HSBC wins exemption from AML 'tipping off' rules

HSBC Bank Australia has secured an exemption from the "tipping off" provisions of the anti-money laundering regime to help it to comply with its deferred prosecution agreement in the United States. 



The US Department of Justice has appointed an investigator to monitor the bank's anti-money laundering and counter-terrorism financing program, systems and controls on a worldwide basis.

The bank's Australian arm had been concerned that in sharing information with a compliance monitor in the United States it could have been in breach of section 123 of the AML/CTF Act.



Tipping off is defined under the AML/CTF regime as wrongfully disclosing to others any information about a suspicious matter.



HSBC was required to appoint an independent monitor as one of the conditions of its settlement with United States prosecutors in 2012. It was alleged that more than US$880 million in drug trafficking proceeds had been laundered through the bank's US arm.

As part of his monitoring of the bank, former New York County prosecutor Michael Cherkasky is expected to scrutinise suspicious matter reports filed by HSBC's international divisions, including HSBC Australia.

Austrac said it had waived the "tipping off" provisions to allow the bank to share information about suspicious matters from Australia with its monitor in the United States. 



Austrac acting chief executive Liz Atkins said: "Under Australia's legislation, people are not permitted to let someone know, or 'tip them off', that a report has been sent to Austrac about them."


As part of the exemption from section 123, Austrac has put privacy safeguards in place and has strictly limited the relief to assisting with the global compliance monitor's work. Atkins said the exemption would ultimately help HSBC to improve its AML/CTF program, systems and controls worldwide, including in Australia. 



"The decision highlights that AML/CTF is a global issue and that Austrac has an important role in raising compliance with the global standards in the fight against money laundering and terrorism financing," Atkins said.



In April, the Department of Justice released a report detailing HSBC's progress with its compliance remediation program. The document, which was summary of a larger report prepared by Cherkasky, indicated that HSBC was meeting its commitments under the DPA but was moving too slowly with some of the remedial work.



The report said that HSBC Group had made improvements in its suspicious activity reporting, among other areas.



Under the terms of the deferred prosecution agreement, HSBC has been forced to implement global AML standards based on the highest or most effective standards in any location where it operates. In 2014, HSBC issued new group-wide AML and sanctions policies and procedures. 



The bank is also overhauling its compliance software platform, which has been fragmented and lacks connectivity. The Department of Justice report said this fragmentation was preventing the bank's AML investigators from easily reviewing a customer's banking history when evaluating potential suspicious activity.


Nathan Lynch is the head regulatory analyst Australia and New Zealand in governance, risk and compliance at Thomson Reuters.