A Guide to Anti-Money Laundering for Crypto Firms

AUSTRAC: Improved Collaboration with Banks Enables Focus on High-Risk Industries

Regulation Challenger Banks Knowledge & Training

Banks in Australia have been praised by the Australian Transaction Reports and Analysis Centre (AUSTRAC) for improving their compliance programs to more effectively tackle money laundering, organized crime, tax evasion, and welfare fraud. AUSTRAC said that it is now better able to focus on other areas of a financial crime risk, including crypto exchanges, casinos, pubs, and clubs.

The announcement comes after a torrid few years for the Australian banking sector, with some of the country’s biggest financial institutions facing significant penalties for anti-money laundering (AML) violations. 

In 2018, Commonwealth Bank (CBA) agreed to pay $702.5m to settle breaches of the country’s AML/CFT Act, including inadequate monitoring of 778,370 accounts over a period of three years.

In 2020, Westpac paid $1.3bn – the largest fine in Australian corporate history – for “serious and systemic” breaches of AML regulations.

And in June 2021 it was announced that National Australia Bank (NAB) was under investigation for suspected serious and ongoing breaches of AML/CFT laws, including issues related to customer identification procedures and due diligence.

However, cultural changes within major banks have seen them become a “fantastic partner” for financial intelligence, according to AUSTRAC chief executive Nicole Rose.

“Now, for a range of reasons such as the enforcement action, a number of inquiries, and law enforcement prosecutions, people are getting it,” she told the Australian Financial Review.

“The information we get from bank staff now is quality because they are seeing the tangible outcomes of arrests and prosecutions.”

Rose indicated that work by NAB to fix its shortcomings may see it avoid the severe penalties imposed on Westpac and CBA. “Some of these legacy systems are taking a couple of years to fix which we get and are sympathetic to as long as we’re seeing the progress, and they’re sincere about it,” she said. 

Compliance teams should review AUSTRAC’s judgment in the NAB case when it is published to explore in more detail if and why the bank’s penalties are reduced, and what steps the bank has taken to modernize its AML technology infrastructure.  

Renewed focus on crypto

AUSTRAC’s gaze is now pivoting to high-risk sectors including the crypto where, despite being an early adopter of crypto regulations, AUSTRAC admits it has “blind spots”.

Rose has warned crypto users that while almost 400 local digital currency exchanges have registered with AUSTRAC, they have not been endorsed by the regulator as safe for retail investors, and registration alone should not give people a “false sense of security”.

AUSTRAC is working with its foreign counterparts to improve the international oversight of cryptocurrency firms, particularly in relation to the transfer of funds across international borders. 

In 2021, vulnerabilities in Australia’s search engine and cryptocurrency infrastructure were used by British criminals to cheat small investors out of millions of dollars.

AUSTRAC is focusing on the entry and exit points of the digital currency system where fiat currencies are converted into crypto. As such, the regulator’s new emphasis has implications for firms beyond the crypto space – such as banks – who may facilitate the conversion process. Firms involved in facilitating crypto transactions should, for example, ensure they are familiar with – and can screen for – the names of crypto exchange firms, in order to spot relevant transactions. 

Rose said technology businesses entering the market, such as crypto exchanges and buy now, pay later (BNPL) operators often did not understand their AML/CFT obligations, including the importance of thorough Anti-Money LaunderingKnow Your Customer (KYC) (AML) checks. AUSTRAC has issued a host of recent guidance for crypto exchanges, issuing new documentation in August 2020 and October 2020.

Spotlight on cash-intensive businesses

Casinos and other cash-intensive businesses are also likely to face additional scrutiny. There are ongoing investigations into both Crown Resorts and The Star Entertainment Group. From 2015-19, Star’sthe firm’s Sydney casino potentially breached AML/CFT regulations in its handling of customers judged to be high risk and those classed as politically exposed persons. Slot machines in pubs and clubs have also been used for money laundering and AUSTRAC has issued specific guidance on building an AML program in this sector. 

Finally, de-banking remains a serious problem in the Pacific region. In November, AUSTRAC issued new guidance around de-banking, urging the financial sector to take a risk-based, case by case approach to managing AML/CFT challenges, rather than simply closing accounts.

Rose raised concerns that such measures could increase the risk of money laundering, pushing criminals underground where AUSTRAC would have less visibility. “We’re helping banks manage the risk, so it’s not an AML issue they’re trying to avoid,” said Ms. Rose. 

“We’re doing capacity building with the Pacific nations on financial intelligence, so they can recognize the threats and risks, and share information with each other and us.”

