A finance firm and its mother and son operators are attempting to overturn millions of dollars in court-ordered fines after failing to report $53.4 million of suspicious transactions from an international mogul accused of running a huge pyramid scheme.
The 2019 trial of Jiaxin Finance, its sole director and shareholder Qiang Fu and his mother, Fuqin Che, was the first criminal case of its kind in New Zealand’s courts since specific anti-money laundering laws were introduced in 2009.
The small Auckland-based money remitter and currency exchange business, Fu and Che were prosecuted by the Department of Internal Affairs and found guilty by Justice Tracey Walker of failing to keep adequate records for and report 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 in the largest-ever settlement under the Criminal Proceeds (Recovery) Act.
Jiaxin Finance, Fu and Che also failed to conduct customer due diligence.
Che was further found guilty of structuring a transaction over 14 separate cash deposits, totalling $710,722, into Gong’s bank account to avoid Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT) requirements.
Justice Walker convicted and fined Jiaxin Finance $2.55m, while Fu and Che were convicted and fined $180,000 and $202,000 at the High Court at Auckland in March 2020.
Today, Ron Mansfield, QC, challenged Justice Walker’s decisions at the Court of Appeal.
“None of the three appellants had any knowledge that Mr Gong was involved in any unlawful activity,” he said on behalf of his clients via video link from Auckland.
The High Court has earlier heard Che met Gong in 2011 and trusted him while also being impressed by his achievements.
“No one knew that this very successful billionaire might have been prosecuted later,” Mansfield told the court.
He added the argument that his clients must have had a suspicion of Gong and his financial activity is “entirely based on what we now know rather than what they knew of Mr Gong at the time”.
“There’s no motive and no reward,” Mansfield said.
Although Che held no formal position in Jiaxin Finance, Justice Walker concluded on the trial evidence the company was a family enterprise in which mother and son “acted in concert in respect of the seam of business relating to [Gong].”
Gong had also previously conducted transactions through a predecessor company to Jiaxin Finance – Global Concept Capital Investment and Finance Limited – owned by Fu but run and managed by Che.
Crown lawyer David Johnstone opposed Mansfield’s arguments and said it could be inferred that there was an attempt to lower Gong’s “visibility” to NZ authorities.
While Gong was seen as a successful businessman, he added, one can be wealthy without there being a legitimate source of money.
The judges who heard today’s appeal, Justices Stephen Kos, Sarah Katz and David Goddard, reserved their decision.
Presenting internationally as a wealthy entrepreneur, Gong was known for building a business empire through a hotel chain and television channels in Toronto.
He was also friendly with Justin Trudeau, attending the Canadian Prime Minister’s controversial “cash-for-access fundraising dinners” and donating to the governing Liberal Party.
But Gong was arrested in Canada and charged with fraud and money laundering in December 2017.
He denied accusations of a $202m pyramid scheme involving the “fraudulent sale of hundreds of millions of dollars” in shares and selling medicines in China.
“The pyramid scheme involved the making of representations to potential investors which were false and dishonest, including a claim that the company share price would increase by 2000 to 4000 per cent and that the products sold were legitimate health products, which they were not,” Justice Paul Davison earlier wrote in a High Court judgment, summarising the case.
“Instead of applying investment funds in the manner represented to investors, the majority of the funds were paid into bank accounts nominated and controlled by [Gong].”
There were at least 50,000 investors in the alleged fraud.
Mansfield said today that while Gong has not admitted any crimes himself, an entity involved in the scheme in Canada has pleaded guilty to two charges of operating a pyramid scheme and conducting fraud through forged documents.
This year, Gong admitted in a record-breaking settlement he was using New Zealand as a safe haven for the proceeds of crime.
He forfeited more than $70m in the deal with the New Zealand police after his bank accounts here were frozen three years ago as part of a global investigation into his finances.
The forfeited property included more than $68m in cash and a property in East Tamaki Heights.
The asset recovery unit of the New Zealand Police was also involved in investigating $77m – alleged profits from the pyramid scheme – deposited into Gong’s New Zealand bank accounts over seven years.
Police also discovered Gong’s brother Yu Ping Gong, a plumber in Auckland, had declared less than $1000 in income over five years – despite earning more than $2m in that time.
As a result, Yu Ping Gong lost nearly $5m worth of property as part of the settlement with police, as well as paying an outstanding tax bill of $1.2m.
At Fu’s High Court sentencing, the Crown also cited four Chinese convictions relating to forex trading and a money exchange business after it obtained documentation from the Ministry of Public Security in China. The convictions date back to March 2013.
However, Fu’s then defence lawyer, David Jones, QC, said material provided by any organ of the Chinese justice system cannot be seen as reliable.
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