Tag: AUSTRAC

Commonwealth Bank lodges response to amended AUSTRAC and class action claims

Commonwealth Bank of Australia (CBA) has today lodged with the Federal Court of Australia its response to the amended statement of claim filed by AUSTRAC on 14 December 2017 and its defence to the shareholder class action commenced by Zonia Holdings Pty Ltd on 9 October 2017.

In our amended defence in the AUSTRAC matter, we deny the majority of the 100 additional allegations.

In our defence of the class action matter, we categorically deny all allegations of liability.

We consider that we have complied with our continuous disclosure obligations at all times. There was no price sensitive information about the matters raised in the AUSTRAC proceeding that required disclosure.

AUSTRAC proceeding

 We understand that we play a key role in law enforcement and we take our anti-money laundering and counter-terrorism financing (AML / CTF) obligations extremely seriously.

During the period covered by AUSTRAC’s claim and to the end of 2017, we submitted more than 19 million reports to AUSTRAC, including over 4 million last year alone. During the same period we submitted more than 40,000 suspicious matter reports (SMRs). We also fulfilled more than 20,000 requests for assistance from law enforcement agencies last year.

We have invested more than $400 million in financial compliance systems to counter financial crime over the past eight years and employ hundreds of personnel dedicated to detecting and disrupting financial crime.

Of the 100 additional allegations in AUSTRAC’s amended statement of claim, CBA denies 89 allegations in full and admits 11 allegations in part.

Taking into account the allegations in the original claim as well as the amended claim, our response to AUSTRAC’s claim is summarised below.

Late Threshold Transaction Reports (TTR)

We agree that we were late in filing 53,506 TTRs but we will submit that, for the purposes of penalty, these should be treated as a single course of conduct.

AML / CTF Program

We agree that we did not adequately adhere to risk assessment requirements for Intelligent Deposit Machines (IDMs) – but do not accept that this amounted to 14 separate contraventions.

We agree that our transaction monitoring did not operate as intended in respect of a number of accounts between October 2012 and October 2015.

Suspicious matter reports

 AUSTRAC alleges 230 contraventions concerning suspicious matter reporting (SMR) obligations. We admit we made errors in 98 instances in connection with our SMR obligations, although we say that there were less than 98 separate contraventions.  We admit that:

  • 53 SMRs were filed late;
  • a further 45 SMRs should have been filed (above and beyond the 264 SMRs we actually filed in relation to the syndicates and individuals identified in the claim).

We deny 132 of the allegations concerning SMRs.

Ongoing customer due diligence requirements

We admit 56 (in whole or in part) but deny a further 53 allegations concerning ongoing customer due diligence requirements.

Further detail can be found in CBA’s Amended Concise Statement in Response.

Class action

In its defence to the class action, CBA categorically denies all allegations of liability made against it.

The class action alleges matters including that, between 1 July 2015 and 3 August 2017, CBA failed to disclose to the market material information in relation to aspects of its AML/CTF controls that are the subject of the AUSTRAC proceeding. The allegations include that CBA failed to disclose that it was potentially exposed to an enforcement action by AUSTRAC.

CBA rejects the assertion that it had any price sensitive information in respect of its AML/CTF controls environment or the risk of the AUSTRAC proceeding, and maintains that it at all times complied with its continuous disclosure obligations.

CBA has historically had a good relationship with AUSTRAC, with which it collaborates extensively including through the Fintel Alliance and the AUSTRAC private/public sector partnership. AUSTRAC has acknowledged CBA’s contribution in this field, including by inviting the executive in charge of CBA’s financial crime prevention team as the Australian financial services delegate to participate at the Joint Experts Meeting of the inter-governmental Financial Action Task Force in Moscow in April 2017.

CBA first became aware of AUSTRAC’s proceeding on the day it filed its statement of claim with the Federal Court on 3 August 2017.

CBA says that at no time prior to 3 August 2017 did AUSTRAC tell us:

  • that it had decided to take any action against CBA; or
  • about the number or nature of the contraventions it would be alleging against CBA.

CBA takes its continuous disclosure obligations seriously and will continue to vigorously defend the claim.