Find out more about the state of financial crime in 2022 by pre-registering for this year’s report.

Banks in Australia have been praised by the Australian Transaction Reports and Analysis Centre (AUSTRAC) for improving their compliance programs to more effectively tackle money laundering, organized crime, tax evasion, and welfare fraud. AUSTRAC said that it is now better able to focus on other areas of a financial crime risk, including crypto exchanges, casinos, pubs, and clubs. The announcement comes after a torrid few years for the Australian banking sector, with some of the country’s biggest financial institutions facing significant penalties for anti-money laundering (AML) violations.  In 2018, Commonwealth Bank (CBA) agreed to pay $702.5m to settle breaches of the country’s AML/CFT Act, including inadequate monitoring of 778,370 accounts over a period of three years. In 2020, Westpac paid $1.3bn – the largest fine in Australian corporate history – for “serious and systemic” breaches of AML regulations. And in June 2021 it was announced that National Australia Bank (NAB) was under investigation for suspected serious and ongoing breaches of AML/CFT laws, including issues related to customer identification procedures and due diligence. However, cultural changes within major banks have seen them become a “fantastic partner” for financial intelligence, according to AUSTRAC chief executive Nicole Rose. “Now, for a range of reasons such as the enforcement action, a number of inquiries, and law enforcement prosecutions, people are getting it,” she told the Australian Financial Review. “The information we get from bank staff now is quality because they are seeing the tangible outcomes of arrests and prosecutions.” Rose indicated that work by NAB to fix its shortcomings may see it avoid the severe penalties imposed on Westpac and CBA. “Some of these legacy systems are taking a couple of years to fix which we get and are sympathetic to as long as we’re seeing the progress, and they’re sincere about it,” she said.  Compliance teams should review AUSTRAC’s judgment in the NAB case when it is published to explore in more detail if and why the bank’s penalties are reduced, and what steps the bank has taken to modernize its AML technology infrastructure.  

Renewed focus on crypto

AUSTRAC’s gaze is now pivoting to high-risk sectors including the crypto where, despite being an early adopter of crypto regulations, AUSTRAC admits it has “blind spots”. Rose has warned crypto users that while almost 400 local digital currency exchanges have registered with AUSTRAC, they have not been endorsed by the regulator as safe for retail investors, and registration alone should not give people a “false sense of security”. AUSTRAC is working with its foreign counterparts to improve the international oversight of cryptocurrency firms, particularly in relation to the transfer of funds across international borders.  In 2021, vulnerabilities in Australia’s search engine and cryptocurrency infrastructure were used by British criminals to cheat small investors out of millions of dollars. AUSTRAC is focusing on the entry and exit points of the digital currency system where fiat currencies are converted into crypto. As such, the regulator’s new emphasis has implications for firms beyond the crypto space - such as banks - who may facilitate the conversion process. Firms involved in facilitating crypto transactions should, for example, ensure they are familiar with - and can screen for - the names of crypto exchange firms, in order to spot relevant transactions.  Rose said technology businesses entering the market, such as crypto exchanges and buy now, pay later (BNPL) operators often did not understand their AML/CFT obligations, including the importance of thorough Anti-Money LaunderingKnow Your Customer (KYC) (AML) checks. AUSTRAC has issued a host of recent guidance for crypto exchanges, issuing new documentation in August 2020 and October 2020.

Spotlight on cash-intensive businesses

Casinos and other cash-intensive businesses are also likely to face additional scrutiny. There are ongoing investigations into both Crown Resorts and The Star Entertainment Group. From 2015-19, Star’sthe firm’s Sydney casino potentially breached AML/CFT regulations in its handling of customers judged to be high risk and those classed as politically exposed persons. Slot machines in pubs and clubs have also been used for money laundering and AUSTRAC has issued specific guidance on building an AML program in this sector.  Finally, de-banking remains a serious problem in the Pacific region. In November, AUSTRAC issued new guidance around de-banking, urging the financial sector to take a risk-based, case by case approach to managing AML/CFT challenges, rather than simply closing accounts. Rose raised concerns that such measures could increase the risk of money laundering, pushing criminals underground where AUSTRAC would have less visibility. “We’re helping banks manage the risk, so it’s not an AML issue they’re trying to avoid,” said Ms. Rose.  “We’re doing capacity building with the Pacific nations on financial intelligence, so they can recognize the threats and risks, and share information with each other and us.” Find out more about the state of financial crime in 2022 by pre-registering for this year’s report.

Originally published January 7, 2022, updated January 7, 2022

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