NAB shares punished over Austrac concerns

Investors have punished NAB after Austrac said it had ‘serious concerns’ about the bank’s compliance with financial crimes laws.

NAB chief executive Ross McEwan. Aaron Francis for The Australian

Investors have punished National Australia Bank after Austrac said it had “serious concerns” about the bank’s compliance with anti-money laundering and counterterrorist financing laws, even though the financial crime regulator is not currently considering civil penalty proceedings.

Austrac said in a letter to NAB that it had referred its concerns to the agency’s enforcement unit, which had initiated a formal investigation into potential serious and ongoing non-compliance with customer identification procedures, customer due diligence, and compliance with Part A of a joint AML/CTF program.

Part A requires entities to have processes and procedures in place to help them identify AML/CTF risks.

According to the letter, Austrac was troubled by historical and contemporary compliance assessments of NAB.

“In particular, the seriousness of self-disclosed matters presented to Austrac over a prolonged period combined with the accompanying closure rates is concerning,” it said.

The regulator’s strongly-worded assessment contrasted with the preliminary outcome – no decision has yet been made on whether enforcement action will be taken, and civil penalty proceedings were not being contemplated “at this stage”.

This was due to the “work undertaken by the NAB DBG (designated business group) to date”.

“However, this position may be subject to change and you will be notified if that occurs,” the Austrac letter said.

The financial crime agency has a wide range of enforcement options, including civil penalty orders, enforceable undertakings, infringement notices and remedial directions.

NAB shares led the major-bank sector lower, shedding 3.2 per cent to $26.64 as the ASX200 index eased only 0.2 per cent.

Credit-rating agency Standard & Poor’s said the Austrac development was credit-negative for NAB because it could potentially lead to an enforcement action as well as financial penalties.

Credit Suisse analyst Jarrod Martin agreed, saying the formal referral to the Austrac enforcement team, together with an assessment of “potential serious and ongoing non-compliance, was likely to weigh on the market.

“In our view, the risk is not so much around the highlighted issues but the potential for a formal investigation to uncover additional issues which we have seen in other cases,” Mr Martin said.

“While Austrac states that it is not considering civil penalties at this stage, we think the market will mostly dismiss this statement.”

The approach to NAB’s non-compliance compares to the hardline stance in the Commonwealth Bank and Westpac cases, where both banks complained that the first they had heard about Austrac’s next steps was a Federal Court statement of claim.

Last September, Westpac paid a record $1.3bn fine to settle millions of admitted transgressions of AML/CTF laws.

CBA paid a then-record $700m penalty for similar contraventions in 2018.

Both banks experienced board and management upheavals as a result.

NAB, for its part, made its first public disclosure about concerns held by Austrac in 2017.

The bank said in a statement on Monday that, since then, it had spent about $800m as part of a multi-year program to improve its financial crime and fraud controls, and now had 1200 people managing financial crime risks.

Austrac acknowledged that NAB had invested significantly in programs of work so that its financial crime risk capability could mature.

It also said NAB was cooperating fully, and had demonstrated a “sustained commitment to addressing Austrac’s concerns”.

NAB chief executive Ross McEwan said the bank would continue to cooperate with Austrac in its investigations.

“NAB takes its financial crime obligations seriously,” Mr McEwan said. “We are very aware that we need to further improve our performance in relation to these matters – we have been working to improve and clearly have more to do.

“NAB has an important role in monitoring and reporting suspicious activity and keeping Australia’s financial system, our bank and our customers safe.

“It is a key priority for everyone at NAB to uplift our financial crime capabilities, minimise risk to customers and the bank, and improve operational performance.

“That’s why we are so focused on getting the basics right every time to protect our customers and our bank.”

Austrac also launched an enforcement blitz against the casino sector on Monday, referring AML/CTF matters involving Crown Resorts, the Adelaide casino operated by Auckland-based SkyCity Entertainment Group, and Star Entertainment Group to its enforcement division.

The action came after Austrac chief executive Nicole Rose said casinos, cryptocurrency exchanges and money transfer businesses were on notice that they were high-risk sectors which criminals sought to exploit to launder the proceeds of crime.