AUSTRAC has put the customer owned banking sector on notice after directing the 56,000-member Australian Military Bank to remediate its anti-money laundering systems.
AUSTRAC revealed it had raised concerns about the effectiveness of AMB’s anti-money laundering and terrorism financing controls in a letter to the bank on 16 December.
In the letter AUSTRAC alleged AMB had committed breaches of national AML laws.
Banking Day understands that the breaches relate to an audit of the bank's systems in 2019.
The agency did not disclose the precise nature of the contraventions in the direction published on its website on Tuesday, but they appear to relate to insufficient collection and verification of Know Your Customer information, weaknesses in staff training and potentially non-compliant monitoring of high value cross border transactions.
The enforcement action breaks new ground in AUSTRAC’s crusade against money laundering because it is the first publicly disclosed intervention involving a mutual deposit taking institution.
The remedial direction requires Australian Military Bank to appoint several external auditors to review the bank’s compliance systems over the next six months.
AMB must review its governance and oversight arrangements relating to its AML compliance and report any deficiencies to AUSTRAC.
AUSTRAC chief executive Nicole Rose said the remedial direction was to ensure AMB’s detection and reporting systems complied with anti-money laundering laws and addressed the risks criminals posed to the business.
“The Australian Military Bank has demonstrated a commitment to uplifting its AML/CTF controls,” Rose said.
“It is encouraging that AMB has already started implementing a remediation action plan and this remedial direction will help to ensure AMB meets its compliance and reporting obligations.”
AUSTRAC’s head of enforcement Kathryn Miller revealed in the direction that an external AML auditor had been appointed by the bank on 19 April to conduct a wide-ranging assessment of the organisation’s exposure to money laundering and terrorism financing risks.
Under the direction, AMB is required submit a report to the agency by the end of June detailing the risks its business faces and the mitigation work required.
The bank is also required to appoint a second auditor to conduct assurance on the risk identification and mitigation reports it submits to AUSTRAC.
In a statement published on AMB’s website on Tuesday, chief executive Darlene Mattiske-Wood did not address the specific compliance breaches alleged by AUSTRAC in its December letter.
However, she revealed the bank was implementing sweeping changes to compliance across the organisation.
The overhaul includes a restructuring of AMB’s enterprise risk and compliance functions, formation of a new financial crime and fraud unit, new processes for screening customers and enhanced training for staff, executives and the board.
“The Board and leadership team of Australian Military Bank, consider our regulatory and legal obligations to be our priority along with our member focus,’’ Ms Mattiske-Wood said
“The work we are doing to strengthen our foundations around reporting and compliance monitoring are a critical demonstration of our commitment to the standards expected.
“While there has been no direct impact on our members, the systems we are required to have in place and report on are designed to ensure that this remains the case.”
Sources in the customer-owned banking sector said they believed other mutual banks were currently the subject of intense monitoring by AUSTRAC, signalling the possibility of further enforcement action in the industry.
A 2019 AUSTRAC study of the mutual banks assessed the overall exposure of the sector to money laundering and terrorism financing as “medium” but on the cusp of “high”.
The agency also noted that the sector’s increasing reliance on outsourcing and off-the- shelf transaction monitoring tools could be heightening vulnerability to financial crime.