The Reserve Bank of New Zealand, Te Pūtea Matua, has initiated civil proceedings in the High Court against ASB Bank Limited, asserting multiple breaches of fundamental obligations stipulated within the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, with infractions dating back to at least December 2019. ASB has cooperated with the Reserve Bank, acknowledging liability for seven distinct causes of action, and the parties have jointly proposed to the Court a financial penalty of $6.73 million as an appropriate resolution. This enforcement action underscores the critical necessity for financial institutions to maintain robust compliance frameworks that adhere strictly to legislative requirements designed to safeguard the nation’s financial system against criminal exploitation. The breaches relate to systemic weaknesses in key areas of compliance management, ongoing customer scrutiny, and the timely reporting of suspicious financial activity required by law. This high-profile action serves as a strong signal to the industry regarding the unacceptable nature of serious non-compliance with these vital public interest statutes.

ASB AML Program Non-Compliance

The core of the alleged failings centered on ASB’s inability to establish, implement, and maintain a comprehensive Anti-Money Laundering and Countering Financing of Terrorism program that met all statutory requirements. This compliance framework, mandated by the AML/CFT Act 2009, is the foundational mechanism for a bank to identify, assess, manage, and mitigate its money laundering and terrorism financing risks. A compliant program includes a designated AML compliance officer, adequate risk assessment, internal controls, staff training, and an independent audit function, all designed to ensure the bank acts as an effective gatekeeper against illicit finance. Without a fully compliant program, other essential risk mitigation measures are compromised, leading to gaps that criminals can exploit to introduce illicit proceeds into the legitimate economy. The protracted duration of the non-compliance, spanning several years, highlights a significant, sustained failure in the bank’s operational oversight and governance of this critical regulatory area.

The specific failures included serious deficiencies in the bank’s execution of customer due diligence, a fundamental pillar of AML/CFT compliance. The AML/CFT Act requires financial institutions to perform thorough checks to verify the identity of their customers and to understand the nature and purpose of their business relationships. This involves collecting sufficient information to be confident that the customer is who they claim to be and that the source of their funds is legitimate. ASB was found to have inadequately conducted ongoing customer due diligence, which is the process of continually scrutinizing transactions and accounts to ensure they remain consistent with the institution’s knowledge of the customer, their business, and their risk profile. This ongoing monitoring is crucial for detecting behavioral changes or transactions that could signal money laundering. The inability to adequately monitor these relationships means the bank lacked a clear, real-time picture of potential financial crime risks inherent in its customer base.

Reporting and Enhanced Due Diligence Deficiencies

A key element of New Zealand’s AML/CFT regime is the timely reporting of suspicious transactions and activities to the Financial Intelligence Unit (FIU), part of the New Zealand Police. The legislation sets out strict timeframes within which reporting entities must submit Suspicious Activity Reports (SARs) once a reasonable suspicion has been formed. The proceedings against ASB included allegations that the bank failed to report suspicious activities within the required timeframe. Delaying the submission of SARs severely impedes the ability of law enforcement and intelligence agencies to act on crucial, time-sensitive information needed for detecting and disrupting criminal enterprises, including organized crime and terrorism financing networks. The effectiveness of the entire national AML/CFT infrastructure relies on the promptness and accuracy of these reports from the private sector.

Furthermore, ASB’s compliance gaps extended to the process of conducting enhanced customer due diligence (ECDD). ECDD is a mandatory set of more rigorous controls applied to higher-risk customers and transactions, such as those involving politically exposed persons (PEPs) or customers from countries with weak AML controls. It typically involves obtaining additional information on the customer’s source of wealth or source of funds and requiring senior management approval for the business relationship. The failure to properly implement ECDD procedures suggests the bank did not adequately escalate its risk controls where they were most required, thereby increasing its exposure to sophisticated money laundering methodologies. This inadequacy is critical because higher-risk customers often present the greatest potential for large-scale abuse of the financial system.

