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3 things you need to know about CBA’s $700m money-laundering payment

Commonwealth bank will pay a record $700 million fine, plus $2.5 million in legal costs for breaching anti-money laundering and counter-terrorism laws.

This is the biggest fine in Australian corporate history.

The announcement follows allegations from AUSTRAC, the agency charged with protecting the money supply system, that the bank’s ATM’s were used by organised criminals and terrorists to evade money laundering laws, allowing them to funnel money offshore.

Also read: CBA to pay $700m to resolve AUSTRAC case

Here are three things you need to know.

How did it work?

The bank’s ATM’s were exploited by criminals for three years, with CBA’s transaction monitoring not operating as intended between October 2012-October 2015.

In May 2012, CBA introduced a new intelligent deposit machine (IDM) ATM which can accept cash and cheque deposits into CBA accounts using a card from any financial institution.

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Unlike other ATM’s, any cash deposited it automatically counted and credited to the CBA account, where the funds are immediately available for a local or international transfer.

The risk of providing these IDM ATMs were obviously high because cash could be deposited anonymously at any time, at any location, and transferred immediately with no limits being imposed.

Increased terrorism risk

By 2014, CBA began to suspect that criminal syndicates were laundering several millions of dollars through its IDM ATMs.

But, despite identifying a significant vulnerability, CBA did not undertake a risk assessment of its IDMs and no new risk-based controls were introduced.

In fact, AUSTRAC alleged more than 53,800 breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

The allegations are especially serious because a number of these breaches related directly to customers who had been assessed by CBA as posing a potential risk of terrorism or terrorism financing.

AUSTRAC CEO Nicole Rose said the bank’s breaches has put Australians at increased risk of terrorism and organised crime.

“As we have seen in this case, criminals will exploit poor business practices to launder the proceeds of their crimes,” Rose said.

“This has real impacts on the everyday lives of Australians and puts the community at risk by increasing opportunities for terrorists to support attacks here and overseas, and enabling organised crime groups to peddle drugs to our families and friends.

“We know that businesses are the first line of defence in protecting the community and our financial system from criminal abuse, and it is critical for AML/CTF compliance and risk management to be embedded in business strategy and practices.”

Tightened security

CBA assures it has made significant progress in strengthening its policies and systems in order to improve operation risk management and compliance.

“To date we have spent over $400 million on systems, processes and people relating to AML/CTF compliance and will continue to prioritise investment in this area,” CBA chief executive Matt Comyn said.

“We have changed senior leadership in the key roles overseeing financial crimes compliance supported by significant resources and clear accountabilities.

“We have started implementing our response to the recommendations provided to us by our prudential regulator, APRA, to ensure our governance, culture and accountability frameworks and practices meet the high standards expected of us.