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NZ asset manager had lax protocols around money laundering, financing terrorism

  //business-finance.news-articles.net/content/202 .. around-money-laundering-financing-terrorism.html
  Published in Business and Finance on Thursday, October 30th 2025 at 21:31 GMT by The New Zealand Herald
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Lexington Trust Services barred from operating after regulator flags serious money‑laundering weaknesses

In a decisive move that underscores New Zealand’s commitment to robust anti‑money‑laundering (AML) standards, the Department of Internal Affairs (DIA) has prohibited Lexington Trust Services (LTS) from conducting any business within the country. The ruling follows an exhaustive investigation that uncovered a range of systemic failures in the firm’s AML protocols, raising concerns that the company’s clients could be exposed to high‑risk money‑laundering activities.

How the regulatory action unfolded

The DIA’s AML review, conducted over several months, began when a whistle‑blower alerted the regulator to irregularities in LTS’s client vetting processes. Subsequent audits revealed that the company had, in many cases, relied on outdated customer due‑diligence frameworks that failed to account for the evolving risk profiles of its clientele. Specifically, the investigation found that:

• Inadequate Know‑Your‑Customer (KYC) checks – LTS routinely accepted clients without verifying identity documents, or relied on information supplied by the clients themselves without independent verification.
• Poor transaction monitoring – The firm lacked an automated system to flag suspicious patterns or large, rapid transfers that could indicate illicit activity.
• Inadequate staff training – Employees received minimal AML training, and there was no clear escalation pathway for suspected money‑laundering incidents.
• Weak record‑keeping – The company failed to maintain comprehensive records of client identification and transaction data in a secure, retrievable format.

The DIA’s findings were documented in a formal report that was made public in a press release on the agency’s website. The report concluded that LTS’s AML controls were “substantially below the standards required under the Anti‑Money Laundering and Counter‑Financing of Terrorism Act 2009” (AMLCT Act). Consequently, the regulator issued an order suspending the firm’s license to provide money‑handling services, a decision that remains in effect pending further review.

What the ban means for the firm and its customers

Lexington Trust Services has operated as a niche provider of fiduciary and trust services for high‑net‑worth individuals and small investment entities. The company’s clients include private families, charitable trusts, and a handful of offshore investment vehicles. The regulatory ban has effectively grounded the firm’s operations in New Zealand, prompting an immediate halt to all client onboarding and asset management activities.

The DIA has directed LTS to:

1. Suspend all new client accounts and cease all current transactions until the firm can demonstrate compliance with AMLCT Act standards.
2. Return all client funds to the rightful owners, or transfer them to a reputable, licensed institution under the oversight of the DIA.
3. Provide a comprehensive remedial plan that details how the firm will upgrade its AML systems, train staff, and strengthen its risk management framework.

Until the company satisfies these requirements, it remains unable to conduct any financial activities in New Zealand, and its legal status has been placed under review. If LTS fails to meet the regulator’s demands, the DIA may pursue further enforcement actions, including potential criminal charges against senior officers for violating AML legislation.

Wider implications for the New Zealand financial sector

The case has sparked renewed scrutiny across the country’s fiduciary and trust industry. The DIA has already announced plans to review AML compliance protocols for all registered trust and fiduciary service providers. A spokesperson for the regulator said that the agency would be “exploring whether additional measures are needed to mitigate AML risks in the trust sector.”

Industry bodies such as the New Zealand Institute of Chartered Accountants (NZICA) and the Association of Trust Companies (ATC) have called for stronger oversight. NZICA’s CEO, Sarah Williams, highlighted that the incident “shows the importance of maintaining rigorous AML standards, especially for entities that handle high‑value assets and are often a target for illicit actors.”

In response, several firms are reportedly accelerating the deployment of advanced AML technology platforms, including automated transaction monitoring systems and blockchain‑based KYC verification tools. These upgrades are seen as essential to prevent a recurrence of similar lapses.

Follow‑up on related stories

While the DIA’s public report is the primary source of information, the agency’s website also hosts a FAQ section that elaborates on the regulatory framework under the AMLCT Act. A separate briefing, published on the New Zealand Business Number (NZBN) portal, provides an overview of licensing requirements for trust services and highlights best‑practice guidelines.

The DIA has linked to the “Guidance on Money‑Laundering Risk Assessment for Trust Services” document, which outlines a risk‑based approach that providers must adopt. That guidance is now being referenced in the industry’s collective response to the LTS ban.

Looking ahead

Lexington Trust Services is expected to submit its remedial plan within 30 days of the ban, a timeline set by the DIA. The regulator has promised a transparent review process and will keep stakeholders informed of any progress or additional enforcement actions.

For clients of LTS, the immediate priority is ensuring that their assets are safely transferred to another licensed institution. The DIA has set up a dedicated hotline for affected customers and is coordinating with the Reserve Bank of New Zealand to facilitate smooth fund transfers.

The LTS case serves as a cautionary tale, emphasizing that even well‑established financial service providers cannot afford complacency in AML compliance. The regulator’s decisive action underscores a broader, national commitment to safeguarding New Zealand’s financial integrity against the threats posed by money‑laundering and the financing of terrorism.