The enforcement action also cited ASB for failing to terminate business relationships as required by the AML/CFT Act. The legislation grants the regulator the authority to require financial institutions to cease business with customers when, for instance, the entity is unable to complete required due diligence or when the relationship presents an unacceptable level of money laundering or terrorism financing risk. This power is a critical ultimate recourse for mitigating ongoing risk. ASB’s failure to terminate these relationships when mandated demonstrates a breakdown in the final defense line for the bank’s AML controls, allowing high-risk or unverified accounts to continue operating within the financial ecosystem. The cumulative effect of these failures undermines the core legislative purpose, which is to detect and deter money laundering, maintain New Zealand’s global financial reputation, and contribute to public confidence in the integrity of the financial sector.

Impact and Regulatory Expectations

The civil penalty sought by the Reserve Bank, even though subject to final court determination, serves multiple regulatory objectives. It provides a specific and visible deterrent to other financial institutions, emphasizing the financial consequences of inadequate compliance. The Reserve Bank’s role as the AML/CFT supervisor for banks is to ensure these entities act as the first line of defense against financial crime. Acting Assistant Governor Angus McGregor’s comments stressed that after over a decade of the AML/CFT Act being in force, the expectation is for banks to have fully mature systems and resources dedicated to achieving full compliance. Serious non-compliance is deemed unacceptable because it increases risk not only for the bank but for the broader New Zealand public and its financial stability.

The Reserve Bank has explicitly stated that banks who do not comply actively deny New Zealand law enforcement and intelligence agencies access to essential information required to detect and deter criminal activity. The enforcement response promotes the core purposes of the AML/CFT Act: to deter illicit finance and enhance New Zealand’s standing in the international financial community. While it is important to note that the Reserve Bank does not allege ASB was actively involved in money laundering or terrorism financing itself, the case is fundamentally about the bank’s systemic failure to prevent the potential use of its systems for these criminal activities. This action confirms that the regulatory focus is squarely on the sufficiency of a bank’s preventative compliance infrastructure, which must operate flawlessly to meet the statutory standard of care.

Enhancing System Resilience Through Enforcement

The $6.73 million agreed penalty, pending court approval, is a substantial sum that reflects the seriousness of the systemic and sustained breaches of the AML/CFT Act. The fact that ASB cooperated and admitted liability for all seven causes of action facilitated a joint penalty submission, but the scale of the fine is intended to act as a powerful economic incentive for corrective action across the entire banking sector. This case highlights that compliance with AML/CFT legislation is not merely a box-ticking exercise, but a mandatory public responsibility essential to national security and economic integrity. The core lesson is that financial institutions must continuously invest in and rigorously audit their technology, training, and governance to ensure their AML programs are dynamic, fully implemented, and capable of meeting evolving threats and strict legal obligations. Future regulatory actions are likely to maintain this strong stance on non-negotiable compliance.

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Key Points

• The Reserve Bank of New Zealand initiated civil proceedings against ASB Bank for breaches of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.
• ASB admitted liability for seven causes of action, leading to a jointly recommended financial penalty of $6.73 million.
• Failures included deficiencies in the AML/CFT program implementation, ongoing customer due diligence, and required enhanced customer due diligence.
• The bank was also cited for inadequate and untimely reporting of suspicious activities and for failing to terminate business relationships as required.
• This regulatory action emphasizes that systemic non-compliance undermines the national effort to detect and deter financial crime.

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Related Links

• New Zealand Anti-Money Laundering and Countering Financing of Terrorism Act 2009
• Reserve Bank of New Zealand AML/CFT Enforcement Actions and Penalties
• Financial Action Task Force (FATF) Recommendations for Financial Institutions
• New Zealand Financial Intelligence Unit Reporting Guidelines and Compliance Manuals
• Reserve Bank of New Zealand AML/CFT Phase 2 Handbook for Reporting Entities

Other FinCrime Central Articles About New Zealand

• AML Reform Proposals Promise a Smarter Approach to Financial Crime in New Zealand
• New Zealand Police’s Latest National Risk Assessment on Money Laundering and Terrorism Financing
• New Zealand’s AML Reform Easing Requirements for Businesses

Source: Reserve Bank of New Zealand

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