Money Transfer firms’ judicial review of AML Regulator sinks

The New Zealand Court of Appeal at the end of November has let a court challenge by a group of Pacific Island money remitters sink beneath the surf. 

Their judicial review claim against the Reserve Bank of New Zealand (“RBNZ”) as regulator of the banking sector (not the same regulator as for the remittance sector) was rejected.  The RBNZ was found to owe no duty, or to have done enough to discharge any obligations, to make plain to banks that it does not expect them to be generically de-risking money transfer firms.

The result is perhaps not unexpected.

When the first instance High Court decision arrived in mid-2022, a journalist at BusinessDesk reached out to me for comment.  Having been involved in many de-risking cases and their challenges/consequences since about 2015, I ventured the opinion that the loss in this case was probably inevitable, although still regrettable.

That previous Business Desk article/interview can be found here (and text version is set out below).

The reason I held that view was because:

  • New Zealand still has a real problem with de-banking account closures, which has not improved much over 7 or 8 years of turmoil.
  • But judicial review as a remedy is very narrow, the threshold is high, and the boxes these claimants tried to squeeze into are difficult.
  • In some cases, the judges have had a lot of sympathy for money remitters squeezed into the shadows of the financial system – as far back as the 2016 E-Trans case.
  • But the case law confirms that de-risking is a problem crying out for a government policy solution, not something the courts are able to mandate upon the banks (or the Regulator).
  • Regrettably, no meaningful policy solution to widespread de-banking appears to be in sight.

It gives me little pleasure to be proven correct again in November 2023, with the CA now rejecting an appeal against the High Court claim.

But as a matter of law it is hard to argue with the Court’s conclusions (Miller, Goddard, and Wylie JJ) that there was no reviewable error by the RBNZ:

“[27] The appellants must point to an error that sounds in judicial review.
The argument is that RBNZ has made errors in the guidance it has given or, more ambitiously, that it ought to be required to give better guidance.

[36] We observe that the appellants seek to change trading banks’ behaviour but the banks are not parties to this proceeding and there is no evidence from them.
On the evidence we have it has not been shown that they are engaging in blanket de-risking, still less that they are doing so because they have collectively misinterpreted RBNZ’s guidance and relied on it to treat all money remitters as high-risk customers.

[37] We are not persuaded that RBNZ has made any error in its interpretation of the legislation or its understanding of its powers… “

Meantime, whether blanket or not, and whether any of the three AML Supervisors should arguably be doing more or not, de-banking goes mostly unchecked.  It has spread amongst remittance, fintech, crypto and other sectors.  This makes the job of the Supervisors and the Police Financial Intelligence Unit harder in seeing and understanding risks of actual money laundering.  There are more disputes and challenges still before the courts, some not AML related at all. But it remains squarely up to the policy makers, Ministries of Justice and Business, Innovation, Employment, to attempt something meaningful that will improve the system.

Two other aspects of this appeal deserve comment:

  • A difficult die was perhaps cast when the CA described what the remitters were asking for in these terms: “declarations which are tantamount to orders that RBNZ either direct trading banks to supply them with accounts or supply them with such accounts itself…”   In my opinion, the first step seems a bridge too far in most commercial cases, let alone the confines of judicial review cases.  The second option, or a version of it allowing centralised access to the payments interchange network (controlled, theoretically, by RBNZ and the Government) deserves more attention – but again, that would have to be a policy solution, not a judicial one.
  • Reference in the CA judgment to recent AML/CFT Amendment Regulations (No 2) that came in at end of July 2023 is a bit baffling in this context.  The Ministry of Justice has in those Regulations at least done away with New Zealand’s misguided experiment with a confusing AML concept called “POWBATICS”.  But the idea that this will improve the de-banking climate, even if it “should reduce the burden on banks to conduct due diligence on the customers of money remitters”, seems in my view laughably optimistic.

For the lawyers, the case citation is The Ink Patch Money Transfer Ltd & Ors v RBNZ  [2023] NZCA 587 (CA340/2022)


Pacific Island money transfer derisking
TUESDAY 14th JUNE 2022, regarding the High Court decision:
Remitters losing against RBNZ was inevitable, says expert
Barrister Gary Hughes says the case is bad for small remitters
An anti-money laundering expert says a recent case where money remitters lost against the Reserve Bank of New Zealand (RBNZ) was “probably inevitable” and a “bad outcome for the small business and money transfer sector”.

Justice David Gendall threw out a judicial review of the RBNZ in a decision dated June 8.

The money remitters, The Ink Patch Money Transfer, Samoa Money Transfer, Samoa Finance Money Transfer and KlickEx Pacific took the action.

They claimed registered banks stopped opening new bank accounts for remitters like themselves and closed their accounts.

The remitters said the Reserve Bank had a supervisory and a guidance role and failed to do anything to correct the overzealous view of the trading banks.

RBNZ acknowledged that “some money remitters, such as the applicants, have had difficulty obtaining and maintaining bank accounts due to a real or perceived risk of less-developed countries not being able to comply with international AML/CFT standards, which leads to de-risking”.

The prudential regulator also said it was concerned that Pacific Island nations “may be becoming increasingly isolated from the banking system”.

However, it fought against the seven grounds for judicial review sought by the money remitters.

The High Court at Wellington ruled against the money remitters on all seven grounds of judicial review.

Outcome ‘inevitable’

Auckland barrister Gary Hughes says the outcome was probably inevitable.

“It’s regrettable, because there remains a real problem with de-banking account closures, which has not improved much over seven or eight years. But judicial review as a remedy is very narrow, the threshold is high, and the boxes these claimants tried to squeeze into are difficult.”

Hughes, who is chair of the International Bar Association’s AML & Sanctions Experts committee, said the judges have had a lot of sympathy as far back as the 2016 E-Trans case, but emphasised that de-risking is really crying out for a government policy solution.

“What we’ve seen, particularly across the Tasman, as well as money transfer firms, de-risking has hit some fintechs hard, and anything cryptocurrency-related. The banks claim to be nervous about AML law.

“This Ink Patch case shows another tough outcome for the small business and money transfer sector, although the rulings on judicial review seem sound at law.”

Hughes says the Department of Internal Affairs, which regulates some businesses for anti-money laundering, including money remitters, had given guidance that the NZ to Pacific money remittance corridor was only medium-risk.

“That was a good, detailed guideline document. It is a shame that wasn’t triple-branded and was not co-published to the banks. Although nobody seems to have thought to refer the court to that.”


Victoria Young

Senior Journalist

+64 22 456 4045


Victoria’s journalism experience includes more than five years with National Business Review and a two-year stint as a news editor with London-based Legal Business. Victoria holds law and arts degrees from Victoria University of Wellington and joined BusinessDesk in 2019. You can follow her on Twitter @victoriayoung03 or connect with her on LinkedIn here.

Money Transfer firms’ judicial review of AML Regulator sinks