text itself that s 40 indicated a subjective test but pointed out that the statutory purpose in s 3(1)(a) of detecting and deterring money laundering and the financing of terrorism is promoted by a test requiring reporting entities to report any transaction that is objectively suspicious. He determined that if a reporting entity becomes aware of circumstances that a reasonable person would consider to provide grounds to suspect that a transaction or a proposed transaction is or may be relevant to one of the activities listed, a suspicious transaction report must be submitted.27 It follows that it is no defence that the reporting entity did not actually consider the transaction to be suspicious.28
[211] Turning to s 40(2), he identified two possible interpretations as to when the mandatory reporting period was triggered because of the reference to “forming its suspicion”. The first does not begin until the reporting entity forms a suspicion about the transaction. The second begins when the reporting entity becomes aware of the reasonable grounds objectively justifying a suspicion of a reportable transaction. Consistently with the objective test which best met the policy of the legislation, Toogood J said that the second interpretation must be adopted.
[212]With respect, I agree. My reasoning is:
(a)Only an objective test serves the policy of the Act. A subjective test would cut a swathe through the Act’s protective framework and the ability to enforce it;
(b)A strict approach is prophylactic in that it incentivises reporting entities to have adequate systems in place to monitor and assess transactions;
(c)The purpose of a statute is as relevant to interpretation of criminal enactments as it is to other statutes;29
27 At [65]
28 At [64].
29 Tan v Auckland Council [2015] NZHC 3299 at 69]-[72]: “the principle of lenity does not override the need for a purposive interpretation and criminal statutes are not immune from purposive interpretation”.
(d)Although a defendant is entitled to the benefit of doubt in cases of genuine ambiguity in a criminal enactment, the principle does not override the need for a purposive interpretation. I consider that once the purpose of this Act is reflected on, any awkwardness in the expression of the offence in s 92 is resolved;
(e)The approach under earlier legislation with broadly comparable wording such as the Financial Transactions Reporting Act 1996, was similarly objective;
(f)The express wording in s 92(1) is significant and the reference to “forming the suspicion” should be regarded purposively as legislative short-hand for “acquiring the reasonable grounds to suspect”;
(g)The offence provisions of s 91 expressly provide for the mens rea element which serves to criminalise otherwise civil breach acts. Section
91 provides that the breaches must have been committed either intentionally or recklessly;
(h)There is support for this interpretation in the statutory defence under s 98. This section provides that a total absence of fault will act as a defence to a charge in relation to a contravention of, or a failure to comply with, Part 2 of the Act. A defence of absence of fault to a charge under the Act would be redundant unless there are offences which do not require proof of mens rea. Though the specific charges the defendants face are not under Part 2, they are in relation to Part 2 in that the primary obligations of reporting entities, including as to reporting of suspicious transactions are found in Part 2. An objective test therefore best reflects coherence in the statutory scheme;
(i)The availability of the statutory defence also supports my view that there is no reason for a different test under s 92 (as opposed to a different burden of proof) for criminal as opposed to civil liability in respect of suspicious transaction reporting.
[213] The Crown describes the offence as one of strict liability. As recently stated by the Supreme Court:30
The wording of the offence, read in its statutory context, determines the elements of that offence. However, the starting point when construing provisions creating criminal liability is that a “guilty mind” (or mens rea) is an essential ingredient of criminal liability, absent a contrary statutory indication or an overriding judicial history. Just what is a guilty mind is offence specific.
[214] I observe that, even if the test in s 92 is an objective one, it does not necessarily follow that the offence is one of strict liability. There remains the question whether mere possession of the objectively reasonable grounds by the reporting entity suffices or whether the reporting entity must have knowledge, an awareness or appreciation of the existence of the grounds.
[215] The presumption that proof of mens rea or a guilty mind is an element of any crime can only be displaced by clear or necessary implication if the statute creates an offence aimed at an issue of social concern such as public safety; even then, it must be shown that imposition of strict liability will be effective to promote the statutory objectives.31 In Millar v Ministry of Transport the Court of Appeal held that where the words of the statute give no clear indication of legislative intent the question is whether there is “really anything weighty” enough to displace the presumption of mens rea.32
[216] In accordance with these principles, in my judgment, this is not a strict liability offence in the sense that there is no mental requirement at all. Rather, the mens rea element in s 92 focuses attention on what information a defendant had.33 This is consistent with the approach taken by Toogood J in Ping An. It is also consistent with the natural and ordinary meaning of “has grounds”. I therefore read this as a provision of limited mens rea rather than as a strict liability provision.34
