The Commonwealth Bank (CBA) has landed itself in a world of hurt following the recent AUSTRAC money laundering revelations.
CBA is in the firing line for, wait for it…
….nearly one trillion dollars in fines.
Welcome to the new world of AML/CFT enforcement, everybody.
There are two primary factors at play here.
Firstly, money laundering and terrorist financing may have actually been taking place by some of the bank’s customers. The centre of the problem appears to be CBA’s intelligent deposit machines. These ambiguous depository systems allow customers to drop bundles of cash into a box which quickly accredits their bank accounts.
There have been more than a couple allegations that drug syndicates took advantage of the anonymous nature of these machines. Sound like a Scorcese film yet? It gets better (worse).
CBA’s anti-money laundering compliance measures simply weren’t working. CBA were not checking high risk customers’ sources of wealth (known in New Zealand as enhanced due diligence). They were failing to file reports to the police within the required time-frames, and they weren’t doing much about alerts raised by staff within the bank either.
That, on top of more general allegations that CBA has not been following it’s own compliance documentation for the last few years. Yikes.
This is an interesting conundrum that they’ve found themselves in. Money laundering and anti-money laundering compliance requirements are two separate things. Money laundering is dealt with through criminal proceedings, while failing to meet AML compliance requirements can result in either criminal or civil proceedings.
They’ve got allegations of both ends of the spectrum, along with a possible wider review of the ethical conduct of CBA. They’re in a hell of a pickle.
So what does this mean for AML/CFT in New Zealand?
We’ve seen a very small appetite for public formal warnings for breaches of the AML/CFT Act to date. While some prosecutions of small firms have been filed, we are yet to hear of any fines or convictions in New Zealand.
New Zealand AML/CFT regulators have been focused on educating and empowering reporting entities. In our experience, they would rather agree on a remediation plan with our clients than seek to punish them.
Despite this, it is frustrating for the majority of reporting entities in New Zealand to spend time and money maintaining AML/CFT compliance while their competitors commercially benefit from loose or non-existent compliance regimes. We’ve all got a story of a business who seems to be getting away with it.
Within days of the AUSTRAC action being announced, CBA released huge profit statements on the back of a 4.3 percent rise in banking revenue. Billions of dollars in profits, made possible in part by a dysfunctional compliance regime which allowed nearly 54,000 dirty transactions.
New Zealand supervisors cannot let this happen here.