Austrac alleges CBA in 'serious' breach of money laundering act

The Commonwealth Bank breached money laundering laws after allowing thousands of large cash deposits to wash through its ATMs, including six instances when the bank believed the customers were possibly financing terrorism but did not report them to authorities in the required time, the government's financial intelligence agency has alleged.

Criminal gangs also laundered more than $70 million through the bank, as part of millions in cash deposits made through the bank's ATMs, which Austrac is alleging CBA handled inappropriately.

In a landmark case, Austrac said on Thursday it was taking action against CBA, alleging "serious and systemic non-compliance" with the Anti-Money Laundering and Counter-Terrorism Financing Act.

The action alleges more than 50,000 contraventions of the act, mainly through intelligent deposit machines (IDMs), a type of ATM that allows anonymous cash deposits.

CBA may be plotting a return to the bond market. Credit: Jessica Shapiro

Austrac alleges more than $70 million was put into the machines by money-laundering syndicates. Some of the cash was sent offshore, and some of the accounts were connected with drug smuggling.

"It is essential to the integrity of the Australian financial system that a major bank such as CommBank has compliant and appropriate risk-based systems and controls in place to deter money laundering and terrorism financing," the statement from Austrac said.

"The effect of CommBank's conduct in this matter has exposed the Australian community to serious and ongoing financial crime."

Austrac alleges CBA was too slow to report 53,506 transactions of more than $10,000, the threshold at which banks must report cash transactions to authorities within 10 business days, and did not carry out an anti-money-laundering risk assessment before rolling out the ATMs in 2012.

More than 1500 of the late reports to authorities related to transactions connected to suspected money laundering syndicates, it said.

Six of these late reports related to five customers "who had been assessed by CommBank as posing a potential risk of terrorism or terrorism financing", Austrac said in its statement of claim.

CBA acknowledged the civil proceedings had been brought and said it would have more to say on the specific claims "in due course". The bank potentially faces a huge fine as each contravention carries a $18 million penalty.

CBA said it took its regulatory obligations "extremely seriously". It had been in talks with Austrac for an "extended period" and had fully co-operated with the agency's requests.

The effect of CommBank's conduct in this matter has exposed the Australian community to serious and ongoing financial crime.

Austrac

"On an annual basis, we report over 4 million transactions to Austrac in an effort to identify and combat any suspicious activity as quickly and efficiently as we can," the bank said.

The case comes after a series of scandals have affected the banking industry in recent years, and the Finance Sector Union claimed it highlighted the need for a royal commission into the sector.

Austrac refers to at least four different money-laundering syndicates that are alleged to have used CBA's ATMs, but alleges the bank failed to report suspicious activity as required.

Austrac alleges much of the suspected money laundering that occurred through CBA's ATMs was done with deposits of just under $10,000, and CBA identified the suspicious patterns of activity but repeatedly failed to report them to authorities.

CBA is also required to monitor customers with a view to spotting money laundering or terrorism-financing risks, but the bank failed to do this as well, Austrac alleges.

Even when suspected money laundering was brought to the bank's attention, Austrac alleges CBA did not monitor customers at risk of money laundering. Some customers were allowed to make suspicious transactions after the bank had given 30 days' notice that it intended to terminate their accounts, it alleges.

The bank's failure to report $10,000 deposits on time, pass on its suspicions, and monitor suspicious customers had deprived law enforcement agencies of intelligence and evidence, and allowed further money laundering and lost proceeds of crime, it says.

Austrac's acting head, Peter Clark, said the court action followed an investigation into CBA's compliance, particularly relating to its use of IDMs.

"By failing to have sound AML/CTF [anti-money-laundering/counter-terrorism financing] systems and controls in place, businesses are at risk of being misused for criminal purposes," Mr Clark said.

"Austrac's goal is to have a financial sector that is vigilant and capable of responding, including through innovation, to threats of criminal exploitation."

CBA said it had invested more than $230 million to comply with anti-money-laundering rules, and all of its staff had to complete training on the act.

The action against CBA comes after gaming giant Tabcorp paid $45 million to settle a money-laundering case with Austrac in February.