‘Devastating impact’: Austrac warns banks against ditching crypto dealers

The anti-money laundering regulator is warning banks against large-scale ‘debanking’ of customers for dealing in cryptocurrencies and remittance services, saying it expects deposit takers to have systems in place to differentiate good operators from bad ones.

Austrac issued the stern warning against debanking - where a bank stops dealing with a customer - amid concerns from operators in the cryptocurrency sector that they had been exiled from the Australian banking system because they ran businesses dealing in the blockchain-based currencies.

Austrac says the banks need better systems to deal with assessing risk rather than simply debanking customers. Credit: AP

The regulator said the debanking of account holders can have a “devastating impact” on individuals and small businesses.

“The effect of debanking of legitimate and lawful financial services businesses can increase the risks of money laundering and terrorism financing and negatively impacts Australia’s economy,” Austrac said in its statement.

“For this reason, Austrac continues to discourage the indiscriminate and widespread closure of accounts across entire financial services sectors.”

A Senate inquiry into Australia becoming a financial services hub recently heard evidence from small businesses specialising in trading cryptocurrency on the impacts of debanking – a now industry-wide practice.

A second Senate inquiry into Australia’s anti-money laundering laws is this week hearing evidence from finance industry participants and regulators about whether to expand our transaction reporting regime to include real estate agents, accountants and lawyers.

The banks have in recent months defended their decisions to close accounts, saying they do so to ensure they are adhering to anti-money laundering and counter-terrorism financing laws.

Austrac brushed off that defence from the banks, saying it had higher expectations the banks would not deem a customer high risk because of the sector they worked in.

“Although the decision to close an account may remain a necessary risk control, Austrac considers with appropriate systems and processes in place, banks should be able to manage high-risk customers, including those operating remittance services, digital currency exchanges, not-for-profit organisations (NPO) and financial technology (FinTech) businesses,” the regulator said.

“Austrac expects banks and all regulated businesses to adopt a case-by-case approach to managing ML/TF (money laundering/terrorism financing) risks. This expectation extends to the importance in continuing to assess the particular risks relating to their business customers in line with the risk-based approach.”

Many of the businesses that have been debanked are registered with Austrac. Banking sources were incredulous with Austrac’s statement. One senior banking source, who declined to be named lest their bank copped the wrath of the regulator, suggested Austrac could do more to ensure it is not registering businesses with weak know-your-customer procedures.

The Commonwealth Bank and Westpac have each copped huge fines ($700 million and $1.3 billion, respectively) in recent years for breaches of AML-CTF laws. National Australia Bank revealed in June that it had been warned by Austrac of “potential serious and ongoing non-compliance” with customer identification procedures.

Against this backdrop the banks have become ultra-cautious in regard to dealing with cryptocurrency, given long-standing concerns untraceable digital assets can be used by crime gangs to launder money and pay for illicit goods and services.

A spokesman for The Australian Bankers Association said the issue of debanking was complex and a global problem.

“Banks offer services to customers wherever possible, however these services must be in line with the banks’ legal obligations and fit within its risk profile,” he said.

“In rare instances, where banks are unable to manage those risks while meeting their obligations, they may choose not to provide services to certain individuals, business models or market sectors where an unmanageable level of risk is inherent.

“A core obligation is for banks to be able to trace and report where money comes from and where it flows to. Given the level of anonymity in some digital assets and trading platforms, this means it is often not possible for banks to provide a service in compliance with their AML and sanctions obligations.”

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