Trading
banks can clear the field of low-cost competitors providing international money
transfers following a High Court ruling.
Banks argue they are at risk under money-laundering legislation when
businesses provide foreign exchange transfers through their clearing system.
One unintended consequence of
anti-terrorism and anti-corruption legislation enacted in many countries has
been major financial institutions strangling competitors. The retail market for international money
transfers requires access to trading banks’ international network.
The High Court was told more than $470
million is transferred from New Zealand to the Pacific Islands each year. Typical bank charges to Samoa would incur
costs of 17.5 per cent; as against 7.3 per cent for a retail non-bank remitter.
Auckland-based E-Trans International
Finance challenged Kiwibank’s actions in closing its business account used to
clear foreign transfers. Ninety percent
of E-Trans’ business is through China and Hong Kong. E-Trans turned to Kiwibank in early 2014 after
being refused access to ANZ’s, ASB’s and Westpac’s services.
Both US Treasury and NZ Reserve Bank have
issued public statements critical of financial institutions terminating accounts
of money remitters on grounds of potential liability for participation in
money-laundering. Both central banks
said this policy runs counter to the intent of money laundering legislation; it
is better to keep retail operators within the banking system where they can be
better monitored.
E-Trans argued Kiwibank was in breach of
the Commerce Act by closing its account.
It lessened competition in the market for international
remittances. The High Court ruled there
was no breach of the Act. Kiwibank is
not a dominant player in the market for financial services. While trading banks appear to be adopting a
common policy of refusing to host retail money remitters, E-Trans did not argue
that the banks were colluding to block it.
Even if it were proved that the action of banks generally was lessening
price competition by reducing the number of retail money remitters, E-Trans’
complaint was with Kiwibank – itself not a dominant player in the market.
The High Court said there is a policy
conflict between government initiatives to curb money-laundering and financial
institutions concern about reputational risk.
Bank brands are sullied and there is potential for fines following
undetected money-laundering by customers.
Kiwibank could close E-Trans account on
fourteen days notice, the High Court ruled.
E-Trans
International v. Kiwibank – High Court (19.05.16)
16.084