Austrac mulls legal action against NAB and remittance firm

NAB is understood to be in Austrac’s sights.

Financial crimes regulator Austrac isn’t resting on its laurels as it weighs at least two more legal cases, even as markets gyrate wildly and banks digest unprecedented measures to shore up the economy.

This column understands Austrac — which in November started court action against Westpac — is laying the groundwork as it assesses a legal case against National Australia Bank. It is also separately considering court action against a player in the remittance industry. An Austrac spokeswoman said the agency wouldn’t comment on specific entities or investigations, or provide commentary on compliance of individual entities.

Legal action may not be imminent, but sources said Austrac was seriously assessing the merits of moving ahead through the courts in both cases.

At its annual general meeting in December, NAB reiterated it had outstanding matters being dealt with by Austrac after the bank identified issues including “certain weaknesses” with the implementation of the Know Your Customer requirements.

At the time, chairman Phil Chronican said NAB had “significantly upgraded” its processes and continued to work with Austrac. “I’m not aware of any impending action on their part, but Austrac has sent a very clear message that where there are shortfalls in industry practice they will actively pursue those,” he said.

Westpac was hit with explosive Austrac legal action late last year, alleging it breached the law 23 million times including not adequately reporting international transfers and facilitating payments linked to child exploitation. The bank and Austrac continue to work on an agreed statement of facts, but analysts are pencilling in a financial settlement in the order of $1bn.

The remittance industry, which is among the most susceptible to financial criminals, has been in Austrac’s sights for some time given it deals in the movement of funds across borders.

In December, Austrac ruled off a community campaign targeting illegal money transfer dealers or unregistered remittance dealers. As part of that campaign and feedback the regulator is considering what steps or action to take.

It also put global payments giant PayPal on notice earlier this month when it was granted an extension to appoint an external auditor, relating to concerns about the company’s compliance with its international funds transfer instruction reporting obligations.

Globally, Western Union has had its share of compliance headaches. Two years ago, it agreed to pay $US60m to the New York Department of Financial Services to resolve allegations it hadn’t maintained a program to deter and report fraud and money laundering. In 2017, the company had to fork out $US586m to resolve action by the US Department of Justice and the Federal Trade Commission.

The other area of interest for Austrac closer to home is the superannuation sector, where weaknesses remain in how funds comply with the Anti-Money Laundering and Counter Terrorism Financing Act 2006.

An Austrac spokeswoman said the agency had a “comprehensive industry education program in place to support regulated entities”, including superannuation funds, to meet their compliance and reporting obligations and understand their risks.

Several players in the superannuation sector were caught out by an online fraud and identity theft syndicate which stole data to gain access to, and draw down on share trading and superannuation accounts. Those entangled in the saga, which went to court last year after an Australian Federal Police and regulatory investigation, included AustralianSuper, Rest, Hostplus and HESTA.

A senior source told this column there were “known gaps” in how the sector managed and complied with its obligations to report and monitor financial crimes.

The fear is that criminals are opening employee super accounts then rolling over to a self-managed fund and buying assets to integrate the funds and hide their true source.

Austrac completed a money laundering and terrorism financing risk assessment of the superannuation sector in 2016, finding the overall money laundering and terrorism financing risk was “medium”.

The assessment also found that the size of the domestic superannuation sector — which now stands at $3 trillion — made it an attractive target for money laundering, fraud and drug trafficking.

Part of the broader issue Australia has in tackling financial crime is that is has trailed other developed markets, because Austrac is yet to implement a key tranche of global regulation. That regulation captures real estate agents, lawyers and accountants and compels those industries to report suspicious transactions in the same way the banks and other financial companies do.

Market mayhem

Market volatility is touching all asset classes as investors seek to navigate the biggest swings in sharemarkets in decades and the threat of a global recession.

In the corporate bond market, there are also pain points. The Financial Services Council this week facilitated a meeting of major bond fund managers, as the industry grapples with a dearth of liquidity in the corporate bond market. That has led to buy-sell spreads — which reflect estimated transaction costs — to blow out for a spate of bond funds, making it harder and less financially viable for investors to exit.

The sector is looking at options to get market liquidity back to the market. One way for that to happen would be convincing the RBA to extend its secondary market bond buying program, announced on Thursday — beyond government bonds.