Australia: How the banks and AUSTRAC are fighting back against financial crime

Earlier this year in the National Australia Bank’s Docklands headquarters, a fraud officer noticed a suspicious pattern of transactions made by a 70-year-old woman.

The officer opened the bank account and saw more than 20 transfers to Coinspot, an Australian cryptocurrency exchange.

The customer’s transaction history showed the woman had transferred between $550 and $39,000, amounting to more than $400,000, within a few months.

Notes attached to the account revealed a previous investigation had determined there was nothing to see here and allowed the payments to continue.

Alarmed, the officer called the customer and quickly discovered it was textbook fraud. The woman had never used internet banking before but her account had been hacked after a stranger helped her set up an online account to buy shares over the phone.

It was too late to retrieve the money, so the officer recommended calling the Australian Financial Complaints Authority. The next day, the person was sacked.

That employee was on a temporary contract through recruitment firm Hays, so there was little that could be done to protest the sacking. But after almost two years of a growing workload and shrinking deadlines, the officer was ready to leave.

The Age and Herald have spoken to dozens of former and current workers from the frontlines of the fight against financial crime, working in both the major banks and the Australian Transaction Reports and Analysis Centre (AUSTRAC), about the strengths and weaknesses of the system. None could be named because they were discussing sensitive information and were not authorised to speak publicly.

What’s emerged is an industry confronted with a fierce fight for talent that understands complex anti-money laundering laws at a time when compliance has never been more important and criminals have never been more sophisticated.

Systemic breaches of these laws have cost two of the country’s largest banks – Commonwealth Bank and Westpac – a combined $2 billion in recent years and toppled its top brass.

Now, the regulator has set its sights on the National Australia Bank, which has struggled to fix legacy problems with customer identification for years.

Senior Jefferies banking analyst Brian Johnson says failure to comply with these laws can strip banks of their licence to operate and plugging holes has become among the most costly and important tasks.

“There are gigantic civil penalties coming through,” Johnson says. “But there’s financial stability implications to this as well.”

So what is going on inside these big banks? And what needs to be done to fix the problem once and for all?

‘Pumping out numbers’

CBA was the first major bank to be burnt by AUSTRAC – a nimble and aggressive regulator that feeds intelligence from banks to law enforcement.

By failing to implement a $10,000 cap on cash deposits through its ATMs, CBA allowed millions of dollars to be laundered through its machines by criminals, including those importing drugs and firearms. CBA apologised and was fined $700 million.

The damning revelations came around the same time as the banking royal commission, where misconduct scandals at the country’s major financial institutions regularly made front page news.

CBA poured money into boosting its compliance processes and developed a rigorous training program for new recruits. Staff were fronted by chief executive Matt Comyn, of whom one recalls “told the entire bank to take this stuff seriously”.

Those who have worked across banks say CBA’s technology is by far the most advanced, with most systems working through one centralised, purpose-built platform – CommSee. “You can pretty much do anything you want on that system,” says one former employee.

CBA’s approach to technology has been described as proactive, rather than reactive, and the bank regularly innovates to improve systems and automate processes.

But, as the country’s largest bank, its workload is also the largest. Amid what could be described as a battle for bodies, CBA has turned to labour hire firms to fill permanent roles with temporary contractors across its financial crime operations.

AUSTRAC has strict requirements on how quickly suspicious activity must be flagged by banks. Each day, CBA’s teams meet for a “huddle” where managers would set targets to encourage staff to work quickly. Teams competed against each other, and those who cleared the most alerts were rewarded with gift vouchers or free breakfasts.

While the targets were designed to encourage efficiency, staff say it caused standards to slide. “They were just pumping out numbers,” says one former analyst. “If you are rushing, you’re going to miss something.”

In a few instances, staff were found copy and pasting information into reports sent to AUSTRAC and temporary contractors were threatened with termination if they missed targets that have been described as “rough” and “numbers-driven”.

Managers closely monitored the targets, which many say led to micro-managing or bullying, especially for those on insecure contracts. One email sent by a former contractor, obtained by this masthead, details bullying so severe the person was compelled to make a formal complaint.

By Charlotte Grieve, The Sydney Morning Herald, 3 July 2021

Read more at The Sydney Morning Herald

Source: riskscreen.com