WELLINGTON (Reuters) - New Zealand police said on Tuesday they had reached a deal with a Chinese-born businessman for him to pay a record NZ$42 million ($31.3 million) fine to settle legal action following an investigation with China into money laundering.

William Yan, a New Zealand citizen, is on China's most-wanted list of international fugitives, accused of embezzlement.

New Zealand courts seized his assets two years ago while police investigated whether they were the proceeds of money laundering in China.

The settlement announced on Tuesday means that Yan avoids any criminal or civil responsibility, New Zealand police said in a statement.


Detective Inspector Paul Hampton, manager of NZ Police's asset recovery and financial group crime, said the proceeds of the fine would be shared between the New Zealand and Chinese governments.

China's Foreign Ministry said Chinese and New Zealand police had worked closely on the case, but it did not say if China would seek Yan's extradition.

"Going forward, Chinese police will continue to work with New Zealand to advance relevant enforcement cooperation on the Yan case," the ministry said in an emailed statement.

The cooperation between the two countries comes as China seeks to drum up Western help in a campaign dubbed "Operation Fox Hunt" to track down corruption suspects who have fled overseas.

China has been pushing for extradition treaties with various countries but many Western nations have been reluctant to help, not wanting to send people to a country where rights groups say mistreatment of suspects is a concern.

New Zealand Prime Minister John Key has said an extradition treaty was "possible". Key has also said up to 60 Chinese corruption suspects were in New Zealand.

China's first extradition request to New Zealand last year was agreed to by the government. However, a New Zealand court told the justice minister in July to review the decision to extradite Kyung Yup Kim, a South Korean-born resident accused of murder, because of concern he might not be treated fairly.

($1 = 1.3708 New Zealand dollars)

(Reporting by Charlotte Greenfield; Additional reporting by Ben Blanchard and Michael Martina in BEIJING; Editing by Paul Tait, Robert Birsel)