Austrac has released money laundering and terrorism financing risk assessments for the Australian banking sector, rating the risk ‘high’ for major banks and other domestic banks.
Austrac acknowledged that the major banks have made significant investments in their ML/TF risk management but said they have had mixed success in applying mitigation strategies, and there have been “significant and systemic deficiencies” detected in the sector in recent years.
Austrac also rated the risk facing other domestic banks as ‘high’, saying some smaller banks have less sophisticated and less resourced AML/CTF programs.
It assigned a ‘medium’ risk to foreign subsidiary banks and foreign bank branches, saying there were sometimes problems when the AML/CTF programs for local operations were developed offshore by head office without sufficient understanding of local issues.
Austrac’s assessment was based on 8000 suspicious matter reports, 700 Austrac and partner agency intelligence reports and an extensive data matching exercise.
The report said that because of their size and the scope of their operations, the major banks are more exposed to money laundering and terrorism financing threats than other sectors of the financial services industry.
It highlights a high level of misuse of the major banks’ cash deposit facilities and the use of complex company structures and associated banking arrangements to obscure the sources and beneficial ownership of funds.
Money laundering based on the purchase of high value real estate is also an area where the major banks are particularly exposed.
Major banks were identified in two-thirds of all money laundering intelligence reports and three-quarters of all terrorism financing related suspicious matter reports reviewed for the assessment.
Austrac said the methods employed by the major banks to counter terrorism financing were “largely unsophisticated and unvaried”.
It said it found instances where transaction monitoring and customer due diligence processes were poorly designed and executed.
It recommended that the additional resourcing evident in recent years be accompanied by changes to organisational culture and governance practices. It said some institutions had legacy systems that are vulnerable.
Austrac said the general shift from face-to-face banking to online banking and ATMs increased risks because “these channels can offer anonymity, facilitate identity fraud and complicate detection of unusual or suspicious transactions”.
And it warned that open banking could make matters worse, saying the disaggregation of customer accounts across a number of service providers could make it harder for any institution to have visibility of funds flows and more difficult to identify suspicious or unusual activity.