Jiaxin Finance director Qiang Fu and his mother Fuqin Che were prosecuted in the first such case in 2019. Photo / NZ Herald
Financial firm and its mother and son operators are trying to overturn millions of dollars in court-ordered fines after failing to report $ 53.4 million in suspicious transactions by an international tycoon accused of running a massive pyramid system.
The 2019 lawsuit of Jiaxin Finance, its director and sole shareholder Qiang Fu and its mother, Fuqin Che, was the first criminal case of its kind in New Zealand courts since the introduction of specific anti-money laundering laws. silver in 2009.
Auckland-based small money transfer and foreign exchange firm Fu and Che was sued by the Home Office and convicted by Judge Tracey Walker for failing to keep adequate records and reporting 311 suspicious transactions between April 2015 and May 2016.
The funds all belonged to international businessman Xiao Hua Gong, also known as Edward Gong, who this year agreed to pay tens of millions of dollars to the New Zealand government as part of the settlement on largest ever under the Criminal Proceeds (Recovery) Act.
Jiaxin Finance, Fu and Che also failed to perform due diligence on customers.
Che was further convicted of structuring a transaction of 14 separate cash deposits, totaling $ 710,722, to Gong’s bank account in order to avoid the requirements of anti-money laundering law and the financing of terrorism (LAB / CFT).
Judge Walker sentenced Jiaxin Finance and fined him $ 2.55 million, while Fu and Che were convicted and fined $ 180,000 and $ 202,000 by the Auckland High Court in March 2020.
Today Ron Mansfield, QC, challenged Justice Walker’s rulings in the Court of Appeal.
“None of the three callers knew that Mr. Gong was involved in any illegal activity,” he said on behalf of his clients via a video link from Auckland.
The High Court has already heard Che meet Gong in 2011 and trusted him while also being impressed with his achievements.
“No one knew that this very successful billionaire could have been sued later,” Mansfield told the court.
He added the argument that his clients must have been suspicious of Gong and his financial activity is “based entirely on what we know now rather than what they knew about Mr. Gong at the time.”
“There is no motive or reward,” Mansfield said.
Although Che did not hold any official position in Jiaxin Finance, Judge Walker concluded on the basis of the evidence at trial that the company was a family business in which mother and son “acted in concert with regard to the vein of affairs concerning [Gong]. “
Gong had also previously transacted through a predecessor company of Jiaxin Finance – Global Concept Capital Investment and Finance Limited – owned by Fu but directed and managed by Che.
Crown attorney David Johnstone objected to Mansfield’s arguments and said that it could be inferred that there had been an attempt to reduce Gong’s “visibility” with New Zealand authorities.
While Gong was considered a successful businessman, he added, one can be rich without there being a legitimate source of money.
The judges who heard today’s appeal, Justices Stephen Kos, Sarah Katz and David Goddard, have reserved their decision.
Present internationally as a wealthy entrepreneur, Gong was known to have built a business empire through a hotel chain and television stations in Toronto.
He was also friends with Justin Trudeau, attending the Canadian Prime Minister’s controversial “fundraising for pay dinners” and donating to the ruling Liberal Party.
But Gong was arrested in Canada and charged with fraud and money laundering in December 2017.
He has denied accusations of a $ 202 million pyramid scheme involving the “fraudulent sale of hundreds of millions of dollars” of stock and the sale of drugs in China.
The pyramid scheme involved making false and dishonest statements to potential investors, including a claim that the company’s stock price would rise 2,000 to 4,000 percent and that the products sold were legitimate health products , which they weren’t, “Judge Paul Davison wrote earlier in a High Court judgment, summarizing the case.
“Instead of allocating investment funds in the manner shown to investors, the majority of funds were paid into bank accounts appointed and controlled by [Gong]. “
There were at least 50,000 investors in the alleged fraud.
Mansfield said today that although Gong did not admit to any crime himself, an entity involved in the scheme in Canada has pleaded guilty to two counts of exploitation of a pyramid scheme and of fraud through of forged documents.
This year, Gong admitted in a record-breaking settlement that he was using New Zealand as a safe haven for the proceeds of crime.
He lost more than $ 70 million in the deal with New Zealand police after his bank accounts here were frozen three years ago as part of a global probe into his finances.
The confiscated property included more than $ 68 million in cash and one property in East Tamaki Heights.
The New Zealand Police Asset Recovery Unit has also been implicated in an investigation into $ 77 million – alleged pyramid scheme profits – deposited into Gong’s New Zealand bank accounts for seven years.
Police also discovered that Gong’s brother, Yu Ping Gong, a plumber in Auckland, reported less than $ 1,000 in income over five years, despite making more than $ 2 million during that time.
As a result, Yu Ping Gong lost nearly $ 5 million in property as part of the settlement with the police, as well as an unpaid tax bill of $ 1.2 million.
In the sentencing of Fu’s High Court, the Crown also cited four Chinese convictions relating to forex trading and foreign exchange business after obtaining documents from the Ministry of Public Security in China. The convictions date back to March 2013.
However, Fu’s defense attorney at the time, David Jones, QC, said information provided by any body in the Chinese justice system cannot be considered reliable.