NOTICE OF FILING This document was lodged electronically in the FEDERAL COURT OF AUSTRALIA (FCA) on 3/08/2017 9:39:00 AM AEST and has been accepted for filing under the Court’s Rules. Details of filing follow and important additional information about these are set out below. Details of Filing Document Lodged: Concise Statement File Number: NSD1305/2017 File Title: CHIEF EXECUTIVE OFFICER OF THE AUSTRALIAN TRANSACTION REPORTS AND ANALYSIS CENTRE v COMMONWEALTH BANK OF AUSTRALIA LIMITED ACN 123 123 124 NEW SOUTH WALES REGISTRY - FEDERAL COURT OF AUSTRALIA Registry: Dated: 3/08/2017 9:53:23 AM AEST Registrar Important Information As required by the Court’s Rules, this Notice has been inserted as the first page of the document which has been accepted for electronic filing. It is now taken to be part of that document for the purposes of the proceeding in the Court and contains important information for all parties to that proceeding. It must be included in the document served on each of those parties. The date and time of lodgment also shown above are the date and time that the document was received by the Court. Under the Court’s Rules the date of filing of the document is the day it was lodged (if that is a business day for the Registry which accepts it and the document was received by 4.30 pm local time at that Registry) or otherwise the next working day for that Registry. CONCISE STATEMENT FEDERAL COURT OF AUSTRALIA DISTRICT REGISTRY: SYDNEY DIVISION: COMMERCIAL AND CORPORATIONS NO OF 2017 CHIEF EXECUTIVE OFFICER OF THE AUSTRALIAN TRANSACTION REPORTS AND ANALYSIS CENTRE Applicant COMMONWEALTH BANK OF AUSTRALIA LIMITED ACN 123 123124 Respondent A. IMPORTANT FACTS GIVING RISE TO THE CLAIM 1. In May 2012, the Respondent (CommBank) rolled out Intelligent Deposit Machines (lDMs), a type of ATM that accepts deposits by both cash and cheque. Deposits through an IDM are automatically counted and are credited instantly to the nominated recipient account. The funds are then available for immediate transfer to other accounts both domestically and internationally. 2. can accept up to 200 notes per deposit, that is, up to $20,000 per cash transaction. CommBank does not limit the number of IDM transactions a customer can make a day. 3. IDMs facilitate anonymous cash deposits. In order to make a deposit through an IDM, a card must be entered to activate the machine. The card can be from any ?nancial institution, however, deposits can only be made into CommBank accounts. If the card entered into the machine was not issued by CommBank, the cardholder details are not known to CommBank. Nor are banks obliged to collect or report depositor details for threshold transaction reports (TTRs) for deposits made through an IDM. 4. There has been signi?cant growth in the use of CommBank IDMs since their roll out. In the 6 months from June 2012 to November 2012 about $89.1 million in cash was deposited through this channel. In the 6 months from January 2016 to June 2016 cash deposits through this channel grew to about $5.81 billion. In May and June 2016 over $1 billion in cash was deposited each month through CommBank lDMs. Failure to comply with its AMLICTF Program 5. CommBank has a Joint Anti-Money Laundering and Counter-Terrorism Financing Program, which is divided into Part A and Part B, as required by 81 of the Anti-Money Laundering and Counter- Tenrorism Financing Act 2006 (the Act). Section 2 of CommBank?s Part A program contains procedures for managing the risks reasonably faced that the provision of designated services may facilitate money laundering or financing of terrorism risk) which were included to comply with Part 9.1 of the Anti-Money Laundering and Counter- Terrorism Financing Rules Instrument 2007 (No. 1) (the Rules). CommBank has not complied with a number of these procedures on and from May 2012. Filed on behalf of the Applicant File ref: 17006880 Prepared by: Sonja Marsic AGS lawyer within the meaning of 55l of the Judiciary Act 1903 Address for Service: Telephone: 02 9581 7505 The Australian Government Solicitor. Lawyers Email: Level 42, MLC Centre, 19 Martin Place, NSW 2000 sonja.marsic@ags.gov.au Facsimile: 02 9581 7528 8. Prior to rolling out IDMs, CommBank did not carry out an risk assessment. CommBank did not carry out an risk assessment in response to the exponential rise in cash deposits through IDMs, nor in response to alerts raised by internal transaction monitoring systems, nor did it review its risk assessment in response to identification by law enforcement of significant instances of money laundering through IDMs. CommBank did not take any steps to assess the risks posed by until mid?2015, 3 years after they were introduced. About $3.91 billion in cash was deposited through CommBank IDMs before it conducted any assessment of the risks associated with the IBM channel. CommBank has not introduced appropriate risk?based systems and controls to mitigate and manage the higher risks it reasonably faces by providing designated services through lDMs, contrary to Section 2 of the Part A program. CommBank's Part A program includes a transaction monitoring program that was included to comply with Rules 15.4, 15.5, 15.6 and 15.7. At various times between about 20 October 2012 to 27 September 2016 CommBank did not comply with the requirements of its transaction monitoring program with respect to 776,370 accounts. None of these accounts were subject to transaction monitoring at the ?account level", at various times, and some were not subject to "customer level" transaction monitoring. Late TTRs 9. 