We have completed 2 separate supervisory campaigns targeting different parts of the foreign-owned banking sector. These campaigns showed that weaknesses in controls and reporting are creating opportunities for criminals to exploit Australia’s financial system.
The campaigns examined low suspicious matter reporting (SMR) in foreign bank branches as well as money mule risks in foreign bank subsidiaries. This reflects the very different business models and risk profiles across the sector.
Campaign 1 - Low SMR reporting by foreign bank branches in Australia
AUSTRAC CEO Brendan Thomas said the foreign bank branches campaign found an entrenched view among many branches that their businesses are low risk for money laundering.
“Although some parts of these businesses may constitute lower levels of risk, many of them have exposure to higher risks areas as well,” Mr Thomas said.
This includes providing services to foreign politically exposed persons (PEPs) and relatives and associates of foreign PEPs, domestic and foreign private companies, trusts and foundations, as well as high net wealth individuals.
“Low reporting doesn’t mean low risk – it means blind spots criminals can exploit.
“If you’re moving money globally, you’re exposed to global crime risk.”
Our supervision campaign surfaced a range of concerning risk management practices.
In several of the banks, the anti-money laundering (AML) systems and processes were not effective enough to detect high risk behaviours and unusual or suspicious customer transactions.
Mr Thomas said these weaknesses could allow criminals to launder the proceeds of crime across borders without detection.
“The 50 foreign branches operating in Australia move significant funds around the world – last year, reporting to AUSTRAC showed they moved $2.5 trillion in and out of Australia.”
“Moving trillions of dollars but barely reporting suspicion is a concern for us.
“AUSTRAC is concerned about the extremely small number of banks reporting suspicious matters and expects to see an increase in both the number of banks reporting, as well as the overall number of SMRs from this sector.
“I strongly urge foreign banks with Australian branches to take on this feedback, including the detailed information provided in the letter, as they transition to the new AML requirements that went live on 31 March.”
Campaign 2 – Money mule risks in foreign bank subsidiaries in Australia
The foreign bank subsidiaries campaign identified a very high degree of exposure to money mules among the six foreign subsidiary banks operating in Australia.
Foreign bank subsidiaries offer retail banking services like many of Australia’s domestic banks. They are separate incorporated entities registered in Australia and provide banking services to millions of Australians.
We conducted a supervision campaign last year on the money mule risks in these banks.
Money mule accounts are used by global money laundering organisations to evade detection by using the bank accounts of unrelated persons to move funds for them. They are a persistent method of money laundering in Australia and globally. They are used extensively to launder criminal funds and to move the proceeds of crime.
Mule accounts are used for laundering a wide range of proceeds of crime, including illicit funds generated from fraud and scams, drugs and other crimes.
Mr Thomas said in this campaign we focused on how well the six banks understand the issues and what they are doing to address them.
“AUSTRAC sent these banks a detailed letter outlining best practice to combat money mule risks.”
“Each of these banks has room to improve, even those that already have strong controls in place.
“We’re seeing significant risks at the client onboarding stage as well as post-onboarding where customers are transacting on their accounts.
“We’re also seeing risks associated with cross border transactions through money mule accounts. This includes the risks of undetected scambling accounts, where people are tricked into depositing money for fake online gambling sites via payID or bank transfers.
“Victims of scambling will almost never see their winnings as their money has been quickly transferred from the account and offshored.
“I encourage all of these banks to carefully review this information and tighten their AML controls to detect and prevent money mule activity in their organisations, and to report suspicious activity to AUSTRAC.
“Your actions are critical to safeguarding Australia from financial crime and keeping your customers safe.”
Visit our website to read more about your obligations as a foreign owned bank.