ASB bails over mystery money
ASB has terminated its ties with a registered building society following "suspicious" Middle East transactions involving more than a million dollars.
According to a judgment delivered in the High Court in Auckland on January 18, ASB terminated its relationship with Auckland and Denmark-based Kiwi Deposit Building Society in November over concerns of reputational risk and non-compliance with anti-money-laundering regulations.
ASB commercial manager Matt Allen told the court flags were raised last year over an increasing number of suspicious transactions "and the lack of clear responses to queries about these transactions".
Judge Patricia Courtney said in her ruling Allen "gave as one example a transfer of US$1 million in October 2012 from a Tunisian company to an Islamic bank in the United Arab Emirates via a Kiwi account".
Following a report from the Royal Bank of Scotland over another "suspicious" Kiwi transaction, Allen said the decision was made on November 8 to cease providing banking facilities.
The move by ASB also affected other companies connected to Kiwi, including trustee management service Equinor Trust and 30 trust companies, and has resulted in the closing of 97 bank accounts, including 65 holding foreign currency.
Lachlan Williams, the founder and managing director of Kiwi, told the court ASB had not provided enough notice of its decision to sever ties.
Williams said the move was motivated by ASB seeing his building society as a commercial threat in the market providing services to high-net-worth individuals.
Williams said BNZ has initially agreed to take over from ASB, but shortly after the New Year advised it would not engage. He sought an order forcing ASB to provide services until an alternative could be found.
Justice Courtney dismissed Williams' application.
According to Kiwi's most recent annual report, covering the year to December 31 2010, the building society held $6.5m in unsecured deposits and $7.6m in borrowings from banks in Denmark and the United Kingdom.
Kiwi targets "professional investors" and is not covered by legislation governing the offering of securities to the public.
The Reserve Bank also warns on its website that its oversight of transactions by Kiwi Deposit is limited because much of the building society's activity takes place in overseas markets.
ASB chief risk officer Kevin McDonald was unwilling to comment specifically on Kiwi Deposit but said the bank took its regulatory responsibilities seriously and occasionally reviewed relationships where concerns were identified.
"Anti-money laundering legislation is important to maintain the reputation of New Zealand and the country's ability to do business overseas," McDonald said.
Williams told Sunday Star-Times Kiwi strictly adhered to its anti-money laundering obligations and had secured alternative banking arrangements.
As a damage claim against ASB over the termination of services was active he said he was unwilling to comment further.
David Tripe, director of the centre for banking studies at Massey University, said banks treated reputational issues seriously because adverse reports could see them locked out of some financial transactions and make business difficult.
Tripe cited the striking of New Zealand off the EU's banking "white list" last year as an example of the sort of consequence ASB would be seeking to avoid.
Recent high-profile money-laundering cases - such as HSBC's US$1.9 billion settlement with the US Department of Justice in December - have made banks wary about protecting their reputations.
Asked about the HSBC case and upcoming tightening of anti-money laundering regulations, chief executive of the New Zealand Bankers' Association Kirk Hope said: "It's certainly focused everyone's' minds".
Sunday Star Times