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TSB fined $3.5m for anti-money laundering act breaches

The High Court at Wellington has fined TSB Bank Ltd $3.5 million after the bank admitted to four breaches of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act).

Tuesday, August 31st 2021, 4:52PM

by Matthew Martin

The court's decision was released today and has been welcomed by the Reserve Bank of New Zealand (RBNZ) after the Reserve Bank brought charges against the TSB in May, and were the first civil proceedings taken by the Reserve Bank under the AML/CFT Act.

It is the third AML/CFT Act case reported on this month after the RBNZ issued a formal warning to Westpac NZ for failing to report almost 8000 transactions, and share trading platform Sharesies was warned by the FMA to lift its game for failing to have sufficient anti-money laundering procedures, policies, and controls in place.

The TSB and RBNZ agreed to the statement of facts and issued a joint submission to the High Court on the appropriate penalty.

The RBNZ did not allege the TSB had been involved in money laundering or the financing of terrorism but was an escalated regulatory response to TSB’s non-compliance with aspects of the Act.

The court ordered TSB to pay civil penalties totalling $3.5 million after discounting the bank for admitting to the charges, complying with the RBNZ investigation and agreeing to a remediation programme.

According to the court's decision, provided to Good Returns, the four breaches of the Act were;

First breach: Section 57(1)(1). TSB accepts that between 2013 and 2019, its AML/CFT programme did not contain adequate and effective documented assurance measures for monitoring and managing compliance with its AML/CFT programme.

Penalty: $1 million

Second breach: Section 59(1). TSB accepts that it breached its obligation to regularly review and maintain its AML/CFT programme.

Penalty: $1,062,500

Third breach: Section 58(1)/59(1). This breach concerns a failure to conduct a risk assessment of TSB’s realty operations. While TSB conducted CDD and established an AML/CFT programme in respect of its realty operations, it did not conduct a risk assessment of this business before doing so.

Penalty: $875,000

Fourth breach: Section 58(1) Concerns TSB’s failure to have regard to certain countries with which it deals when reviewing its 2017 risk assessment for its banking operations. TSB failed to identify five of the 77 countries it has dealings with.

Penalty: $562,500

Reserve Bank Deputy Governor and financial stability general manager Geoff Bascand said the penalty reflects TSB’s failure to comply with fundamental elements of the AML/CFT Act.

"While TSB has now embarked on a remediation programme, these proceedings were an escalated regulatory response by the Reserve Bank to ongoing non-compliance by TSB following a formal warning issued to TSB in 2016."

Bascand said the judgment provides helpful guidance for future cases and in particular, the court accepted the parties’ submission that TSB’s failure to respond appropriately to a formal warning issued in 2016 was an aggravating factor.

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

The judgment also provides guidance on the appropriate level of discount in cases where breaches are admitted.

The court's decision stated the starting points for penalties for the four breaches were at the high end.

"Largely they can only be justified by the position that TSB occupies in New Zealand’s economy as a registered bank (even though TSB is not one of the largest banks and has a different ownership structure and so did not gain financially from the conduct).

"However, this judgment will provide a precedent for negotiations between supervisors and reporting entities who breach their obligations in the future," the court stated.

Tags: AML compliance court Geoff Bascand RBNZ TSB

« Jarden hit with $40k penaltyMann on a mission to diversify financial advice »

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