AUSTRAC refers NAB to enforcement team citing AML/CTF systems failures

NAB Austrac investigation

Australia’s financial crime watchdog, AUSTRAC, has escalated its engagement with NAB to its enforcement arm, identifying critical shortcomings in the bank’s Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) risk management capability.

In a letter to the bank, AUSTRAC flagged “potential serious and ongoing non-compliance” with “customer identification procedures”, “ongoing customer due diligence”, and “Part A of a joint AML/CTF program”.

Part A refers to processes and procedures to help identity, mitigate, and manage ML/TF risks within a joint business group.

NAB’s regulatory breaches – which also involve the bank’s subsidiaries JBWere, Wealthhub Securities, Medfin Australia, and AFSH Nominees – have been disclosed in public reports dating back to 2017.

While NAB has since invested $800 million and dedicated 1,200 people to maturing the group’s financial crime risk programs, AUSTRAC noted its “concern” at the “seriousness of self-disclosed matters presented over a prolonged period” and their accompanying closure rates.

Importantly, AUSTRAC is holding off on civil penalty proceedings against the bank, a position the regulator said is “subject to change”.

In recent years, following AUSTRAC investigations, fellow big four banks Westpac and CBA were issued fines of $1.3 billion and $700 million respectively by the Federal Court of Australia for AML/CTF breaches.

Beyond civil penalty proceedings, AUSTRAC’s enforcement options include the issuance of enforceable undertakings, infringement notices, and remedial directions to NAB.

For now, the regulator’s enforcement team has initiated a formal investigation into NAB’s compliance programs.

As yet, no decision has been made regarding enforcement actions.

Acknowledging the bank’s critical role in monitoring and reporting suspicious activity, chief executive Ross McEwan confirmed NAB would cooperate with the regulator in its investigations.

“NAB takes its financial crime obligations seriously. We are very aware that we need to further improve our performance in relation to these matters,” McEwan said.

In its half-year results announcement, NAB identified AML/CTF non-compliance as a contingent liability, specifically due to weaknesses with the group’s Know Your Customer (KYC) controls and system issues impacting transaction monitoring and reporting.

These shortcomings were said to be the “subject of a detailed remediation program that is underway”.

“It is a key priority for everyone at NAB to uplift our financial crime capabilities, minimise risk to customers and the bank, and improve operational performance,” McEwan said.

“That’s why we are so focused on getting the basics right every time to protect our customers and our bank.”