Bank accounts were kept open for more than two years despite suspicions brought to the Commonwealth Bank that they were associated with money laundering and terrorism financing, according to documents filed with the Federal Court.
The CAB customer, code named Company 12, was not terminated by the Commonwealth even when told by the NSW Police that it was investigating $3 million in transactions and had arrested two men.
Various parts of the Commonwealth had raised alerts about accounts run by the unnamed customer, including the Intelligence Team in Group Security and by vigilant staff at a bank branch, but the bank determined that “terrorism financing links could not be substantiated”.
The saga is revealed in a statement of claim by AUSTRAC, Australia’s financial intelligence and regulatory agency, lodged as part of its case against the Commonwealth alleging breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act involving combined cash deposits of $624.7 million.
The bank says the problem, which potentially could see Australia’s largest company facing massive fines, started with a simple software update with its ATMs.
The case mostly centres on the use of smart ATMs introduced by the bank in 2012 which can allow up $20,000 in cash deposits. By law, deposits of $10,000 cash or more need to be reported to authorities. The glitch with the software is said to have stopped alerts being generated.
The statement of claim mostly related to crime syndicates moving profits from drug deals, via a series of deposits under $10,000, through the ATMS and into bank accounts where the money was then quickly moved offshore.
However, in this case terrorism financing was suspected.
Between October 2014 and May 2015, there were two automated transaction monitoring alerts and three others raised by bank branch staff.
Over that time, there were 319 cash deposits, each under $10,000, totalling $2,869,730, into one account. Another 86 cash deposits, again all under $10,000, totalling $757,200, were deposited into the same account.
Alert triggered — but no investigation
The CBA’s Anti-Money Laundering team (AML) was late reviewing the alerts and when it did it failed to monitor the accounts. However, in December, 2014, the CBA team “concluded the evidence suggested tax evasion and money laundering”.
However, the alert was closed and no customer investigation was carried out.
And the deposits continued.
Between March 20, 2015, and April 14, 2015, the cash deposits intensified with a large number of deposits each day, sometimes as many as 30, until another $1,621,765 was banked in cash.
“This intense pattern of structuring did not trigger any transaction monitoring alerts,” says AUSTRAC in its statement of claim.
Meanwhile, alerts continued to be sent internally at the CBA. On May 4, 2015 CBA’s Group Security forwarded an Intelligence Bulletin to the Internal Fraud team noting that this customer had been “flagged multiple times”.
It assessed that the “transactions are reflective of a charitable organisation”. However, it recommended that the “case should be raised with the Customer High Risk team, due to reputational and potential regulatory damage from suspected money laundering.”
Despite this, the deposits continued. There were five deposits on May 12, 2015, four on May 13, five the next day, nine the day after and 24 on May 18, four the next day and five the day after.
In the middle of all this, bank branch staff at the Corio Shopping Centre, Victoria, reported a man with $7500 in 50 dollar notes making a deposit to the suspect account.
The deposits stopped on May 21, 2015, when two men, Arlsan Shaffi and Salman Khan, were arrested and charged with money laundering offences. They were refused bail.
Five days later the NSW Police contacted CBA urgently seeking documents and CCTV footage following the arrest of Shaffi and Khan who were suspected to be involved in more than $3 million in laundered cash.
“No customer due diligence was carried out with a view to identifying, mitigating and managing the ML/TF (money laundering/terror financing) risks in response to the advice by NSW Police that it was investigating transactions on this account,” AUSTRAC says in its statement of claim to the Federal Court.
But the CBA did send three letters to the customer (who is not named in the statement of claim). No response was received.
In July 2015 the CBA’s Intelligence Team in Group Security identified possible terrorism financing risks with the customer who had three accounts with the bank, including the one linked to Shaffi and Khan.
However, CBA’s Group Security on 10 August prepared a draft recommendation that the customer relationship not be terminated as the terrorism financing links could not be substantiated.
The summary of analysis by CBA’s Group Security regarding that customer: ” … Alleged links to radicalised figures. Law enforcement has not pressed charges or designated this organisation a terrorist group or supporting entity.”
As of January this year, one account was still held by the same customer at CBA, according to the statement of claim.
The Commonwealth today posted a record result, a cash profit of $9.88 billion.
The chair of the bank, Catherine Livingstone, who has only been in the job since January this year, says CEO Ian Narev “retains the full confidence of the board”. At the weekend, Narev said he was focused on doing his job and has no intention of stepping down.
However, the board has axed short term bonuses for Narev and his senior executives.
And the board of directors today announced a series of measures to strengthen the bank’s anti-money laundering operations, including replacing the senior management in charge, hiring more than 50 financial crime experts and spending more on technology.
The actions of senior managers in the money-laundering scandal who run compliance are also under scrutiny. The bank’s board of directors says it is taking a look at “management accountability”, either by action or omission.