Case for Pacific Island Money Transfer Companies Bank Accounts Rejected by High Court

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  • A legal review brought by companies that help people transfer money to the Pacific Islands at low prices has failed.
  • Without a bank account, remittance senders operate through cash payments, a practice they say is both expensive and dangerous.
  • The High Court said the Reserve Bank’s powers to run banks were based on a threat to financial stability or fears that banks were not being prudent enough – which was not the case here.

A judicial review of the actions of the Reserve Bank and Finance Minister Grant Robertson over money laundering laws has failed, leaving money senders ‘always on the lookout’: anti-money laundering laws money have made money transfers to the Pacific “unsafe”

* What happened when $2.7 million arrived in a backpack

* Anti-money laundering compliance costs too much, too many supervisors

* Transferring money to the Pacific is expensive, despite New Zealand’s efforts to cut costs

“> carry bags of cash in an effort to keep the practice of low-cost money transfer alive.

Pacific remittance companies have been left without bank accounts thanks to how banks have interpreted their anti-money laundering responsibilities.

Authorities in the United States and Europe have adopted guidelines to protect senders from the reach of anti-money laundering legislation, seeing them as a crucial lifeline for developing countries.

However, such exclusions have not been made in New Zealand.

READ MORE:
* ‘Always on the lookout’: anti-money laundering laws have made money transfers to the Pacific ‘unsafe’
* What happened when $2.7 million arrived in a backpack
* Anti-money laundering compliance costs too much, too many supervisors
* Transferring money to the Pacific is expensive, despite New Zealand’s efforts to cut costs

In April, shippers sued the Reserve Bank and Finance Minister Grant Robertson in an attempt to get them to order New Zealand banks to grant them bank accounts.

Money senders say having to negotiate in cash makes the process of transferring money to the Pacific costly and dangerous.

Chris McKeen / Stuff

Money senders say having to negotiate in cash makes the process of transferring money to the Pacific costly and dangerous.

In a decision on Wednesday, the High Court found that the Reserve Bank’s power to issue instructions to banks necessitated a threat to the efficiency or stability of the financial system, or fear that banks were not being prudent enough .

Judge David Gendall said none of these criteria were met in the event remittance senders were denied bank accounts.

“I agree that failure to provide service to an industrial class is not serious enough to warrant the use of executive power and that such failure on the part of banks does not amount to reckless conduct of business. “

Other claims by senders were also dismissed, including that the Reserve Bank did not offer bank accounts to senders as the banking system’s “lender of last resort” and that the Reserve Bank had misinterpreted its role by report to a supervisor under the Anti-Money Laundering and Combating the Financing of Terrorism (AML-FT) Act.

In a May 2020 letter, Robertson advised remittances that they needed an audit report or a report from an AML-CFT supervisor to be granted bank accounts.

The senders argued they did not need it and alleged that Robertson erred in law in reaching that conclusion, but Judge Gendall said that in publishing the letter Robertson exercised no legal power subject to judicial review.

The High Court said Finance Minister Grant Robertson had not made a decision subject to judicial review in relation to shippers.

ROBERT KITCHIN/Stuff

The High Court said Finance Minister Grant Robertson had not made a decision subject to judicial review in relation to shippers.

Judge Gendall admitted that the Reserve Bank could have raised the issue of “general risk reduction” with the Coordinating Committee, a committee set up to ensure consistency in AML-CFT supervision, but said Nothing in the law required it.

“I also accept that the Reserve Bank has undertaken important projects in other respects to address the problem of overall risk reduction itself, including the [Pacific Remittance Project].”

CompliancePlus director Uddhav Kirtikar, who helped the remittance companies with their case, said the High Court’s decision was “a setback for sure”, but the remittance companies involved were considering appeal the decision.

Money transfer companies are a lifeline to the Pacific, contributing significant sums to the economies of countries like Samoa and Tonga at levels that exceed foreign aid inflows.

In Tonga, remittances accounted for 38% of the country’s GDP in 2020.

Money transfer companies perform such money transfers at low cost. But without bank accounts, these businesses have been forced to use cash in recent years, making the process more expensive and dangerous.

Remittance senders are reporting entities, so they must comply with AML-CFT regulations independently.

But when they make irregular deposits and transfers to their bank accounts to support money transfers between New Zealand and the Pacific, these transactions are identified as AML-CFT risks by banks.

An owner of a money transfer company, who will not be named, said he was scared and ‘always on the lookout’ because not having a bank account meant he had to collect money by hand and then walking around parts of Auckland with thousands of dollars in his backpack. .

Robert Bell says he was considering using ships to move money across the Pacific when banks started closing bank accounts.

PROVIDED

Robert Bell says he was considering using ships to move money across the Pacific when banks started closing bank accounts.

KlickEx Pacific managing director Robert Bell at one point said his company consulted the Royal New Zealand Navy about piracy risks and nearly bought two decommissioned warships so they could physically transfer silver. money safely across the ocean, all of which was necessary because his business had been “unbanked”, although this decision was later reversed.

In 2019, the Reserve Bank launched its Pacific Remittance Project to keep banking services alive in the Pacific.

The bank warned that “the tide is receding on international banking services for Pacific island nations, which could make it more difficult and expensive to trade, invest and send money”, a fate it pinned on AML-CFT requirements worldwide.

Between 2011 and 2019, the decline in cross-border banking relationships in Polynesia and Melanesia was double the decline seen elsewhere in the world.

Reserve Bank Governor Adrian Orr also issued a statement last year warning banks against general risk reduction and said money transfers to the Pacific were low risk.

NZ Bankers Association chief executive Roger Beaumont has previously said that when it comes to remittance senders, banks look at AML-CFT risks on a case-by-case basis.

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