30 Shark Experience Limited v Paua MAC5 Inc. [2019] NZSC 111 at [53] (footnotes omitted).
31 Stevenson v R [2012] NZCA 189 at [16].
32 Millar v Ministry of Transport [1986] 1 NZLR 660 at 668.
33 See R v Lane and Anor [2018] UKSC 36, [2019] 1 All ER 299 at [24].
34 See Leask v Commonwealth of Australia (1996) 187 CLR 579 at 592-593.
[217] Finally, in respect of the legal analysis, there is the question of how to approach the objective assessment of “reasonable grounds”.
[218] Counsel for the defendants submit that there is still an element of subjectivity in the test in that the objective assessment must be contextual. This means that the assessment must be made against the context of what the reporting entity is aware of and whether in those circumstances it would have been reasonable to form a view that the transaction was suspicious. The Crown also refers to relevant circumstances in ascertaining whether a reasonable actor in “Jiaxin’s circumstances” would have suspected a transaction to be suspicious.
[219] I agree that the objective test required under s 92 must consider all known circumstances. In other words, the grounds may not be taken out of context or isolated when applying the objective lens. For example, a transaction amount might make a reasonable money remitter considers suspicious. However, if there are other known factors in respect of that transaction, such as that it is accompanied by a detailed explanation of the legitimate commercial purpose, suspicion may not be justified in light of the overall context. The requirement is satisfied when on the information available to the defendant, a reasonable person would form the suspicion.
Elements of Charges Three and Four – Jiaxin
[220]It follows that the elements of the charge against Jiaxin are:
(a)At least one of the transactions at issue in the charging period was conducted through Jiaxin;
(b)Jiaxin had reasonable grounds to consider the transaction may be relevant to the investigation or prosecution of any person for a money laundering offence;
(c)Jiaxin failed to keep or retain adequate records relating to that transaction (charge 3);
(d)Jiaxin failed to report the transaction to police.
[221] Notably, resolving the question of the identity of Jiaxin’s customer is not a prerequisite of this charge, although the defence suggests the identity of the customer is a crucial aspect. In one sense, the defence seeks it both ways – to disclaim Mr A as customer but to rely on his characteristics as a customer as context for there being no objectively assessed grounds to suspect him.
[222] As discussed above, once the defence case developed, Mr Fu no longer contested that many of the transactions at issue were conducted through Jiaxin, albeit for Ms Che.
[223] It was also clearly established that Jiaxin did not make a single STR to Police in relation to any transaction Mr A undertook. The real enquiry then is whether Jiaxin, through Mr Fu, had reasonable grounds to consider at least one of the transactions suspicious.
Reasonable grounds to consider the transactions suspicious?
[224] I am left sure by the Crown case that there were multiple hallmarks of suspiciousness held by Mr Fu, and therefore Jiaxin, in respect of many of Mr A’s transactions and that a reasonable person would have made a report a suspicious transaction to Police.
[225] The most telling indicia is the volume and frequency of remittances over an extended period without any stated or recorded commercial objective other than the inherent purpose of removing money from China.
[226] Mr Fu must have been aware, since he created the Jiaxin transaction records himself, that Mr A transferred at least $36M to New Zealand through Jiaxin bank accounts and that these transactions represented a sizeable volume of Jiaxin’s business. Ms Milne’s evidence was that the business transacted through Jiaxin third party accounts in the period 21 May 2015 to 10 May 2016 comprised 25 per cent of Jiaxin’s business through these identified accounts for at least 860 customers. There is no evidence that any other custom through Jiaxin was of similar proportion, frequency over periods of days or weeks, or impact on the business despite Mr Fu stating that “I’m dealing, lots of money every day and obviously from my mum get it
from [Mr A] is a lot but I don’t think it’s too much”. At times large remittances to Mr A were the subject of urgency:
Fu: if he really worries, he wouldn’t give you 20 million at once. Che: but this transaction needs to be done immediately.
Fu: I understand.
Che:Check more often, let me know when it arrived, I will message him so he can be reassured.
Fu: Ok
[227]Payments to Mr A were large in isolation– 17 involved a single payment of
$200,000 or more – but more importantly, the overall scale and frequency is what must make them unusual activity. If other ‘customers’ of Jiaxin had similar patterns of activity, evidence would have been produced. It is inevitable that Mr A’s transactions would have stood out.
