Money laundering case exposes our legal inadequacy

Julie Haggie

Julie Haggie

Wellington, December 14, 2023

A strong anti-money laundering regime is an important tool in fighting organised crime.

The sentencing of Hua in the Auckland High Court in November reveals how organised crime contrives to partner up with legal companies to turn illegal profits into legal credit. It also shows how much we need robust systems to prevent and reveal these partnerships. 

Hua’s company Qian DuoDuo Ltd, trading as Lidong Foreign Exchange, used its company status to transfer the illegal proceeds of drug crime into legal financial systems. That is the corruption at the heart of this case: the abuse of entrusted power for personal or financial gain.

The AML framework

This case reveals just why a solid anti-money laundering (AML) framework is important. AML laws allow government agencies and financial institutions to detect and reveal where financial systems are being used to support corrupt practices. Lidong was warned, investigated, and then prosecuted under the AML/CFT Law that came into force in 2013.

Money laundering is not a victimless crime. Hua’s corrupt activity enabled and emboldened the drug syndicate headed by Xavier Valent to cause massive harm to communities in New Zealand and overseas through the peddling of methamphetamine, MDA, cocaine and ephedrine.

During the period when the drug syndicate was most active, there was a doubling of methamphetamine deaths and hospitalisations in New Zealand.

Regular users of methamphetamine were between two and five times more likely to be involved in violence, whether as victims or perpetrators, than non-users.

Drugs like methamphetamine have a devastating impact on individuals, families and communities. Money laundering enables that harm.

Ye (Cathay) Hua’s remittance business (Lidong) transferred some of the $26 million in cash to Valent’s personal accounts, some to his mother’s account and some to a trust associated with others. Other transfers were made to a variety of other international accounts, including many in China.

The sentencing judgement for Xavier Valent inferred that some of those remittances were used to pay the suppliers of the drugs that Valent was arranging to have imported into New Zealand, as well as sourcing within New Zealand.

The prosecution witness also reported that cash delivered to Lidong could become wet or sticky because it was being handled by people who were manufacturing or using methamphetamine.

The risk of remittances

Hua’s business was a money transfer or remittance business.

Investigations and prosecutions undertaken to date by the Department of Internal Affairs suggest that remittance is a high-risk area. All civil and criminal matters progressed by the Department of Internal Affairs since the legislation came into effect related to remittance businesses.

The sentencing judge for Ye (Cathay) Hua noted that there is no professional licensing regime for money remitters, as there is for other types of financial entities such as financial advisors. This leaves that sector more vulnerable to corruption. It also simplifies regulatory detection avoidance by closing a company in the spotlight and setting up another.

A preponderance of the cases proceeded upon by the Department of Internal Affairs (DIA) since the legislation came into force are civil and criminal cases involving Chinese migrants running relatively small remittance businesses.

These entities sit within high-risk areas identified by the Department of Internal Affairs as an investigative priority, “to ensure maximum impact and deterrence.” That focus is likely to be influenced by things like volumes of cash, related country risks, relevant police intelligence or AML sector information.

Organisation size is an added risk, as highlighted in the 2021 Mutual Evaluation report from the Financial Action Task Force because larger and more sophisticated reporting entities have a better understanding of their AML/CFT obligations than smaller businesses.

Greed breeds crime

According to news reports, Hua’s legal team claimed that their client was naive. Whether that was the case or not, greed seems to be the primary motivator.

New Zealand’s economic future relies on its reputation as a well-regulated jurisdiction. The benefit gained because companies and limited partnerships can be established at relatively low cost also better enables abuse. This case certainly shows the value of our regulatory framework and that there is more to do. It is also a good case for advocating for professional registration of those wanting to operate as remittance professionals.

Julie Haggie is the Chief Executive of Transparency International New Zealand based in Wellington. The above article appeared in the December 2023 issue of Transparency Times.

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