Cryptocurrencies Face Tighter AUSTRAC Rules

AUSTRAC has opened a draft consultation paper that lays out new anti-money laundering and counter-terrorism financing (AML/CTF) regulations, including new rules for digital currency providers.   The draft Rules propose adding a new Chapter 76 (Digital Currency Register to the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act.

This via Investor Daily. Currently, the AML/CTF laws apply to authorised deposit-taking institutions (ADIs), banks, building societies, credit unions and other persons or entities specified by AUSTRAC, but the new amendments will seek to extend them to digital currency providers.

Law firm Dentons, which rebranded from Gadens Sydney in December 2016, has outlined the ways in which the AML/CTF laws might apply to digital currency providers.

“Digital currency providers will soon be required to adhere to the AML/CTF standards required for remittance sector providers,” said Dentons.

Providers would be required to adopt and maintain an AML/CTF program, conduct “thorough” identification and due diligence of customers, report on suspicious matters and threshold transactions, and retain the required records according to the AML/CTF regime, according to the note.

“The draft rules mirror the rules as they currently apply to the remittance sector,” it said.

“Providers will be required to register with AUSTRAC under a regime similar to the current registers for the remittance industry.”

Furthermore, when reporting on suspicious transactions, providers will have to provide additional information where the transfer would involve digital currency.

This would include the code of the digital currency as well as the number of digital currency units, the equivalent amount in Australian dollars, a description of the digital currency including details of the backing asset or thing, the IP address of the beneficiary and/or payee, the social media identifiers of the beneficiary and/or payee, the unique identifiers of the beneficiary/payee’s digital currency wallet(s), and the unique device identifiers of the beneficiary and/or payee.

“If you are a digital currency provider, it is time for you to start thinking about how you will manage your new obligations under the AML/CTF regime,” the note said.

“This most importantly includes drafting and maintaining an AML/CTF program and KYC [Know Your Client] policy, in addition to systems and procedures which will identity any AML and CTF risks in your business.”

The consultation period will close 13 February 2018, and the draft rules are expected to come into effect in April 2018.

CBA admissions will make class action easier but shareholders still have a lot to prove

From The Conversation.

The Commonwealth Bank of Australia recently admitted it breached Australia’s anti-money laundering and counter-terrorism financing laws. The admissions in its response to allegations from the Australian Transaction Reports and Analysis Centre (AUSTRAC) will make it easier for shareholders to prove their claims of misleading and deceptive conduct in a class action launched against the bank in October.

CBA’s willingness to admit what it has done also signals a possibility the bank might resolve the class action through a settlement. In the meantime shareholders still need to prove their claims, even if some are on stronger footing thanks to the CBA.

AUSTRAC’s first lot of allegations noted CBA failed to comply with its obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 with respect to more than 778,000 accounts. The bank is obliged to assess the risk of, monitor and report suspicious deposit activity that was being conducted through intelligent deposit machines (IDMs). These machines are ATMs that accept cash deposits that are immediately available in the depositor’s account.

AUSTRAC then amended its complaint on December 14, 2017, to add a further 100 alleged contraventions.

CBA’s response to the original allegations admits that it did fail to comply with the Act in certain respects and accepts that these contraventions do subject it to a civil penalty. But the bank denies other alleged contraventions.

Law firm Maurice Blackburn filed a class action on behalf of shareholders with CBA shares between July 1, 2015 and August 3, 2017. The shareholders allege that CBA – and over a dozen of its officers and directors – knew or should have known about the non-compliance. They argue this failure to disclose or rectify the situation caused loss once the share price fell after AUSTRAC made CBA’s non-compliance public.

None of this is proved solely by the fact that CBA admitted committing some breaches of the Act. The additional claims brought by AUSTRAC this week do not alter the existing shareholder claims, but they may see the scope of the class action increased.

What CBA admits and what shareholders need to prove

CBA’s admissions may impact the efficiency and conduct of the class action, but they are unlikely to affect what shareholders need to prove. CBA’s response admits much of the conduct that contravenes the Act, but that’s not the same as an admission of liability in relation to the quite different legal claims made by the shareholders.

