ASIC investigating money laundering claims

Earlier this month, it was revealed that Australia’s financial intelligence and regulatory agency (AUSTRAC) had initiated civil penalty proceedings in the Federal Court against the Commonwealth Bank of Australia (CBA) for “serious and systemic non-compliance” with anti-money laundering and counter-terrorism laws.

AUSTRAC's civil case alleged that there were 53,000 contraventions of the AML/CTF legislation involving CBA’s intelligent deposit machines (IDMs) that allowed criminal syndicates to launder money overseas.

While the bank has stated that it "promptly fixed" the coding error relating to the threshold transaction reporting (TTR) by the IDMs when it became aware of it in 2015, it has acknowledged that “in an organisation as large as Commonwealth Bank, mistakes can be made”.

Following on from the allegations brought to the court, the Australian Securities & Investments Commission (ASIC) has said that it is now looking into the matter.

Speaking at the Parliamentary Joint Committee into corporations and financial services, ASIC chairman Greg Medcraft said: “ASIC has commenced inquiries into this matter and any consequences this matter has for the laws we administer.”

Specifically, Mr Medcraft said that ASIC will be looking at:

• whether officers and directors complied with their duties under the Corporations Act;
• whether CBA complied with its continuous disclosure obligations;
• whether they complied with their licensing obligations, including their obligations to act efficiently, honestly and fairly; and
• whether they have complied with their financial reporting obligations, including reporting contingent liabilities.

However, he noted that the Corporations Act does not require licensees to report to ASIC breaches of financial services laws in the AML/CTF laws.

Cultural failure is ‘enormously critical’

Moving on from CBA specifically, the ASIC chairman went on to tell the committee that the culture of a financial services firm was important.

He said: “Our view is that culture is a set of shared values and assumptions within an organisation. It reflects the underlying ‘mindset of an organisation’, the ‘unwritten rules’ for how things really work.

“It works silently in the background to direct how an organisation and its staff think, make decisions and actually behave. And, in this time of rapid technological changes, culture — or cultural failure — is enormously critical.

“If organisations are not behaving in the right way, the crowd will let them know (if not the headlines), often with damaging effects on their brand and reputation.”

He added that creating a sustainable business today was therefore not just about the quality of the product or service, but also the “quality of a firm’s conduct, both internally and externally”.

“If the culture and values of a business are not aligned with customer outcomes, it is easy to see how a trust deficit will emerge, and this will impact its long-term sustainability,” Mr Medcraft said.

‘A culture of seeking to delay and frustrate our surveillance’

The ASIC chairman revealed that the regulator is given a first-hand insight into a financial organisation's culture during their surveillance, investigations and enforcement, and that it isn’t always co-operative.

He said: “I'm afraid that we routinely encounter a culture of seeking to delay and frustrate our surveillance, investigation and enforcement work.”

Noting that the “tone from the top” if often positive when dealing with financial companies, he said that the goodwill “often seems to not translate to executives and other staff at the coalface”.

He concluded: “We do want to see open and timely cooperation when we are investigating and taking enforcement action.

“This all comes down to trust; trust is a critical strategic asset of a business. I think it is critical for businesses to reflect on how they build and maintain this trust.”