Author: Azizur Rahman
5 September 2017
4 min read
Money laundering in an automated world throws up new challenges that have to be met. Failure to meet them will bring traditional and heavy penalties.
Australia’s Commonwealth Bank is a case in point. Commonwealth is accused of 53,700 breaches of anti-money laundering laws for failing to act on suspicions that its intelligent deposit machines were used by drug syndicates.
The Australian Transaction Reports and Analysis Centre (Austrac), the country’s financial intelligence agency, is suing the bank over the breaches, which it believes enabled criminals to launder tens of millions of dollars.
The case relates to the use of intelligent deposit machines, a type of ATM launched in 2012, which allows customers to anonymously deposit and transfer cash.
Commonwealth Bank is accused of failing to report properly to Austrac on Aus $77m worth of suspicious transactions. Austrac claims that even when Commonwealth became aware its machines were being used for suspected money laundering, it failed to deal with the risk.
The consequences of Commonwealth’s alleged failure to prevent the automated money laundering are already apparent.
Since the accusations were brought against the bank, its under-pressure chief executive has announced he will stand down next year. Shares in the bank have dropped. This has prompted lawyers to announce that they may bring a class action against the bank on behalf of shareholders, who say they have lost millions due to the drop in share value.
The bank now faces the difficult task of either disproving that its machines were used by money launderers or explaining why its reaction to the problem was so inadequate. If it cannot do either, it will be in a difficult position.
Commonwealth may not face criminal prosecution. But the regulatory sanctions it faces could prove very damaging, both in terms of financial penalties and to its reputation. As an example, HSBC narrowly escaped prosecution in 2012 for allowing drug dealers and terrorists to use it to launder millions - but it did have to pay a record £1.4 billion fine.
It would have been far easier to have had sound money laundering identification and reporting procedures in place and working properly.
Automated machines do, arguably, pose different challenges when it comes to looking out for the signs of money laundering. But regardless of how money passes into or out of an organisation, procedures must be in place to ensure there is always the ability to identify suspicious transactions and act accordingly. Legal obligations have to be met.
It may be the case that automated processing of money makes it more difficult to identify money laundering. But that is no excuse for not doing all that can be done to prevent it. And the argument that automated money laundering will not be identified by the authorities because it is harder to spot is a weak one. The case of Commonwealth indicates this.
As we write this, there is more cooperation than ever before between countries’ money laundering investigating agencies. It is a crime that is under more scrutiny than ever before: not just in the UK but worldwide.
In Europe, the Fourth EU Money Laundering Directive (4MLD) has come into force and places greater obligations on banks and financial institutions. The Directive demands more due diligence checks – including checks on customers who may previously have been exempt from them – requires greater transparency regarding the ownership of assets and lays down tougher requirements regarding how risk assessments and monitoring are conducted on customers. Financial institutions also have to carry out greater due diligence on people or organisations from high-risk countries and on politically exposed persons (PEP’s), their relatives and close associates.
In the light of such requirements, a financial institution’s arguments that it was unaware of money laundering because of its automated processes will be dismissed out of hand.
Money laundering is the disguising of the origins of money that is the proceeds of crime. A person can launder their own criminal proceeds or have it done for them by another person. In the UK, both of these are offences under the Proceeds of Crime Act 2002 (POCA).
If you review your working practices and use what you learn to introduce adequate procedures that remove the opportunity for a person to launder money, you will benefit in one of two ways. You will either not have problems of money laundering or, if you do, you can show the investigating authorities that you did everything possible to prevent it.
Adequate procedures may vary from organisation to organisation. But, putting it simply, anti-money laundering procedures have to involve close, detailed assessment of any potential investor, client or trading partner.
Such assessment needs to look at such a person’s proof of identity, their background and the people they have financial ties to. Once this has been completed, there is a need for ongoing checks on the nature of their financial transactions: the amounts, the people or organisations involved, the relationships between those parties and who the genuine beneficiary is.
It may be the case that Commonwealth - or anyone else who finds themselves in a similar position – reveals difficulties when it comes to automated payments. But such difficulties cannot form the basis of a valid defence against money laundering.
Anyone who argues that they did not know what was happening in their organisation because of automation is likely to be told that due diligence on clients would have prevented the problem in the first place. Setting limits on the amounts that can be moved around automatically without any human assistance would also go a long way to preventing money laundering problems with automation. As would making sure a system is in place for regular, through staff scrutiny of any automated processes.
Our experience in the field of money laundering has seen us advise many organisations on how to design out the risk of laundering. Whether there is no use of automation in a business or a large amount, the principle remains the same: assess the risk of money laundering, introduce steps to remove (or at least) reduce that risk and make sure those steps are closely adhered to.
Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.