CBA admits that it did not conduct a proper risk assessment of its IDMs until more than three years after the machines had been put into operation. The bank also admits that it did not conduct adequate monitoring of IDM deposits, for example by introducing daily deposit limits. This is despite having assessed the risk of IDMs being used for money laundering or terrorism financing as high.

CBA further admits that in over 53,500 separate instances, it did not file reports whenever a deposit of more than A$10,000 was made, as required by the Act. It also failed to file either complete or timely reports of suspicious account activity in nearly 100 instances.

But the shareholders’ claims are based on something different: CBA’s non-compliance with securities disclosure rules and on misleading and deceptive conduct by CBA.

In order to win in the class action, the shareholders will have to prove the elements of the claims they allege, including that the lack of AUSTRAC compliance was the cause of the drop in CBA share price and that the plaintiffs suffered loss as a result of that drop.

The test for the link between non-disclosure and loss, and the way to calculate the amount of that loss, has not been determined in the class action cases so far. However, courts have heard similar shareholder arguments to those raised by the CBA shareholders in other cases, so the issues raised aren’t new.

For example, in the case surrounding the liquidation of HIH Insurance Limited, Justice Brereton of the Supreme Court of New South Wales held that shareholders rely on the share price as an accurate reflection of share value. Accordingly, when corporate misconduct inflates the share price, the corporation indirectly causes shareholders to suffer loss.

A key issue the CBA class action will be whether CBA’s non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act, and the subsequent AUSTRAC civil penalty proceedings, impacted the share price and to what extent.

Authors: Michael Legg, Professor of Law, UNSW; James D Metzger, Scholarly Teaching Fellow in Civil Procedure, University of Sydney

Commonwealth Bank receives an amended statement of claim from AUSTRAC

Commonwealth Bank (CBA) says it has today been served with an amended statement of claim from AUSTRAC, alleging further contraventions of Australia’s anti-money laundering and counter-terrorism financing legislation. The new allegations, among other things, increase the total number of alleged contraventions from approximately 53,700 to approximately 53,800.

In our ASX Announcement of 13 December 2017 we noted that AUSTRAC had indicated that it proposed to file an amended claim and we are updating the market as this has now occurred.

CBA will review the amended statement of claim and update the market as appropriate. We will file an amended defence in due course.

CBA re-states its position that we take our anti-money laundering and counter-terrorism financing (AML/CTF) obligations extremely seriously, and deeply regret any failure on our part to comply with these obligations.

CBA commenced a Program of Action in 2015 to significantly upgrade and expand its operations to ensure compliance with the AML/CTF Act. During 2017 we have stepped up the rigour and intensity of the program and extended it across all aspects of financial crime obligations and all business units to further strengthen regulatory compliance.

Through its Program of Action, CBA has made significant progress in strengthening its policies, systems and processes relating to its obligations under the AML/CTF Act, and recognises that having increased the scope of work and resources being deployed we may come across additional matters. As CBA continues to strengthen our financial crimes compliance we will continue to work closely with regulators across those jurisdictions in which it operates to fight financial crime.

Commonwealth Bank files response to AUSTRAC claims

Commonwealth Bank (CBA) today filed a response to the civil proceedings commenced by AUSTRAC on 3 August 2017.

CBA contests a number of allegations but admit others, including the allegations relating to the late submission of 53,506 threshold transaction reports (TTRs), which were all caused by the same single systems-related error.

The Defence focuses on key factual and legal matters in the claim. CBA confirms that in our Defence we:

  • agree that we were late in filing 53,506 TTRs, which all resulted from the same systems-related error, representing 2.3% of TTRs reported by CBA to AUSTRAC between 2012 and 2015;
  • agree that we did not adequately adhere to risk assessment requirements for Intelligent Deposit Machines (IDMs) – but do not accept that this amounted to eight separate contraventions – and agree we did not adhere to all our transaction monitoring requirements in relation to certain affected accounts;
  • admit 91 (in whole or in part) but deny a further 83 of the allegations concerning suspicious matter reports (SMRs);
  • admit 52 (in whole or in part) but deny a further 19 allegations concerning ongoing customer due diligence requirements.