[228] There are also the various Jiaxin Risk Assessments and Programmes dealing with suspicious transaction reporting. Although not specifically referable to suspicious transactions, in the 2014 and 2015 Jiaxin Risk Assessments the maximum transaction limit was stated to be $200,000 “which is high and requires robust CDD measures”. Mr Fu asserted in his evidence that this was an error carried over from the Global Concept Risk Assessment which he had been unaware of until told by his lawyer sometime after 2017. At trial he produced examples of transactions for other customers exceeding this limit.
[229] Mr Fu’s disavowal of full knowledge and understanding of the Risk Assessments is one of the reasons why I am not influenced by Mr Jones’ submission that the Risk Assessments recorded a subjective test for the obligation to make a STR, without any correction from DIA.
[230] In the August 2016 Jiaxin Risk Assessment, Jiaxin recorded that it had agreed with the FIU to report transactions where the transaction amount exceeds USD50,000, described as “large transactions.” While this Risk Assessment was completed after the charging period, Mr Fu advised DIA in his interview that Jiaxin had started this practice in September 2015. There is evidence of STR reporting after this date. Three
of the 30 sample transactions the subject of DIA’s Requisition Notice involved STRs although Mr Fu denied making any STR report himself, having delegated this task to others at Jiaxin.
[231] The information known by Mr Fu in respect of Mr A was scant. He referred to a Google search, awareness of family members living in New Zealand and awareness of extraordinary wealth. I accept that there was no publicly available information in evidence linking Mr A to any unlawful activity. The mention of investment in a hotel in 2016 was at best a rumour. There were, however, no documentary records produced which provided any rationale or justification for the remittances other than a single WeChat message “situation in the country is not stable”. The absence of information known or held by Jiaxin about Mr A is part of the context I am permitted to consider in the objective assessment of grounds to suspect.
[232] This is despite the submission made to me that the trust underpinning the “Hawala system” explains the absence of documentation. While I have no doubt that trust is a critical aspect of informal money remittance, it cannot displace obligations under New Zealand law.
[233] I find that I am sure that Jiaxin had reasonable grounds to suspect that these transactions were suspicious as defined in the AML/CFT Act.
[234] There was relatively little focus in the case on what records should have been retained by Jiaxin in relation to the suspicious transactions. This is in large part due to the re-shaping of the Crown case once Mr Fu produced the Jiaxin transaction records. The AML/CFT Act requires that a reporting entity keep those records reasonably necessary to enable transactions to be readily reconstructed, including a record of any facilities directly involved in the transaction. In evidence, Mr Fu himself asserted in cross-examination that not all the Jiaxin transaction records for the 51 transactions relating to Mr A were accurate. In those instances where Ms Che had no need to deposit RMB into a Jiaxin account in China, he explained that theoretically he had no idea “what happened on the China side”. He would therefore merely choose a China bank account that Jiaxin was using and pick an appropriate exchange rate to populate the transaction record because these fields were required to be completed before a
Jiaxin transaction record could be produced. In his own words, “the transaction record, under that case, is like I told you before the truth, the rate and the account actually receive (sic) this money is not the real case.”
[235] Mr Fu further admitted that the transaction records only show the last part of the transaction, being the New Zealand dollar account transaction. For this reason, the records would not have enabled reconstruction of the transactions.
[236] I am also satisfied that there were no records created in respect of transactions for Mr A where funds did not pass through a Jiaxin third party account and clearly there were neither CDD records for Mr A nor enhanced CDD records in respect of Ms Che.
[237] In conclusion, I am left sure by the Crown case that Jiaxin is guilty of charges three and four - failing to file a suspicious transaction report in respect of any of the transactions conducted through Jiaxin between 19 May 2015 and 10 May 2016 relating to Mr A and failing to retain adequate records relating to those transactions.
Are Ms Che and/or Mr Fu liable as parties?
[238] Finally, I turn to the question of Mr Fu and Ms Che’s liability as alleged parties to these charges.
[239] The Crown described the essential element of Mr Fu and Ms Che’s culpability as whether Mr Fu and/or Ms Che considered the transaction(s) suspicious and took steps intended to facilitate Jiaxin’s failure to report and keep adequate records. Mr Johnstone was careful to point out this distinction between liability on the part of the principal and liability on the part of Mr Fu and Ms Che as secondary parties.
