Austrac’s enforcement action against National Australia Bank for shortcomings in its anti-money laundering and counter-terrorism financing program comes as no surprise, after the regulator released a report last September that rated the AML/CTF risks for major banks and other domestic banks “high”.
After a compliance review of several NAB entities in 2021, including JB Were, Wealthhub Securities and Medfin Australia, Austrac raised concerns about the group’s compliance with obligations for customer identification, ongoing customer due diligence and the adoption of an AML/CTF program that meets legislative requirements.
Under an enforceable undertaking given by the bank, NAB will have to obtain quarterly reports from an external auditor on the progress of its anti-money laundering remediation program until the work is completed in 2025, according to the terms of an enforceable undertaking it has given Austrac.
Austrac said in a statement that it did not believe a civil penalty was appropriate and it noted NAB’s “commitment to uplifting AML/CTF controls” and its co-operation.
In its report last September, 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.
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 are “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 that has been evident in recent years needs to be accompanied by changes to organisational culture and governance practices. It said some institutions had legacy systems that are vulnerable.
It 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.