Banks gagged from sharing information on money laundering, law firm says

Australian Financial Review Sep 18 2017 7:48 PM

Andrew Tillett

Banks and other financial institutions will be blocked from informing their offshore parents and subsidiaries about suspicious customers referred to regulator AUSTRAC under plans to strengthen anti-money laundering laws, top law firm King & Wood Mallesons warns.

KWM has told a Senate inquiry proposed amendments to Anti-Money Laundering and Counter Terrorism Financing Act continue to stop multinationals from sharing information within their own corporate structure, potentially exposing an institution to reputational risk.

"In our experience, reporting entities that are part of a multinational corporate group have found that the AML/CTF Act prevents them from escalating potential AML/CTF issues to senior management and legal and compliance personnel," the submission to the inquiry said.

"These personnel often form part of a global financial crimes team located offshore and have the expertise necessary to identify money laundering and terrorism financing risks."

The amendments have been in the pipeline for some time but gained impetus after AUSTRAC accused the Commonwealth Bank of Australia of failing to report more than 53,000 transactions as required under anti-money laundering laws, allowing its cash machines to be used as a safe haven for criminals and potentially terrorists.

The changes are primarily aimed at beefing up AUSTRAC's investigation and enforcement powers, bringing digital currency under AUSTRAC's remit and increasing the power of Police and Border Force to seize suspicious cash at the border.

It also seeks to loosen some of the restrictions around information sharing for financial institutions but KWM says this does not go far enough.

Under the current law, once a financial institution, or 'reporting entity', has reported a suspicious matter to AUSTRAC, it cannot tell anyone else that it has done so.

The law is mainly aimed at stopping institutions tipping off the suspicious customer but also has the side effect of preventing information being passed onto other companies in the same corporate family.

As part of its amendments, the government has tried to relax the rules by allowing an institution to share information with other companies with a "designated business group". The catch, according to KWM, is to qualify for the group each company must provide a designated service geographically within Australia.

"This means that a company offshore which provides no designated services and does not have the requisite geographical link to Australia is not a reporting entity and cannot form a designated business group with a reporting entity in Australia," the submission said.

The practical impact is that foreign-owned banks operating locally like HSBC, Citibank or Goldman Sachs would not be able to tell their overseas parents about a suspicious customer, even when that client holds accounts in different countries with the same bank brand.

Similarly, ANZ would not be able to pass on its concerns with a customer to its overseas subsidiaries in Asia.

KWM is urging the government re-write the bill to treat all companies that fall within a corporate group as a single entity.

The Australian Bankers' Association has also flagged concerns with the changes, telling the inquiry the government's requirement to monitor for "serious crimes" is too broad and should be restricted to "serious financial crimes".

"The bill, as it stands will generate new and substantial regulatory costs for all of AUSTRAC's reporting entities, not just banks, regardless of size," its submission said.

Senators will hold a public hearing on Wednesday on the bill.