[240] The overlay of an additional mental element stems from the nature of party liability in s 66 (1) of the Crimes Act 1961.35 As Mr Johnstone succinctly put it, the culpability of the secondary party lies not only in sharing the mental element with the principal but in acting in some way to facilitate the completed offence by the principal.
35 Ahsin v R [2014] NZSC 153, [2015] 1 NZLR 493 at [82]-[83].
It therefore requires a level of consciousness about the set of facts that comprise the liability of the principal. He also fairly acknowledged that he was bound to accept that, as far as Ms Che is concerned, it is only if the Crown was to leave me sure of her role in a conscious arrangement with Mr Fu that Ms Che can be found guilty of charges three and four.
[241] I agree that the requisite mental element for secondary participation in these circumstances is intention. Without actual suspicion on the part of Mr Fu and Ms Che, they cannot have acted in their individual capacities with the required purpose in s 66(1).36
[242] WeChat message threads evidence Ms Che’s awareness of the size of the transactions. On 18 June 2015 Ms Che observed:
Ms Che: this is big money, can’t be too careful Ms Che: so much money, shouldn’t be careless37
Ms Che: let’s not move too fast, big amount of money makes me worried.
[243] I have already determined that the money remittance business under Jiaxin was regarded and run, albeit informally, as a family affair. This was the reality of the business relationship between Mr Fu and his mother. She held herself out as part of the family business, for example to Customs officials when she told them “[t]o the public I was assigned a role for the company…of the company.. but I do not collect salary in fact”. While this does not influence me in respect of Mr Fu’s culpability, it is consistent with my view of the business.
[244] The WeChat conversation between Ms Che and Mr Fu on 19 June 2015 neatly encapsulates the nature of their business dealings with Mr A. When Mr Fu asks, in relation to Mr A, “is there more from him next week”, Ms Che responded:
Ms Che: he didn’t say
Ms Che: you are addicted to making money
36 R v Lane and Anor [2018] UKSC 36, [2019] 1 All ER 299 at [15] citing R v Saik [2006] UKHL 18, [2006] 4 All ER 866.
37 This translation was Mr Fu’s own interpretation at trial
Mr Fu: this thing is easier with money, without capital it is too much hard work
Ms Che: we made quiet (sic) a bit of profit this time right?
Mr Fu: I am doing the calculation now
[245] I conclude that both Mr Fu and Ms Che considered Mr A’s transactions to be suspicious, in the sense that they should be reported under the AML regime, despite denials to the contrary. The only common-sense conclusion to be drawn is that the construct of regarding Ms Che as the customer of Jiaxin was part of the concerted and joint endeavour to quarantine Jiaxin’s involvement. In reaching this view, I draw from the context, the way these transactions with Mr A were conducted, the minimisation of Ms Che’s involvement in the businesses, Ms Che’s deliberate concealment of Global Concept transactions with Mr A in March 2015 (in respect of Ms Che only) and Mr Fu’s interactions with DIA. This construct, in turn, was motivated exclusively by the awareness of risk associated with Mr A’s course of dealings.
[246] Similarly, the fact that dealings with Mr A’s were conducted by way of exception to the compliant business practices set up for Jiaxin by Mr Crowle is telling. That the rest of the business was compliant meant that Mr Fu had full knowledge of what compliance required and looked like. Mr Fu had attended training conducted by Camco Partners about suspicious transaction reporting and on-going compliance on 22 May 2015 and 4 December 2015. His personal knowledge can only have been increasing through this period. In addition, his administrator, Ms Wang, had further training in respect of reporting through the goAML online platform. Jiaxin’s ability to use this platform went live from 14 August 2015 and there is evidence that it was used, albeit Mr Fu maintains that his staff were responsible for its use, not him.
[247] There was no plausible commercial reason not to bring Mr A’s custom within the rest of Jiaxin’s business, which was AML compliant. Ms Che had previously conducted transactions under the umbrella of Global Concept and not in her individual capacity. There would have been no operational difference in overtly bringing Mr A within the umbrella of Jiaxin, other than it would then fall to be monitored under Jiaxin’s compliance programme. I am left sure by the Crown evidence that this was a conscious undertaking by both individuals acting in concert to retain a profitable seam
of business while minimising oversight because of the risk that Mr A’s business would otherwise cease.
Conclusion on charge four in respect of Mr Fu and Ms Che
[248] In conclusion, I find that the charges against Mr Fu and Ms Che in respect of failing to report a suspicious transaction and failing to retain adequate records are proved beyond reasonable doubt.
[249]These are the Reasons for my verdicts.
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Walker J
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