10. CommEiank is required to report to AUSTRAC any ?threshold transaction" (being a transaction involving the transfer of physical currency in the amount of $10,000 or more) within 10 business days after the transaction occurs. CommBank failed to give 53,506 TTRs to AUSTRAC on time for cash transactions of $10,000 or more that were processed through IDMs from 5 November 2012 to 1 September 2015 (the Late TTRs). The Late TTRs represent about 95% of threshold transactions that occurred through IDMs in that period and have a total value of $624.7 million. 1,640 of the Late TTRs (totalling about $17.3 million) related to transactions connected with money laundering syndicates being investigated and proseCUte-d by the Australian Federal Police (AFP) or accounts connected with those investigations. A further 6 of the Late TTRs related to 5 customers who had been assessed by CommBank as posing a potential risk of terrorism or terrorism financing. Two of the Late TTRs were lodged with AUSTRAC on 24 August 2015 and the remaining 53,504 were lodged with AUSTRAC on 24 September 2015. Failure to file SMRs and to carry out ongoing due diligence 1'1. 12. ?13. Suspected money laundering was conducted through CommBank accounts, by way of cash deposits, many through IDMs, followed immediately by international and domestic transfers. Many of the cash deposits were ?structured' by customers: that is, deposited in amounts just under the threshold transaction limit to avoid triggering CommElank?s obligation to give a to AUSTRAC. Structuring is an offence under 142 of the Act. Despite identifying the pattern of activity on these accounts as suspicious and indicative of money laundering, CommBank repeatedly failed to comply with its obligations to give a suspicious matter report (SMR) to AUSTRAC either at all or within the time required by 41 of the Act. In part, this was because GommBank adopted a policy not to submit SMRs if the same type of suspicious behaviour had been reported any time within 3 months prior. in other cases, SMRs were not reported because no transaction monitoring alert had been raised, alerts had not been reviewed, or, where alerts had been raised and reviewed, CommBank only partially reported its suspicions. CommEiank also failed to lodge SMRs because notifications by law enforcement of unlawful activity were ignored. Section 36 of the Act requires CommEiank to monitor its customers with a view to identifying, mitigating and managing risk. CommBank failed to do this, including because in some instances, no transaction monitoring alerts were raised for suspicious activity, and, when alerts were raised, they were not reviewed in a timely manner having regard to risk (in many instances, alerts were not reviewed for months after they were raised). In many cases, the accounts the subject of money laundering were not being monitored at all. Page 2 14. Even after suspected money laundering or structuring on CommBank accounts had been brought to CommBank's attention (by law enforcement or through internal analysis), CommBank did not monitor its customers with a view to mitigating and managing risk, including the ongoing risks of doing business with these customers. Rather, once suspected money laundering or structuring had been identified on these accounts, CommBank often looked no further than whether or not to submit an BMR. The Rules require mandatory enhanced customer due diligence (ECDD) where a 41 suspicion is formed. CommBank did not carry out any ECDD on these accounts (such as identifying the source of the customer's wealth or terminating accounts) either at all or until after several SMRs had been raised. When CommBank terminated accounts, customers were generally given 30 days? notice. Suspicious transactions were allowed to, and did, continue during the notice period on some of these accounts. Money laundering Syndicate No 1 15. 16. 17. 18. 19. From late 2014 to August 2015, approximately $20.59 million was deposited, mostly in structured cash deposits, through CommBank into 30 CommBank accounts, 29 of which were in fake names. Shortly after each deposit, the money was transferred internationally. Approximately $20.55 million was transferred offshore. Two individuals have been convicted of dealing with proceeds of crime and structuring offences in relation to this activity. By April 2015, CommBank had identified repeated, suspicious and connected patterns of structured cash deposits followed by international money transfers on 16 of these accounts (15 of which were in fake names). Notwithstanding this suspicion, between April and 1 July 2015, CommBank permitted approximately $9.1 million to be transferred from these?accounts to Hong Kong. The AFP requested CommBank prevent withdrawals and transfers on these accounts on 1 July 2015. By that time, CommBank had identified a particular methodology for these accounts - they were opened by certain foreign nationals on holiday visas and deposits through IDMs were made involving blatant structuring, followed by transfers offshore almost immediately thereafter. Between 1 July 2015 and 24 August 2015, the same syndicate laundered approximately $4.78 million using 11 further accounts opened in fake names. Those accounts used the same methodology previously identified by CommBank and yet were not appropriately monitored having regard to the risks and were not always the subject of SMRs that complied with 41. 60 of the Late TTRs recorded transactions of this syndicate, with a value of $529,200. On 92 occasions CommBank failed to report suspicions relating to this syndicate, either at all or on time as required by 41, involving transactions totalling approximately $22.7 million. Money laundering Syndicate No 2 20. 21. 