AUSTRAC recently initiated legal proceedings against Commonwealth Bank of Australia on CBA’s alleged systematic breaches of its AML obligations. The incident has attracted a lot of media attention. Articles have merged in the past a few days blaming all the big banks for being involved in money laundering activities. Before we stamp all banks as the bad guys, I’d like to shed some light on the banks and their AML obligations.
Banks or Law Enforcement
Banks are commercial organisations with extensive AML obligations and should do the right thing as responsible corporate citizens in our community, but they are not law enforcement agencies. Their primary goal is to, within the legal and regulatory framework, maximise returns on investment for their shareholders and other investors. It is not their purpose of existence to stop money laundering activities if it is even possible.
Given the nature of banking services and the sheer volume of transactions, I dare say that all banks have probably had their services abused for money laundering purposes at some point. The fact that this has most likely occurred is not the point. The question that should be asked is whether the bank in question has complied with its AML laws in substance.
The keywords here are ‘in substance’. It is the banks’ job to reasonably know who they are dealing with before they provide any services to a customer (KYC), and it is the banks’ job to have adequate systems and procedures in place to monitor customer transactions on an ongoing basis. Apart from threshold transactions reports (TTR, the famous $10k threshold) and a few other reporting obligations, banks are obligated to investigate into any anomalies highlighted by these above-mentioned AML processes and file reports with AUSTRAC, if they could form a suspicion on reasonable ground on matters within the scope of s 41 of the AML/CTF Act. If a bank finds itself repeatedly reporting the same customer to AUSTRAC, it needs to consider exiting the customer, although it may be worthwhile to contact AUSTRAC to ensure doing so will not alert the person of any potential ongoing investigations that may be carried out by other law enforcement agencies.
In short, it is the circumstances in which a bank’s services are abused for money laundering purposes that should be examined to see whether any systematic breaches have occurred. The fact that the abuse has happened, by itself, does not make a bank the bad guy. Banks are not cops.
S 123 Offence of Tipping Off
Section 123 of the AML/CTF Act prohibits releasing of information under certain circumstances and the net it casts is wide. It is possible that the front line staff of a bank might not be aware that reports have been filed about a particular customer. This has practical implications as the staff who are in direct contact with customers are arguably in the best position to spot red flags. S 123 may have the undesired impact of preventing the sharing of information between financial institutions and between financial institutions and law enforcement agencies.
The bottom line is that banks need to take their AML matters very seriously, comply with the substance of the law rather than just ticking off boxes. This is not only because systematic breaches to AML obligations may have serious legal consequences, but also it is their responsibility to do the right thing in our community. At the same time, we need to appreciate that banks do not equal law enforcement and it is not the No 1 thing on their list to stop crimes and catch criminals.
Note: This article has been provided for general information purposes only, and cannot be taken as advice of any kind. Please feel free to contact Xiaoshu Liu at email@example.com if you have any feedback, questions or need any assistance. Many thanks again for your support.