In another in 2021-vintage anti-money laundering (AML) decision last week, Auckland-based derivatives trader CLSA Premium (CLASP) copped a $770,000 fine with the punishment falling about 35 per cent shy of the figure sought by the regulator.
The Auckland High Court ruling concludes the Financial Markets Authority (FMA) case brought against CLSAP NZ – formerly known as KVB Kunlun NZ – for a string of AML breaches dating back to 2015.
While CLASP admitted the AML charges in an agreement with the FMA this May, the pecuniary hearing in July saw the two parties about $800,000 apart in their respective assessment of the appropriate fine.
According to the ruling from Justice Edwards published last week: “The FMA seeks a global penalty of $1.2m for all four breaches. KVB says a penalty of $420,000 is appropriate. The key differences between them relate to an assessment of the gravity of the breaches and the extent of overlap between each of the civil liability acts.”
The High Court decision falls about half-way between the FMA and CLASP positions.
“A penalty of $770,000 represents 11 per cent of the available maximum. This places KVB’s conduct at the very top of the third category of the scale set out in [an earlier case involving FMA and ANZ]…,” Justice Edwards says in the ruling. “Given the scale, nature and circumstances of KVB’s non-compliance, I am satisfied that this penalty accurately reflects the gravity of the breaches and reflects the principles of deterrence and denouncement.”
Following an investigation in 2018, the FMA found CLASP, which had previous AML compliance issues with the regulator, in breach of four breaches of the law involving 10 clients and almost $50 million.
“Of this amount, approximately NZD 40.8m relates to deposits made by two customers,” the ruling says.
About 95 per cent of CLASP customers (numbering up to 37,000 in total each year) lived in “or had a connection with” China.
While the volume of the AML breaches was well under some other precedent cases, Justice Edwards highlighted earlier specific compliance problems at CLASP involving pressure from former directors to ignore certain customer due diligence obligations.
“The extent of that involvement saw two compliance managers employed by KVB leave their positions following disagreements between them and the directors of KVB regarding the extent of KVB’s compliance with its obligations under the Act,” the ruling says. “One of those employees was asked to resign by a director who told him KVB needed someone “bendier” as their head of compliance.
“… these features suggest that KVB’s due diligence non-compliance was not inadvertent; did not arise out of any misunderstanding as to its obligations; or occur as a result of erroneous advice. If the extremely high value nature of two of the transactions (totalling NZD 40.8m) is added to the mix, then there is a clear inference that CDD requirements were subordinated to the continuation of KVB’s relationship with high worth customers.”
The Hong Kong-listed CLASP, which focuses on contracts-for-difference in its NZ arm, traces its origins to an Auckland-based business established in 2001. Post the 2018 FMA investigation, CLASP NZ appointed four new directors: Lloyd Cartwright, David Wallace, Feng Yuan and Lingying Zhou.
Chinese investment bank, Citic Securities, holds about 60 per cent of CLASP shares and is “the ultimate holding company”, according to the 2020 accounts. In 2020, CLASP NZ reported a net loss after tax of almost $154,000 following a close to $15 million negative result the previous year. The company reported about $12 million in cash assets at the end of 2020.
The CLASP decision follows another landmark AML ruling handed down in the Wellington High Court last month that saw TSB Bank stung with a $3.5 million fine – again at a discount to the almost $4 million impost sought by the regulator (in this case the Reserve Bank of NZ).