Mega strife from money laundering legacy

A Taiwanese bank that ran foul of Australian regulators in 2009 over money laundering experienced a slump in business deposits of three quarters.

In June 2009, Mega International Commercial Bank Co admitted to AUSTRAC (the Australian Transaction Reports and Analysis Centre) that it had breached the Financial Transaction Reports Act and the Anti Money Laundry and Counter Terrorism Financing Act 2006 (AML/CTF) by not complying with the reporting obligations under the acts.

As a result, Mega ICBC voluntarily entered into an Enforceable Undertaking (EU) with AUSTRAC. Its processes and procedures were placed under review by the Australian Prudential and Regulatory Authority.

A recent decision of the Fair Work Commission sheds light on the consequences of the affair, which saw the firm force out the one person who was well qualified to deal with anti-money laundering  rules and the consequences of non-compliance.

"Entering into the EU has significantly increased the operating costs of Mega ICBC due to the on-going costs of compliance," Commissioner Bernie Riordan wrote in a decision that considered the redundancy of an assistant manager's position in the bank's business division in 2013.

Riordan cited evidence from one manager that additional compliance costs were "currently 'in the millions' and 'ongoing' due to the engagement of external resources."

"It was accepted evidence that the introduction of the EU resulted in Mega ICBC's deposits dropping by 75 per cent."

APRA data show that in mid-2009 Mega's total deposits were A$408 million. This crashed to less than $100 million by mid 2011.

Mega has rebuilt its deposits to more than $600 million recently, mainly in the short term wholesale market.

Riordan questioned the bank's decision-making processes leading up to the redundancy and afterwards: "After experiencing the constraints of the Enforceable Undertaking and understanding the reason why the Enforceable Undertaking was implemented, it would have been appropriate and prudent for a proper structural review to have been undertaken, including the preparation of a business case and an analysis of the effects of the proposed redundancy on the Bank, with a subsequent report to the AMC for their consideration.

"The decision to dismiss Ms Chang lacks the required 'internal scrutiny' of an organisation with governance issues" he said.