Anti-money laundering in banking
Financial criminals conduct anti-money laundering (AML) to hide money they have obtained illegally. Banks are often used to hide these funds and disguise them as legal income or transactions. This is why there are strict regulations Australian and New Zealand banks need to follow to help stop AML from occurring while mitigating the risks of AML incidents.
Funds related to AML are commonly linked to terrorism financing, drug trafficking, human trafficking, and other kinds of organised crime. While experts recognise that regulation alone cannot eliminate these kinds of crimes, it is seen as a critical and valuable part of the process.
For example, Professor James Cockayne, the founder of the Liechtenstein Initiative for Finance Against Slavery and Trafficking (FAST), recently said:
“It would go a long way, but it wouldn’t end it entirely because there are some aspects of modern slavery that occur outside of the commercial context and many do not show up in transactional data.”
Why should banks comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations?
Banks that comply with AML/CTF regulations are ensuring the organisation can continue functioning with good governance and regulation processes.
1) The risk of fines: Non-compliance with local regulations can lead to significantly increased risk to a business and its customers, as well as hefty fines. In Asia Pacific, over US$10.6 billion in penalties were distributed to financial institutions due to AML, Know Your Customer (KYC), MiFID (Markets in Financial Instruments Directive) and data privacy regulations.
Australia was issued the second most penalties ranked by value in the region, totalling US$921,587,910. Looking purely at AML/CTF breaches, Asia Pacific experienced US$5.1 billion in fines, a 26% increase on the previous year.
For banks, many of which are listed entities and answerable to shareholders, such massive fines can severely undercut profitability and reputation.
2) Improving the customer experience: Having the right processes in place lets banks more effectively and securely service customers from start to finish. Whether customers are sharing identification documents to open a bank account, or signing a home loan agreement, being compliant is key to keeping customers and their data safe.
3) Assist in reporting and visibility: In Australia, the Australian Transaction Reports and Analysis Centre (AUSTRAC) requires banks and financial institutions to report suspicious activities. Banks that have the right technology in place can easily view, analyse, and mitigate the risks of each customer as they are verifying their identity, making transactions, and using services. Reporting of these transactions and automated flagging and reporting of issues or concerns helps the bank itself, AUSTRAC, and other organisations in the industry to recognise and prevent threats.
How banks and AUSTRAC are tackling money laundering
Earlier this year, AUSTRAC chief executive Nicole Rose highlighted the importance and value of the relationship between banks and AUSTRAC. She particularly noted the power this partnership has to generate financial intelligence while cracking down on financial crime. In an interview with The Australian Financial Review, Rose said banks were a “fantastic partner” for financial intelligence and that “their staff understand the impact it has on the community from criminals coming in using the ATMs, using the bank branches, to launder criminal cash…The information we get from bank staff now is quality because they are seeing the tangible outcomes of arrests and prosecutions.”
GBG products that can help you with AML
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