Lenders Beware: Big player hit with infringement
So, you lend money. Are you registered with AUSTRAC and do you comply with Anti-Money Laundering Laws? No, now that’s a costly mistake.
AUSTRAC vs State Street
State Street Corporation is an American bank with operations worldwide, including an Australian arm. It is the second oldest continually operating U.S. bank. For a company of its size and pedigree, one would think it has Anti-Money Laundering compliance ‘ship-shape’.
However, AUSTRAC recently issued an infringement notice on State Street relating to 99 breaches of the Anti-Money Laundering and Counter Terrorism Financing legislation (“AML”) for failing to declare international fund transfer instructions that potentially left it exposed to organised crime, terrorism, slavery, drug trafficking and tax evasion being committed via its facilities.
State Street had done the correct thing and upon becoming aware of the breaches it self-reported to AUSTRAC. AUSTRAC has acknowledged that State Street has cooperated in relation to investigating such breaches and remedial action to prevent breaches going forward.
State Street’s statement conveyed that “there is no suggestion that the transactions in question were suspicious nor that there were deficiencies in State Street’s customer due diligence.”
Pre-2017, AUSTRAC took a largely cooperative approach with reporting entities under the AML and were focused more on assisting reporting entities comply with the legislation and learn from their failings.
However, in recent years there has been an uptick in AUSTRAC actions against reporting entities. We have seen since 2017 some very high-profile players being pursued by AUSTRAC - CBA’s settlement cost it $700 million for its 54,000 breaches and Westpac is still in settlement discussions with AUSTRAC regarding its alleged 23 million AML breaches. It is estimated this will cost Westpac $900 million in fines.
Takeaway
Even the big and well-established players get it wrong, and it is a costly error to make. If you engage in activities that may be designated services under the AML/CTF Act (such as lending money) you must check whether you should register with AUSTRAC and you must make sure you have the systems, policies and procedures in place to be AML compliant. Otherwise, you will be forking out money, not for loans, but fines.