Friday, December 9, 2022

Reserve Bank of New Zealand fines TSB $3.85m for money-laundering failures


TSB has agreed to pay $3.85 million in penalties after acknowledging it failed to comply with rules designed to prevent the bank being used for money-laundering.

TSB and the Reserve Bank, which polices anti-money laundering (AML) rules, presented the settlement for approval by the High Court in Wellington on Thursday, after the Reserve Bank filed legal action in May.

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Appearing for the Reserve Bank, Richard May, a partner at Luke Cunningham & Clere, set out details of four breaches of the Anti-Money Laundering and Countering Financing of Terrorism Act to Justice Jillian Mallon.

The action comes five years after TSB was formally warned for risk assessment and compliance failures.

May told the court “it was not suggested there has been actual financing of terrorism or money-laundering occurring”.

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But he said the breaches were serious, because they concerned “the adequacy and effectiveness of the very processes by which an entity such as TSB is required to comply with the act and ensure it is complying”.

“To put it another way, if these controls aren’t in place or aren’t operating effectively, then it could not have known if financing of terrorism or money-laundering was occurring.”

TSB lacked adequate procedures, processes and controls, failed to review its AML programme, and did not conduct a risk assessment of its real estate business as it was supposed to do, he said.

Appearing for TSB, Emmeline Rushbrook of Russell McVeagh, said TSB was “a small and proudly owned” New Zealand bank that was disappointed to find itself in front of the court.

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TSB did not set out to breach the act and nor were the breaches condoned by its board, she said.

It had been working with the Reserve Bank for more than a year to understand the nature and extent of the breaches and try and resolve them appropriately, before the matter went to court, and agreed the $3.85m proposed penalty was within “an appropriate range”, she said.

TSB reported a profit of just under $60m in the year to the end of March.

The court need not accept all details of the agreed settlement.

Justice Mellon at one point appeared to consider whether TSB might be entitled to a slightly higher “discount” than proposed on some components of the penalty.

That would be for not contesting the charges.

But she indicated she did not have any particular concerns about what was proposed, and said that while she would reserve her decision, it would not be a long wait.

May said mitigating factors in the eyes of the Reserve Bank included the fact that TSB had not engaged in similar actions before, noting the AML legislation was quite new, and that after 2019 TSB took steps to fix the problems.

“This is a matter of fairness to recognise TSB’s cooperation and remediation,” he said.

But he said in relation to one of the breaches that TSB’s internal systems “seem to have broken down”.


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