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CBA pins money laundering case claims on coding error

CBA pins money laundering case claims on coding error

AUSTRAC alleges failure to comply

The Commonwealth Bank of Australia (ASX:CBA) has claimed that a coding error is behind its failure to report suspicious transactions carried out using its Intelligent Deposit Machines (IDMs).

On 3 August, Australia’s financial intelligence and regulatory agency, AUSTRAC, initiated civil penalty proceedings in the Federal Court against CBA for “serious and systemic non-compliance” with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

At the core of AUSTRAC’s case is the question of CBA’s compliance of the Act, particularly regarding its use of its intelligent deposit machines (IDMs).

AUSTRAC alleges that, for a period of three years, CBA did not comply with the requirements of its compliance program relating to monitoring transactions on 778,370 accounts.

It is alleged that CBA failed to give 53,506 threshold transaction reports (TTRs) to AUSTRAC on time for cash transactions of $10,000 or more through IDMs from November 2012 to September 2015.

AUSTRAC also alleges that the bank failed to report suspicious matters either on time or at all involving transactions totalling over $77 million.

It is alleged that, even after CBA became aware of suspected money laundering or structuring on CBA accounts, it did not monitor its customers to mitigate and manage the money laundering and terrorism financing risk.

Now, CBA is pinning much of the blame on a coding error affecting the operation of its Intelligent Deposit Machines.

“When we first rolled out these machines in May 2012, they were providing all the correct TTR reporting,” the bank said in a statement. “The issue began after an unrelated software update to the IDMs in late 2012. Following the software update, a coding error occurred which meant the IDMs did not create the TTRs needed.

“This error became apparent in 2015 and within a month of discovering it, we notified AUSTRAC, delivered the missing TTRs and fixed the coding issue.

“The vast majority of the reporting failures alleged in the statement of claim (approximately 53,000) relate specifically to this coding error. We recognise that there are other serious allegations in the claim unrelated to the TTRs,” it said.

CBA has not disclosed whether the coding issue arose as a result of internal activities or via work carried out by an external supplier.

Regardless, the bank is placing much of the blame at the hands of the coding error, and is drawing upon this factor in a bid to reduce the financial hit it may incur if found guilty of the alleged contraventions.

“[AUSTRAC’s] statement of claim relates to alleged past and ongoing contraventions of four provisions of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth),” the bank told shareholders. “To the extent that contraventions may be established, a Court will ordinarily take into account a range of factors in setting penalties.

“One factor is the extent to which any contraventions arise from a single course of conduct. For example, AUSTRAC alleges that approximately 53,000 threshold transaction reports were lodged late.

“Late lodgement carries a penalty of up to $18 million. However, these alleged contraventions could be considered to arise from a single course of conduct to the extent that they emanated from the same systems error,” it said.

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