Overseas gift, a PEP relative and split deposits
A customer applies for pre-approval to buy a $780,000 townhouse. She has been a NZ resident for three years, earns a salary of $105,000, and needs a 10% deposit of $78,000. Her bank statements show three incoming international transfers over six weeks: $26,000 from a Singapore company, $26,000 from a Malaysian individual with a different surname, and $26,000 from her mother. She says the money is a gift from family, including an uncle who is a senior official in a government department overseas, and that the company transfer is 'a family business'. She cannot provide a gift letter for the company transfer. The lender has not yet completed CDD because the customer opened the account online. The lender is under time pressure because the sale is unconditional in 12 days.
1. What customer due diligence and enhanced due diligence should the lender complete before the funds are accepted?
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CDD must be completed before the lender establishes the business relationship or carries out the transaction. The lender should verify the customer's identity and address using reliable, independent documents, and identify any beneficial owner. Because the customer opened the account online, the lender cannot assume earlier CDD is adequate for a mortgage. The three international transfers need source-of-funds evidence: the mother's gift letter and bank statement, the Malaysian individual's relationship and transfer records, and the Singapore company's registry details, ownership and purpose. The lender should check sanctions and PEP lists. The uncle is a senior foreign official, so he is a PEP, and the customer may be a family member or close associate of a PEP, requiring EDD and senior management approval. EDD should include establishing source of wealth, the reason for the gift, and ongoing monitoring. If the company transfer cannot be explained, the lender should not accept it. If the customer cannot provide satisfactory evidence, the lender should decline or delay until CDD is complete; it must not allow settlement pressure to override AML/CFT obligations.
2. How should the lender treat the uncle's PEP status and the unexplained company transfer?
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PEP status is risk-based but requires EDD. The lender should confirm whether the uncle is a prominent public functionary and whether the customer is an immediate family member or close associate. If so, the customer is also a PEP for AML/CFT purposes. The lender should obtain senior management approval to continue, establish source of wealth and source of funds, and monitor the relationship. The uncle's gift should be documented with a gift letter, evidence of his funds and the transfer. The company transfer is more concerning: a company cannot be a 'family friend' without ownership and control being identified. The lender should obtain the company register, beneficial ownership, the directors' authority, and an explanation of why the company is gifting money. If the company is in a higher-risk jurisdiction or the ownership is opaque, EDD should be enhanced. If the customer cannot explain the transfer, the lender should not include it as acceptable deposit. The lender should consider whether the pattern of split transfers is designed to avoid scrutiny, but it must not jump to conclusions without evidence.
3. When should the lender consider a suspicious activity report, and what conduct rules apply?
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The lender should consider a suspicious activity report to the Financial Intelligence Unit when it has reasonable grounds to suspect the funds are proceeds of crime or terrorist financing. That may arise if the company transfer remains unexplained, the ownership is opaque, the customer's explanation changes, or the PEP connection and split transfers create a pattern. The lender should not tell the customer that a report has been made or is being considered; tipping-off is prohibited. It should continue CDD and preserve records, but it must not complete the transaction if it cannot satisfy AML/CFT requirements. The decision to report should be documented and made through the AML/CFT compliance officer. Separately, the lender must treat the customer fairly and not discriminate unlawfully; it should explain what information is needed without disclosing suspicion. If it declines, it should give a neutral reason and direct the customer to the complaints process. Settlement pressure is not a lawful reason to skip CDD or EDD.