Sunday, October 25, 2020

Australia: Top financial institutions on notice for potential money laundering breaches – Austrac

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The nation’s anti-money laundering regulator warns it is likely to take more action against Australia’s top financial institutions after being “flooded” with reports of potential breaches following its landmark case against the Commonwealth Bank.

Austrac chief executive Nicole Rose said the 2017 case against CBA over its mass breach of anti-money laundering and counter-terrorism financing laws – which resulted in a record fine of $700 million – had triggered a sharp lift in “self-disclosure” from the companies it regulates.

In an interview with The Sydney Morning Herald and The Age, Ms Rose said the financial crimes regulator would have a “very busy” year ahead of it. She said Austrac would use various measures, including legal action and fines, to bring miscreant financial institutions to heel.

“There’s loads of self-disclosure, which means there’s a lot for us to go through, and we’re going to have a very busy 12 months because there will be actions that come out of it,” Ms Rose said.

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Ms Rose’s comments come as Treasurer Josh Frydenberg tells business leaders at a breakfast on Monday that they are “on notice” and the “public’s tolerance has been exhausted” following the banking royal commission.

Pledging to legislate all of the recommendations from the banking probe by the end of 2020, Mr Frydenberg will direct 75 per cent of Treasury’s legislative agenda and commit $10 million to get up to 40 pieces of legislation through Parliament over the next year.

“Implementing the recommendations of the royal commission is critical to restoring trust and confidence in Australia’s financial system,” Mr Frydenberg said.

Related: Austrac scrutinising Afterpay over anti-money laundering compliance

Businesses regulated by Austrac include banks, money remittance firms, online payments platforms, and casinos. Ms Rose would not say what types of institutions were facing action, or if any of the big four banks would be affected, and she also praised banks for being “very forthcoming” about failures in their systems.

These criminals are in business for one thing and one thing only, and that’s money
Todd Harland, AML chief executive
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Detecting money laundering is a key part of the fight against organised crime, which the Australian Institute of Criminology has estimated costs the nation almost $50 billion a year.

Recently, Austrac ordered an external audit of buy now, pay later service Afterpay over potential beaches of anti-money laundering laws. Todd Harland, a former Austrac manager who is now chief executive of anti-money laundering consultancy AML Solutions Australia, said more institutions would probably be hit with external audits to test their compliance.

Mr Harland said money laundering in Australia was “big business” and it went “hand in glove” with organised crime.

“These criminals are in business for one thing and one thing only, and that’s money,” Mr Harland said.

Anti-money laundering laws require banks to put strict processes in place to detect and report on suspicious transactions, which can provide valuable intelligence in detecting criminal activity.

Ms Rose said the extent of the failings at CBA prompted others in the industry to re-examine their own systems for failings or gaps. “We’ve been flooded by disclosures,” she said.

Despite the likely action against businesses that had breached the rules, Ms Rose said the industry had lifted its game significantly in reporting compliance problems.

“We’re encouraging them to keep doing it [disclose problems to Austrac], I’ll take that into consideration when we look at penalties, because again, we want them to be doing it for us. You know, CBA has 50,000 staff. If they can be looking at money laundering for us, that’s an incredible resource,” Ms Rose said.

Breaching anti-money laws can attract extremely large penalties if it leads to civil court action – as occurred with CBA and with Tabcorp, which was fined $45 million in 2017. Austrac also has the power to force companies to have their compliance audited, which it has most recently enforced upon buy now pay later service Afterpay. It can also issue infringement notices with fines. Ms Rose indicated all such actions were likely.

Related: Crown Resorts defends group’s anti-money laundering policies

“Depending on how grievous the breaches are, whether people knew about them, how systemic they are, how long they’ve been going on, [these] are the considerations I’ve got to make. But I think… there’s a good likelihood that we’ll have a spread across all of them,” she said.

Austrac is also working closely with banks to detect crimes overseas, and Ms Rose said it had experienced a 580 per cent increase in reports about suspicious activity potentially related to child exploitation. Intelligence from Austrac’s work with businesses, including banks, resulted in several recent arrests of men for child pornography offences.

The massive technological changes sweeping through finance can offer an opportunity to launder money, and Austrac is also keeping a close eye on cryptocurrencies, and the fast growing buy now, pay later sector.

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Ms Rose described Facebook’s plan to introduce its own privately backed cryptocurrency, Libra, as “audacious and ambitious”. While there is still little detail of Facebook’s plan, she said Austrac had met with the company and it believed the social media giant would bring a “pretty professional approach” to compliance with anti-money laundering and counter-terrorism financing laws.

Related: Australia: Government Releases Report Assessing Money Laundering Risks Related to Traveller’s Cheques

Ms Rose, whose background is in law enforcement, said the CBA case had served as a powerful wake-up call to banks, citing a 70 per cent increase in “suspicious matter reports” to Austrac since the explosive case. She said banks had “well and truly got the message” about anti-money laundering measures, but given the complexity of banks, there was more to be done.

“I think there’s been a double wake-up call. One about the repercussions financially and reputationally, and the other about the impact it actually has on the community, and it’s not offshore, it’s here,” she said.

Among the big four banks, National Australia Bank’s latest financial accounts show there was work underway in relation to “weaknesses” in its implementation of “know your customer” rules, financial crime risks, and problems with transaction monitoring.

Westpac’s latest accounts said it had informed Austrac about its failure to report a “large” number of international transactions, most of which were pension payments from foreign governments to people in Australia.

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