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MAJOR THREAT: Big four banks warned of terrorism, money laundering

·4-min read
The exterior of Westpac, CBA, ANZ and NAB branches.
Westpac, CBA, ANZ and NAB have been given a stark warning from AUSTRAC about the sectors vulnerability to criminal activity (Source: Getty)

Australia’s big four banks have been given a stark warning in a new report finding funding to terrorism and money laundering activity is ‘high’, according to AUSTRAC.

The report examines the threats criminals pose to Australia’s four major banks, Commonwealth Bank (CBA), ANZ, National Australia Bank (NAB) and Westpac.

Between 1 April 2018 and 31 March 2019 the big four banks reported 174,507 suspicious matters to AUSTRAC accounting for $66.1 billion.

Additionally, $3.1 trillion was sent offshore and there were over 2.2 million reports of transactions over $10,000 amounting to $50.3 billion.

Money laundering is the primary threat facing major banks, followed by tax evasion, drug trafficking, frauds and scams, the report found.

The overall terrorism financing threat to major banks has declined, the report said, but the banks also reported links to many known or suspected cases of terrorism financing in Australia.

Inforgraphic from AUSTRAC report.
(Source: AUSTRAC)

AUSTRAC CEO, Nicole Rose, said it’s vital the banking sector in Australia uses these risk assessments to help them to protect their business, customers and the Australian community from criminal threats.

“Criminals will exploit any gaps and use sophisticated methods for their own personal greed,” Rose said.

“We are navigating a rapidly changing financial system and advances in technologies and platforms. That is why Government, law enforcement and the finance sector must continue to work together to protect Australia’s financial system and Australians from serious and organised crime.”

Why are our banks so vulnerable?

AUSTRAC identified the main causes of concern which have put the big four banks in the highest category of risk.

A very large customer base with around 43 million customers was listed as a main point of concern.

AUSTRAC said the sector has more high-risk customers than all other reporting entities combined. The big banks ‘high risk’ customers include suspected criminals, politically exposed people, high-net-worth individuals and temporary visa holders.

A significant exposure to cash has left the system vulnerable because of the large amount of products and services allowing potentially bad actors to move cash around quickly and easily.

The most vulnerable products were found to be:

  • Transaction accounts

  • Credit card accounts

  • Bank cheques

  • Trust accounts

  • Correspondent banking services

The move towards online banking is also a cause of concern, the report said.

“These channels can offer criminals anonymity, facilitate identity fraud and other financial crimes, and complicate detection of unusual or suspicious transactions,” the report said.

Finally, a very high exposure to foreign jurisdiction risk, means the sector is very accessible for international transactions and has opened the sector to even more risk.

“In the reporting period, major banks facilitated $3.5 trillion in international funds transfers – more than all other AUSTRAC reporting entities combined,” the report said.

“This exposes the subsector to a high level of foreign jurisdiction risk, and can make it difficult to detect the movement of criminal proceeds offshore.”

What are the consequences for Aussies?

AUSTRAC said the consequences of money-laundering and terrorism funding in the Australian banking sector is ‘major’.

“Criminal activity can have major consequences for customers. The most significant impacts relate to financial loss, emotional distress as a result of fraud and scam-related offences, and reputational damage, particularly for business customers,” the report said.

And while the report found the massive size of Australia’s big four banks means they have the ability to absorb some financial losses from criminal activity, the threat is significant.

“Given their size, major banks are likely to be able to absorb the financial impacts of criminal activities,” AUSTRAC said.

“However, reputational damage because of systemic criminal exploitation of a major bank may have serious consequences on its ability to attract and retain customers. This may be accentuated if Australia’s banking sector becomes more competitive.”

Inforgraphic from AUSTRAC report.
(Source: AUSTRAC)

Additionally, our banking sector stands to lose out on the international landscape should the issues not be addressed.

“Significant or systemic criminal exploitation of the sub sector could cause major damage to Australia’s international economic reputation by undermining the security and safety of Australia’s financial sector,” it said.

“Predicate offences such as drug trafficking and child exploitation also inflict direct societal harms to the Australian community.”

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