Further detail can be found in CBA’s Concise Statement in Response.

We continue to fully cooperate with AUSTRAC in relation to our obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) and respect its role as a regulator.  The nature of the regime involves continuous liaison and collaboration with the regulator as risks are identified.  As such we are in an ongoing process of sharing information with the regulator.

AUSTRAC has indicated that it proposes to file an amended statement of claim containing additional alleged contraventions.  If an amended claim is served on us, we expect the court would set a timetable for CBA to file an amended defence. We will provide market updates as appropriate.

We take our anti-money laundering and counter-terrorism financing (AML/CTF) obligations extremely seriously. We deeply regret any failure to comply with these obligations. CBA is accountable for those deficiencies.

We understand that as a bank we play a key role in law enforcement. AUSTRAC’s former CEO has publicly acknowledged our contribution in this regard. We have invested heavily in seeking to fulfil the crucial role we play. CBA has spent more than $400 million on AML/CTF compliance over the past eight years. We will continue to invest heavily in our systems relating to financial crimes thereby supporting law enforcement in detecting and disrupting financial crime.

During the period of the claim, CBA submitted more than 36,000 SMRs, including 140 in relation to the syndicates and individuals referred to in AUSTRAC’s claim.

In the same period we submitted more than 17 million reports in aggregate, including SMRs, TTRs and in respect of international funds transfer instructions. CBA will submit over 4 million reports to AUSTRAC in this year alone.

CBA also responds to large numbers of law enforcement requests for assistance each year, including approximately 20,000 requests this year. Some of the information provided directly resulted in disrupting money laundering and terrorism financing activity and prosecuting individuals.

Any penalty imposed by the Court as a result of the mistakes we have made will be determined in accordance with established penalty principles. For example, the Court may consider whether any contraventions arise out of the same course of conduct and will assess the appropriate penalty for that conduct accordingly, as it recently did in the Tabcorp decision.

CBA’s submissions at trial will also highlight steps that we have taken since 2015 as part of our Program of Action to strengthen and improve our financial crimes compliance.

 

Program of Action

CBA has made significant progress in strengthening our policies, processes and systems relating to its obligations under the AML/CTF Act through our Program of Action.  While this is a continuing process of improvement, progress achieved since the issues concerning TTRs associated with IDMs were first identified and rectified in late 2015, includes:

  • Boosting AML/CTF capability and reporting by hiring additional financial crime operations, compliance and risk professionals. As at 30 June 2017, before the claim was filed, CBA employed over 260 professionals dedicated to financial crimes operations, compliance and risk.
  • Strengthening our Know Your Customer processes with the establishment in 2016 of a specialist hub providing consistent and high-quality on-boarding of customers, at a cost of more than $85 million.
  • Launching an upgraded financial crime technology platform used to monitor accounts and transactions for suspicious activity.
  • Adding new controls such as using enhanced digital electronic customer verification processes to supplement face-to-face identification to reduce the risk of document fraud.

The Program of Action has also addressed issues that AUSTRAC alleges were ongoing contraventions in its claim. For example, CBA recently introduced daily limits for IDMs deposits for CBA cards associated with a personal account. We understand CBA is the first major Australian bank to implement a control of this type.

CBA is committed to continuing to strengthen our financial crimes compliance and to working closely with regulators across all jurisdictions in which we operate to fight financial crime.

Commonwealth Bank confirms orders from AUSTRAC directions hearing

CBA says the civil penalty proceedings initiated by AUSTRAC on 3 August 2017 against the Commonwealth Bank were listed for a directions hearing in the Federal Court today.

The court ordered, with the consent of the parties, for Commonwealth Bank to file its defence to the proceedings by 15 December 2017 and for AUSTRAC to file a response by 16 March 2018.

The matter has been listed for a further directions hearing on 2 April 2018.

CBA’s response to AUSTRAC’s civil proceedings, as well as the ongoing program of action to strengthen the Group’s anti-money laundering frameworks, will continue to be overseen by a Committee of the Board of the Bank.