NAB avoids Austrac fine; must fix money laundering weaknesses

The banking giant and Austrac have signed a deal that will see it uplift its compliance with anti-money laundering and counter terrorism financing programs.

National Australia Bank and Austrac have signed a deal that will see the bank uplift its compliance with anti-money laundering and counter terrorism financing programs. Picture: NCA NewsWire / John Gass

National Australia Bank has escaped a financial penalty from Austrac after entering into an enforceable improvement plan with the regulator to improve its transaction controls by December 2024 – or face the consequences.

However, NAB must deliver on a suite of improvements to its anti-money laundering and counter terrorism financing programs highlighted by an investigation by Austrac. As part of the deal, the bank will also implement a comprehensive remedial action plan across the business.

NAB will be required to better assess and record its customer identification, risk assessments and due diligence, as well as better report its transaction data and improve governance and assurance.

The deal will see Austrac monitor NAB’s progress to ensure its anti money laundering procedures are up to date and improving. NAB has until December 2024 to complete the plan.

An independent auditor will also assess NAB’s efforts, with a final report on the bank’s anti money laundering and counter terrorist financing improvements due in March 2025.

NAB’s moves will see the bank avoid a financial penalty – unlike rivals Westpac and Commonwealth Bank, which were both hit with large fines – after Austrac “formed the view at the start of the investigation that a civil penalty proceeding was not appropriate at that time”.

Austrac chief executive Nicole Rose said the enforceable undertaking with NAB would ensure the bank “continues with its remediation program to uplift its compliance and combat the risks of serious and organised crime.”

“National Australia Bank has demonstrated a commitment to uplifting its AML/CTF controls, and has undertaken significant work identifying and implementing improvements to its programs,” she said.

“NAB has worked collaboratively with Austrac throughout the investigation, and this enforceable undertaking will help to ensure NAB meets its compliance and reporting obligations.”

The finalisation of Austrac’s initial investigation comes after the regulator warned NAB in June that its self disclosures to the regulator raised concerns about a number of the bank’s entities.

The warning to NAB in came as Austrac put the broader banking sector on notice, with a report that found the overall money laundering and terrorism financing risk for the industry was “high”. Austrac fined CBA $700m in 2018 after finding the bank failed to control or assess the money laundering risk from its ATMs.

Westpac was also fined $1.3bn by Austrac in 2020 after the regulator found the bank had failed to stop funds flowing offshore, including allowing a dozen customers to send money to the Philippines in a way associated with child exploitation.

In response to Austrac’s warnings, NAB elevated its chief financial crime risk officer and group money laundering reporting officer to report directly to chief executive Ross McEwan and chief risk officer Shaun Dooley.

NAB CEO Ross McEwan. Picture: Aaron Francis/The Australian

Mr McEwan said the bank takes its anti money laundering and counter terrorism financing obligations “very seriously” but recognised improving controls had “taken us longer … than it should have”.

“We welcome Austrac’s acknowledgment that NAB has undertaken significant work to date – and we accept that there is more to do,” he said.

“Keeping criminals out of the financial system is a top priority for NAB. We recognise our opportunity to better detect, deter and disrupt the flow of illegal money at a time when the threat is evolving at an incredible rate.”

NAB said it would disclose the costs of the improvements to its anti-money laundering teams at its half year results on May 5. The deal with Austrac comes alongside a memorandum of understanding between NAB and the Australian Federal Police and the Australian Criminal Intelligence Commission. “The (enforceable undertaking) provides a clear timeline as we further build capability, increase resourcing, continue to modernise our systems and improve controls and governance,” Mr McEwan said.

Money laundering expert and University of Sydney lecturer Dr Derwent Coshott said it was clear parts of the banking sector were on notice after recent Austrac activity.

“Austrac seems to be taking a more assertive approach towards entities which are providing financial services particularly the big banks in a way that they weren’t previously,” he said.

However, Mr Coshott said some banks were taking Austrac’s directives too strongly and attempting to repeatedly validate the identities of low risk customers.

“It’s quite weird what’s happening in the banking sector. It seems like they’ve become very paranoid the other way to the extent that I heard they couldn’t open a bank for a six year old because the parent didn’t have her drivers licence with her,” he said.

“They’ve gone from not really checking anyone to checking everyone and not really understanding what the requirements are under the AML and CTF act which is the risk based approach.”