CBA ‘failed on money laundering’

The CBA risks fines of hundreds of millions for being in breach of money-laundering and ­terror-financing laws.

Austrac alleged that CBA took no steps to assess the risk posed by ATMs until mid-2015.

The Commonwealth Bank risks fines of hundreds of millions of dollars after the ­federal government’s financial crimes agency accused it of ignoring police warnings to monitor ­suspicious accounts, and failing to ­report tens of thousands of ­transactions worth more than $500 million, in breach of money-laundering and ­terrorism-­financing laws.

The Australian Transaction Reports and Analysis Centre said the alleged repeated failings to deal with suspiciously large and repeated cash deposits into its new smart ATM network delayed and hindered enforcement ­efforts, costing agencies lost intelligence­ and evidence while ­allowing money laundering to continue.

Austrac accuses the nation­’s largest bank of “serious and systemic” breaches of money-­laundering and terrorism-­financing laws involving 53,506 transactions, and failing to monit­or customers suspected of breaches of the law even after it became aware of suspected money laundering. Six of the breaches related to five individuals that the bank’s own systems had identified as being at risk of terrorism ­financing.

Each breach carries a penalty of $18m.

The potential fines would dwarf an action against bookmaker Tabcorp, which in February settled a Federal Court action for 108 instances of alleged use of betting accounts for money laundering by agreeing to pay a record $45m fine.

Acting Austrac chief exec­u­tive Peter Clark said the ­action should send a clear ­message to all reporting entities about the importance­ of meeting their anti-money-laundering and counter-terrorism-financing obligations.

“By failing to have sound AML/CTF systems and controls in place, businesses are at risk of being misused for criminal purpose­s,” Mr Clark said.

The latest in a string of bank scandals comes amid continuing pressure for a royal commission into the industry, and a wave of government measures, including a $1.5bn annual levy to help repair the budget and measures to ­improve executive accountability and limit remuneration. Scott Morrison said the Commonwealth Bank case was a “very serious matter” that was being pursued by the appropriate ­authorities. “We should allow them to continue to do this work,” the Treasurer said.

“The government will continue its work to ensure our banks are strong, fair, accountable and competitive, and we will be introducing legislation during the spring session implementing further­ changes to this end.”

Labor’s financial services spokeswoman Katy Gallagher said the allegations by Austrac against the bank were “deeply concerning”, but declined to comment­ on an active legal case.

In Federal Court documents filed yesterday, Austrac said the breaches were facilitated by CBA’s network of “intelligent” ­automated cash-deposit mach­ines that can accept deposits of up to 200 notes, or $20,000 at a time, with no limit to the number of transactions made per day.

Austrac alleged that the bank did not adequately monitor the use of the machines, which enable anonymous cash and cheque deposits­ into CBA accounts that are then immediately able to be transferred to other accounts with CBA or other banks.

Tens of millions of dollars deposited­ to the intelligent deposit­ machines were transferred almost immediately to offshore ­accounts linked to money laundering or drug importation and manufacturing.

GRAPHIC: How it worked

Austrac alleged that CBA took no steps to assess the risk posed by the machines until mid-2015, three years after their introduction, and in the face of repeated­ warnings by police and authorities about the suspected misuse of IDMs.

Even in cases where the bank identified a suspicious pattern of behaviour, CBA failed to report it to authorities, and had a policy of not reporting all instances if a similar type of behaviour had been reported in the three months prior. Austrac said the bank failed to give it 53,506 threshold transaction reports worth $624.7m on time, for cash transactions between November 2012 and September 2015.

So-called threshold transact­ions are anything over $10,000. The offences alleged by AUSTRAC account for 95 per cent of all such deposits through CBA’s network.

“Even after suspected money laundering or structuring on CommBank accounts had been brought to CommBank’s attention (by law enforcement or through internal analysis), CommBank did not monitor its customers with a view to mitigating and managing (money laundering and terrorism financing) risk, including the ongoing risk of doing business with these customers,” Austrac said in the court documents.

The bank is also charged with failing to report suspicious matters on time, or at all, involving transactions totalling more than $77m.

CBA did not review the terrorism and money-laundering risks of the IDMs before rolling them out in 2012 and again failed to do so when the amount of cash moving through them grew exponentially.

From $89.1m in the first six months after they were introduced, the cash deposited surged to $5.81bn in the first six months of last year, including more than $1bn a month in May and June.

Almost $9bn in cash was deposited through CBA’s machines before the bank conducted any assessment of the money laundering risks associated with them.

Anti-money-laundering compliance expert David Cassidy said the IDMs the CBA used had a blind spot — the anonymity of who deposited the money — that money launderers could exploit.

The chief executive of Kyckr said money launderers had incent­ives to find new chinks in the armour.

“As new technologies come in with new processes there’s an opportunity, and banks can find it hard to keep up with this stuff,” Mr Cassidy said. “It’s very surprising these transactions were not picked up earlier. Any transaction over $10,000 should be flagged immediately.”

CBA said it had been in discussion with Austrac for a significant period of time and had taken steps to improve its compliance procedures. “On an annual basis we report over four million transactions to Austrac in an effort to identify and combat any suspicious activity as quickly and efficient­ly as we can,” CBA said.

The bank added that it had ­invested more than $230m in its anti-money-laundering compli­ance and reporting processes and systems. It refused to comment on the size and severity of the penalty it faced if Austrac’s allegat­ions held up in court.

Additional reporting: Joe Kelly