Much has already been written about the civil penalty proceedings launched by the CEO of the Australian Transaction Reports and Analysis Centre (AUSTRAC) against the Commonwealth Bank of Australia (CBA).

I thought I would offer a few brief insights on why AUSTRAC may have decided to pursue CBA. I do not propose to delve into the merits or otherwise of the proceedings.

AUSTRAC’s claim against the Commonwealth Bank

AUSTRAC alleges multiple contraventions by CBA of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act).

The AML/CTF Act regulates (in considerable detail) what banks, financial institutions, money remitters and a range of other regulated industries must do to minimise the risk of their facilities being used by their clients for illegal purposes.

What is AUSTRAC?

Prior to the commencement of this claim many Australians may have never heard of AUSTRAC. AUSTRAC is a very small federal government agency. A key function is to receive information from banks via a range of reports, analyse the information and provide intelligence reports to law enforcement agencies (such as the Australian Federal Police).

AML/CTF reporting

So for example a drug dealer might open accounts with a few banks. He is unlikely to put ‘drug dealer’ down as his occupation on the account opening forms. But the banks may come to suspect that the nature of his transactions is unusual or ‘suspicious’. In that scenario the bank should lodge a report with AUSTRAC (under s 41 of the AML/CTF Act). That secret report will contain a narrative of what the bank found suspicious. AUSTRAC may receive multiple reports from different banks about the same person. It may then prepare an intelligence report that results in the AFP commencing an investigation. That investigation could result in people being charged with drug dealing, others being charged with Money Laundering and indeed the AFP might also commence civil forfeiture proceedings under the Proceeds of Crime Act 2002 (Cth).

Understandably, AUSTRAC’s ability to do its job well depends upon the banks providing it with quality information in a timely fashion. These proceedings against CBA appear to allege a series of failures by CBA in that regard.

Why have AUSTRAC gone after one of the big 4 banks all of a sudden?

In short I don’t know why AUSTRAC chose to pursue CBA. Decisions about commencing civil penalty proceedings are invariably complex. That said I am not surprised that AUSTRAC has decided to pursue a major financial institution such as CBA. While some might think that AUSTRAC’s decision was unexpected or out of character that is not an assessment I share.

I suspect AUSTRAC’s decision in this case (and many other smaller cases which attracted little publicity) was influenced by a report published in April 2015 by an international independent inter-governmental body, the Financial Action Task Force (FATF).

Financial Action Task Force evaluation of Australia’s AML/CTF regime

The key findings of that last FATF review of Australia referred to:

  • “… an underlying concern remains that the authorities are addressing predicate crime rather than [money laundering].” Predicate crime is a reference to things such as drug dealing, that is crimes that make money ‘dirty’ in the first place.
  • “The amount of financial transaction data in the Australian Transaction Reports and Analysis Centre (AUSTRAC) database, and the fact that that all relevant competent authorities have access to this database and can use its integrated analytical tool, are strengths of Australia’s AML/CTF system. However, the somewhat limited use of AUSTRAC information by law enforcement as a trigger to commence ML/TF investigations presents a weakness in the Australian AML/CTF system”
  • “Australia should expand its focus to ensure that a greater number of cases of [money laundering] are being identified and investigated adequately”.
  • “AUSTRAC has done a good job in promoting compliance with the AML/CTF standards by the vast amount of entities under its supervision. … Australia should focus more on effective supervision and enforcement of individual reporting entities’ compliance with AML/CTF obligations within the various sectors.” (my emphasis)

The FATF report also noted:

[6.15] …. AUSTRAC’s supervisory approach has been modified over time to take into account the stage of development of the Australian AML/CTF regime. Immediately after the implementation of AML/CTF regulation in Australia, AUSTRAC was primarily focused on engaging large proportions of the reporting population to educate them on their obligations and nurturing a compliance attitude following the implementation of the AML/CTF Act. Over time, this has developed into a more detailed assessment of reporting entities’ compliance with the substantive obligations of the AML/CTF Act. … From July 2010 to June 2014, AUSTRAC has since continued to escalate monitoring activities and, through campaigns aimed at different sectors, has issued a further 3 163 remediation requirements for breaches of obligations and 1 605 recommendations to seek best practices from 1 152 on-site inspections and desk reviews

[6.18] … The assessors also consider that AUSTRAC’s recent focus on assessing compliance by remitters means that the number of banks targeted for the assessments is too low relative to that sector’s risk profile….

[6.24] AUSTRAC issues around five enforcement actions each year which is assessed as low compared to the total number of reporting entities and not commensurate with the severity of findings and control deficiencies that it found in the reporting entities through its supervisory processes. …

[6.32 – recommendation 5] AUSTRAC should consider opportunities to further utilise its formal enforcement powers to promote further compliance by reporting entities through judicious use of its enforcing authority.

Within months of that report, a client of mine, who was an independent registered remittance dealer (and a ‘reporting entity’ under the AML/CTF Act), was raided by a task force comprising WA Police, Australian Federal Police and AUSTRAC. It was alleged that my client had been remitting for people connected to a methamphetamine syndicate. A director of my client was criminally charged with money laundering. I am pleased to say that the District Court ruled he had no case to answer. The Judges’ reasons are available here.

Fast forward to 2016 and early 2017 and I was approached by 2 other small reporting entities who were being investigated by AUSTRAC and were at risk of criminal or civil penalty proceedings. One was ultimately not pursued, and although the second was charged criminally, after I made extensive submissions to the Commonwealth DPP those charges were discontinued.

Thus anecdotally, it seems to me that as I suggested in 2015, AUSTRAC has been attempting to ramp up its “enforcement of individual reporting entities’ compliance with AML/CTF obligations”, that being precisely what FATF recommended. AUSTRAC’s pursuit of CommBank may be a further step along that path.

Regardless of the outcome in this case against CBA, financial institutions should appreciate that AUSTRAC is likely to continue with enforcement action.

Useful Links

If time is on your side, you can’t go past reading the originating application, together with the full statement of claim, but be warned the latter runs to hundreds of pages. If you prefer a summary there is also a concise statement of claim, also filed in the proceedings. Each is available for download from the Federal Court’s website.

CBA’s defence is not due until 15 December 2017. If you would like to track the progress of the case, bookmark this eCourt link.

If you are interested in CBAk’s initial response to the claim the following are worthwhile: