The bank did not issue the statement to take the moral high ground while Westpac was being pummelled. It was done in response to a flood of questions from investors meeting chairman David Gonski as he did the rounds before ANZ’s annual meeting on December 17.
The market was looking for reassurance that ANZ was not going to be hit with an AUSTRAC lawsuit. The concern is understandable considering Commonwealth Bank paid a $700 million fine for breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act.
Westpac is expected to be hit with a fine of more than $1 billion and National Australia Bank is working with AUSTRAC to fix a range of issues first disclosed in 2017.
NAB chairman Phil Chronican told a parliamentary committee this month the bank was working to remediate its control and compliance failures in relation to anti-money laundering.
Learning from past mistakes
But he could not provide guidance on the size of a possible AUSTRAC fine. Chronican said NAB had no ‘‘basis of knowing whether enforcement action is going to come and no basis of knowing, if enforcement action came, what penalty might be applied’’.
The fact that three of the big four banks have failed in their management of risks related to money laundering and the financing of terrorism raises the obvious question: how has ANZ dodged an AUSTRAC bullet so far?
First, it seems to have learnt from its mistakes. In August 2009, ANZ reached a settlement with the US Department of the Treasury’s Office of Foreign Assets Control concerning 31 trade finance transactions conducted between 2004 and 2006 involving parties in Sudan and Cuba – countries subject to US economic sanctions.
ANZ paid a fine of $7 million to settle alleged violations of US economic sanctions and it made a commitment to continue ‘‘the enhanced program of economic sanction oversight and compliance commenced in 2006’’. ANZ said no breaches of Australian law or Australian or United Nations economic sanctions were involved.
A second reason ANZ has not been caught up in AUSTRAC’s crackdown is because of the attitude of senior executives. Former ANZ chief executive Mike Smith and former chief risk officer Nigel Williams were paranoid about financial crime.
Williams, who left ANZ in 2018 and is now chief risk officer at CBA, runs one of the largest financial crime teams in Australian banking. CBA has about 1500 people involved in the fight against criminals trying to use its systems.
Engaging with AUSTRAC
During conversations with investors over the past week, Gonski has retold the story several times of how Williams advised him, soon after he took over as chairman in 2014, to proactively engage with AUSTRAC’s senior management in Canberra.
At a time when other banks were allegedly not taking their AUSTRAC reporting obligations seriously, Gonski was using his legendary persuasive powers to strengthen ANZ’s relationship with a regulator not well known or widely respected.
More importantly, the chairman ensured the bank’s financial crime program was well funded. Lack of investment in systems or poor implementation were behind the AML/CTF problems at CBA and Westpac.
A third reason ANZ was not exposed to the reputational, operational, compliance and concentration risks associated with anti-money laundering failures at the other banks was its experience in managing money transfers in 34 countries.
As Australia’s largest bank operating in Asia and with 30 per cent of its revenue coming from international operations, ANZ has had to operate money transfer systems in places high on the list of being at risk of illicit activity and money laundering.
Chanticleer understands that several years ago, ANZ was on the brink of shutting down its operations in one Asian country because of its suspicions about the activities of certain customers. The customers were forced out and the operation continued as normal.
ANZ is not perfect. It was caught up in the 1MDB fraud in Malaysia through its 20 per cent shareholding in AmBank. In 2015, AmBank was fined $US16 million by the Malaysian central bank for non-compliance with anti-money laundering reporting.
But it should be remembered this fine was imposed by the government of prime minister Najib Razak, who is accused of benefiting from the 1MDB fraud.
The book, Billion Dollar Whale, by Wall Street Journal reporters Bradley Hope and Tom Wright, says the transfer of $US681 million into Najib’s private account at AmBank in March 2013 was kept hidden from ANZ’s senior management and the AmBank board, which included ANZ’s chief executive Shayne Elliott.
One expert in financial crime told Chanticleer ANZ should never have issued the statement this week declaring it had a clean bill of health on AML/CTF.
“You are one system upgrade away from having a serious problem,” the expert said.
Chanticleer understands the bank is conscious of the need to remain vigilant and not to be seen taking advantage of Westpac’s problems.
Remaining in the headlines
Australia can expect anti-money laundering to remain in the headlines and draw in organisations other than the big four banks.
During a hearing in October of the Legal and Constitutional Affairs Legislation Committee, AUSTRAC chief executive Nicole Rose said she was looking at increasing the tempo of its enforcement actions.
“I can’t tell you what specific areas they are, but they will be a couple of areas that aren’t necessarily just focused on the big banks,” she said.
“As I say, we have over 15,000 regulated entities. That will be on-going in the next six to 12 months.”
Rose went out of her way to praise the CBA and its response to AUSTRAC’s legal action in 2017. “Their response has been fantastic,” she said.
“I am very impressed with the approach they have taken. They’ve had a number of ways that they have focused simply on financial crime, money laundering and terrorism.
“They are looking at changing the culture. They are training their staff, from the bottom up, about the importance of this area of compliance. Their engagement with us has increased extensively.”
This is no doubt what will happen at Westpac after its AUSTRAC wake-up call.
“They (CBA) have been very proactive in the Fintel Alliance and engaging us in how to better provide suspicious matter reports and better quality data. So I really can’t fault them on their reaction to that enforcement action, which is great,” Rose said.
She said the boards of the other three banks had been keen to engage with AUSTRAC and “provide us with assurance that they’re taking it very seriously”.
“Of course on this Australia has been a little bit behind the rest of the world,” she said. “Internationally a number of the bigger banks have dealt with money-laundering scandals but we hadn’t here in Australia. I think it’s certainly a message that has resonated now throughout the banking community.”
Thanks to AUSTRAC.