CBA sought meeting before new Austrac claims laid

The Australian 12:00am February 26, 2018

Michael Roddan

The Commonwealth Bank asked the anti-money-laundering regulator Austrac to hold quarterly meetings between the two organisations’ chief executives a day before the financial intelligence watchdog filed an expanded suite of allegations against the bank in the Federal Court in December.

According to internal documents obtained by The Australian, CBA also asked Austrac to meet “every second month” to talk about the bank’s regulatory overhaul, known as the “program of action”.

The program, aimed at helping the bank comply with anti-money-laundering legislation, was launched after the bank first discovered it had failed to send the regulator thousands of legally required transaction reports, which originally sparked the landmark legal suit against the company.

When Austrac widened its extensive claims against the nation’s largest lender on December 14, it included the allegation that CBA was considered to still be in breach of anti-money-laundering laws.

The amended statement of claim by Austrac was filed one day after CBA submitted its own defence statement to the court, in which it admitted breaching regulations 53,506 times but said it planned to defend itself against a number of other allegations brought against it.

Last week, CBA said it would continue to defend numerous allegations brought against it. But it admitted it should have brought in a daily transaction limit on its smart ATM network in January 2016 — something it failed to do until November 2017.

The email correspondence, obtained under Freedom of Information laws, reveals CBA asked Austrac on December 13 last year to “set-up recurring meetings” between the two organisation for the next year — a “CEO level relationship meeting once a quarter” and a “Program of Action update ... every second month”. That request followed a meeting with CBA staff and Austrac deputy chief executive Peter Clark and national compliance manager Rachel Challis on December 7.

The next evening, Austrac head of legal strategy Kathryn Haigh responded to CBA noting it was “a sensible suggestion”.

“We will be in touch next week with a proposed series of dates for the meetings concerning the program of action,” Ms Haigh said.

Section 82 of the anti-money-laundering law requires banks to comply with several ongoing risk assessment and review processes, such as considering Austrac guidance and feedback.

In its amended statement of claim, Austrac said contravention of this part of the law was “ongoing”.

Austrac claimed in early August the lender breached anti-money-laundering and counter-terrorism financing laws by failing to monitor properly tens of thousands of transactions through its smart ATM network. The intelligent deposit machines were rolled out in 2012 without proper coding that would automatically send legally required reports for cash transactions of more than $10,000 to the regulator.

In mid-2015, Austrac asked CBA for a number of apparently missing transaction reports, which led the bank to discover it had failed to send the reports to the regulator.

CBA then launched its “program of action” to overhaul its regulatory compliance.

The program is currently continuing.

CBA claims to have invested over $400m on anti-money-laundering and counter-terrorism financing compliance since 2010.

“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,” the Commonwealth Bank said in a statement on Friday.

In its long-awaited defence to Austrac’s money-laundering allegations, the bank admitted to 53,506 breaches of the legislation it said were caused by a single systems-related error in its smart deposit machines, and other breaches, including a failure to adhere to risk assessment requirements.

The Australian was also refused access to two documents — consisting of an email sent from new Austrac chief executive Nicole Rose to CBA and the bank’s subsequent response in mid-December. Ms Rose joined the regulator on November 13 last year.

Austrac’s lawyer Jennifer Ermert blocked access to these emails because they were “crucially significant to the direction and conduct” of the Federal Court suit against CBA.

Last month, The Australian revealed confidential documents where Commonwealth Bank stressed to Austrac it was making a “significant investment” in its compliance systems and reporting breaches “in a timely manner”, just months before it was hit with legal action alleging huge reporting failures. A letter sent by Commonwealth Bank general manager of financial crime operations Matthew Keaney showed the bank had pledged to “continue to make significant investment in our (anti-money-laundering and counter-terrorism financing) systems, people and processes, including to ensure that critical intelligence is detected and reported to Austrac in a timely manner”.

Following the Austrac suit, CBA shares fell 13 per cent in just over a month.

The stock has since partially recovered, but remains well below its pre-Austrac levels.

Law firm Maurice Blackburn has launched a class action against the bank alleging breaches of continuous disclosure over CBA’s compliance with anti-money-laundering legislation.

As part of its defence filed on Friday, the Commonwealth Bank claimed that Austrac did not warn the bank that it was about to launch legal action in relation to alleged non-compliance of anti-money-laundering rules.