‘Targeting Chinese people’? Avoid these currency exchange traps!

Currency exchange is an unavoidable issue for every Chinese person living overseas.

From travel and study to work, starting a business and buying property, everything requires money. For migrants, transferring wealth accumulated in China to New Zealand legally and safely has long been a troubling question.

Moving money is already a highly sensitive subject. With China tightening its foreign exchange controls and New Zealand implementing its anti-money laundering legislation, the issue is becoming increasingly difficult.

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What currency exchange options do I have besides banks?

Banks should always be the first choice for currency exchange: they are safe and reliable, with reasonable exchange rates. However, foreign exchange controls severely limit what banks can offer, often leaving people’s needs unmet. That is when other options need to be considered.

Some people exchange currencies with friends or relatives, and offers of private currency exchange often appear on WeChat Moments. However, this is neither a lasting solution nor a way to meet all exchange needs. Private exchanges between strangers can also carry considerable financial risk.

This leaves currency exchange companies, which are familiar to us yet rarely discussed openly, as the most reasonable option currently available in the market.

Currency exchange companies can effectively fill gaps in banks’ services, particularly for currencies with low trading volumes or trading restrictions, such as the renminbi, Philippine peso and Iranian rial.

Objectively speaking, currency exchange companies meet consumer demand and facilitate the circulation of money, offering benefits without drawbacks. In practice, however, their smaller scale and less standardised management compared with banks can make them targets for people engaged in unlawful activity. They may become tools for criminals to launder money, or even accomplices.

This is why New Zealand’s anti-money laundering regulators pay particular attention to currency exchange companies. In New Zealand, these companies are primarily supervised by the Department of Internal Affairs. Since the country’s anti-money laundering legislation took effect in 2013, the department has brought several prosecutions against currency exchange companies.

 

If a currency exchange company breaks the law, will my money be affected?

In New Zealand, currency exchange companies prosecuted for breaching anti-money laundering legislation generally face penalties including fines, imprisonment and bans on operating. A breach does not mean the company has engaged in money laundering; it means the company has failed to fulfil its obligations under the legislation. Such failures may involve actual unlawful conduct, but more often result from limited legal awareness and inadequate management procedures.

So, if the currency exchange company you use is prosecuted and penalised, what does that mean for you as a customer?

In the worst case, the company has actually engaged in money laundering, using its currency exchange business as a cover to help criminals ‘clean’ illicit proceeds. Money you receive from the company could therefore be the proceeds of crime. If the police take action, your bank account could be frozen. Your funds could even be frozen or recovered.

If the company has merely breached anti-money laundering legislation without actually participating in money laundering, the impact on ordinary consumers is generally very limited, and the safety of your money will usually be unaffected.

 

How can you avoid traps when using a currency exchange company?

Using a currency exchange company does carry some risk. What should you look out for when choosing one to minimise the chance of falling into a trap?

First, check whether the currency exchange company is a properly established business.

Private currency exchange services and so-called underground banks are often seen in Chinese communities. These are frequently not formally registered companies, and their operations are not subject to effective supervision, posing greater risks to consumers. To reduce the risk, check whether a currency exchange business is registered as a company, then whether it is registered as a financial service provider. You can ask the business for both sets of information or look them up yourself on the relevant websites.

Company registration:

Next, examine whether its business procedures comply with the rules.

As ordinary consumers unfamiliar with anti-money laundering requirements, how can we tell? It is actually fairly simple. If a company exchanges currency for you without asking you to complete any forms or show any documents, there is almost certainly a problem. More complicated procedures do not necessarily mean a company is more legitimate, but they do generally suggest that it is taking its business obligations seriously.

Under New Zealand’s current anti-money laundering legislation, all currency exchange customers must provide at least proof of identity and address. Some will also need to provide evidence of the source of their funds. If a company asks for no documents at all, you should question it.

Finally, try to resist the temptation of a bargain.

Some currency exchange companies attract customers with offers such as preferential rates and instant transfers. As customers, we should ask how they can provide such favourable rates and service. When rates and services are clearly better than the market norm, ask more questions and consider whether they are reasonable. Do not risk a major loss for a small saving.

New Zealand’s property market has been exceptionally buoyant recently, prompting many people to consider buying a home or investing in property. The need for large sums of money often brings a need for currency exchange. We hope this article helps you when choosing a currency exchange company.