Australia: Money Laundering Fail by Which Bank reads like Russian crime novel

Money Laundering Fail by Which Bank reads like Russian Crime Novel

On 3 August 2017, AUSTRAC initiated civil penalty proceedings against the Commonwealth Bank of Australia (CommBank), alleging significant breaches of the AML/CTF Act. A concise statement of facts was filed and publicly released by AUSTRAC that day.

The concise statement of facts is a bit like one of those long Russian crime novels you were made to read in high school – it has lots of long names which are shortened to acronyms, lots of subplots, takes place over several years, and you're not quite sure how it ends.

Often, when reading a novel like that, SparkNotes can offer an invaluable study guide. So, if you're interested in the SparkNotes of AUSTRAC's proceedings against CommBank (and some handy hints for reporting entities), read on!

IDM?

Like all good novels, the concise statement begins with a date and an action from which everything else flows – 'In May 2012, the Respondent (CommBank) rolled out Intelligent Deposit Machines (IDMs), a type of ATM that accepts deposits by both cash and cheque' (maybe this is AUSTRAC's 'it was a dark and stormy night' moment).

AUSTRAC alleges that following implementation of these IDMs, CommBank began receiving significant deposits of cash, including from non-CommBank account holders, and did not follow the procedures set out in its AML/CTF Program in relation to these deposits. For example, if the deposit was made by a non-CommBank account holder, CommBank did not collect or report details of the depositor.

Specifically, AUSTRAC states that CommBank did not carry out an assessment of the ML/TF risk posed by the rise in cash deposits as a result of the rollout of the IDMs.

This highlights one of the key obligations reporting entities have – they must ensure that prior to operating a new service, they conduct a risk assessment of that service and make appropriate changes to their AML/CTF procedures.

TIP: So, it's important to make sure that your AML/CTF Program allows you to consider the risks posed by services which you may offer in the future, and that you make an assessment of those risks (and appropriate changes to your procedures) in respect of those services. Then, once the new service is rolled out, monitoring needs to be 'effective'.

SMR and TTR?

AUSTRAC alleges that over several years, CommBank lodged Threshold Transaction Reports (TTRs) late, and that it failed to lodge Suspicious Matter Reports (SMRs) in relation to several money laundering syndicates, even though it was aware of suspicious activity on some of its accounts.

In some cases, CommBank did not lodge an SMR because it had previously lodged an SMR in relation to similar activity. On one account, although suspicious transactions were occurring daily, CommBank only lodged an SMR every 3 months.

We often see reporting entities who do not have appropriate procedures for lodging TTRs or SMRs, or who say they'll get around to lodging those reports later.

TIP: This is a timely reminder that, if you are a reporting entity, you must have in place procedures for monitoring transactions and customers, and lodging reports within the timeframe required by the legislation.

Cuckoo smurfing?

Undoubtedly, the most exciting section in the concise statement of facts (and perhaps in any Court document filed in recent years) is the one called 'cuckoo smurfing syndicate – strike force A.'

Of course, the first question on everybody's mind is: what is 'cuckoo smurfing'?

AUSTRAC explains that the term 'cuckoo smurfing' originated in Europe because of similarities between this typology and the activities of the cuckoo bird. Cuckoo birds lay their eggs in the nests of other species of birds, which then unwittingly take care of the eggs believing them to be their own. In a similar manner, the perpetrators of this money laundering typology seek to transfer wealth through the bank accounts of innocent third parties¹. There's no explanation as to why smurfs are involved (perhaps they're the innocent third parties?).

AUSTRAC alleges that CommBank accounts were used for cuckoo smurfing over several years. This was picked up by NSW police, who alerted CommBank in 2015. However, CommBank allegedly failed to monitor these accounts or report suspicions in relation to them.

TIP: If you a reporting entity, and you notice customers using your services for purposes which do not appear to have a commercial rationale, or which may be layering or structuring (or otherwise contravening a law of the Commonwealth), then you must investigate those customers, and report to AUSTRAC if the criteria for lodging an SMR are met (for more information about when you need to lodge an SMR, read Naomi Fink's blog here).

Unregistered remittance

Many of the remitters reading this will be aware that banks will often refuse to open accounts on behalf of remitters because of the risks associated with remittance accounts.

One of AUSTRAC's allegations is that in January 2015, CommBank became aware that some of its customers were using its accounts for unlawful activity.

In particular, CommBank suspected that one of these customers was running an unregistered remittance business, but this was not reported to AUSTRAC.

It remains to be seen what effect this allegation from AUSTRAC will have on the banks' already weak appetite for taking remitters on as clients.

Conclusion

In both this litigation and the litigation with TABCorp that was resolved earlier this year, AUSTRAC has demonstrated willingness to take action through the Courts in relation to breaches of the AML/CTF Act. The litigation shows how each separate breach of the Act will give rise to a significant penalty, so it's imperative to get compliance with your obligations under the Act right.

We act for remitters, banks, financial planning dealer groups, accountants, superannuation funds, fund managers, digital currency exchanges, stockbrokers and derivatives issuers, all of whom have AML/CTF obligations.

Footnotes

¹ http://www.austrac.gov.au/typologies-2008-methodologies

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.