22. Between June 2014 and January 2015, 3 individuals deposited $2,272,435 in cash into 3 respective CommBank accounts (largely through lDMs). Almost immediately after each deposit, the money was transferred domestically, including to money remitters. By July 2014, CommBank was aware of unusual patterns of transactions on 1 of these accounts and had identified a number of deposits which were structured. By October 2014, CommBank was aware of suspicious transactions on the second of these accounts, and by November 2014, CommBank was aware of suspicious transactions on the third account. However, CommBank continued to allow these individuals to transact on these accounts until they were each arrested on 19 January 2015. These 3 individuals have been charged with dealing in proceeds of crime, in connection with a drug importation syndicate, with 1 of these individuals already having been convicted. Between March 2014 and November 2015, a further $4.053 million was deposited, in cash, into 9 other CommBank accounts, followed by domestic transfers to accounts which had previously received funds from the three individuals. Even after CommBank identified structuring on the deposits, and identified some of these accounts as belonging to suspicious money remitters or being part of a sophisticated money laundering syndicate, CommBank allowed transactions to continue. 178 of the Late TTRs recorded transactions involving this syndicate or related third party accounts, with a value of $1 ,780,030. On 18 occasions CommBank failed to report suspicions relating to this syndicate or related third party accounts, either at all or on time as required by 41, involving transactions totalling approximately $5.73 million. Page 3 Money laundering Syndicate No 3 23. 24. 25. From November 2014 to August 2015, cash deposits totalling $27.2 million were made to one CommBank account. Almost immediately after each deposit, the money was transferred internationally. $26.47 million was transferred to offshore accounts. The deposits were the proceeds of a drug manufacture and importation syndicate. Three individuals have been charged with dealing in proceeds of crime, with 1 of these individuals already having been convicted. Despite cash deposits under $10,000 being made into this account, no transaction monitoring alerts for structuring were ever raised. Very large cash deposits, up to $532,500, were also regularly being made at branches. Some alerts were raised for these large deposits, but were not reviewed in a timely manner, having regard to the risks. By no later than 28 April 2015, CommBank considered the account to be high risk and suspicious. By this time, $14.7 million had already been sent offshore. However, CommBank did not monitor this customer having regard to the MLFT risks and permitted the highly suspicious activity to continue, with $12.2 million in cash deposits received and $11.8 million remitted overseas after 28 April 2015. Although the pattern of structured deposits, large cash deposits and international transfers occurred almost daily, an 5MB was only lodged around every 3 months or so for this account. 514 of the Late TTRs recorded transactions into this CommBank account or into the account of related persons, with a value of $5,435,860. On 3 occasions CommBank failed to report suspicions relating to this syndicate, either at all or on time as required by 41, involving transactions totalling approximately $10.1 million. Money laundering Syndicate No 4 26. 27. 28. 29. Between February 2015 and May 2016, over $21 million was deposited in cash into 11 CommBank accounts. These deposits were the illicit proceeds of a drug importation and distribution syndicate. More than half of the deposits occurred through IDMs. Shortly after each deposit, the money was transferred to other domestic accounts. Transfers were made across a number of these accounts to the same recipients, some of which were known as early as May 2015 to CommBank to be suspicious entities, including accounts connected to Syndicate No 2. A number of transactions on these accounts were not the subject of any transaction monitoring alerts, in spite of large and structured cash deposits being made. However, by mid-2015, CommBank was aware of unusual patterns of transactions and suspected structuring of cash deposits on 4 of the accounts. CommBank became aware of unusual and suspicious transactions on the remaining accounts later in 2015. CommBank also identified a connection between suspicious activity on a number of these accounts. Despite these matters, CommBank did not monitor these customers having regard to the risks, and permitted transactions to continue on these accounts. The advised CommBank in late 2015 that a number of these accounts were connected with an investigation into serious Criminal offences including ?drug importation and unlawful processing of money?. CommBank permitted several of the accounts to remain open even after this time and further transactions occurred. Eight individuals have been charged with dealing in proceeds of crime, with 6 of these individuals already having been convicted. 888 of the Late TTRs record transactions on these accounts and a related party?s account, with a value of $9,462,095. On 27 occasions CommBank failed to report suspicions relating to this syndicate, either at all or on time as required by 41, involving transactions totalling approximately $34.3 million. Cuckoo smurfing syndicate Strike Force A 30. 31. CommBank accounts were used for "cuckoo smurfing", a form of money laundering which involves transfers of money between associates within separate countries in such a way that obviates the need for money to cross international borders. In May 2015, 2 individuals were arrested and charged with money laundering and structuring offences, which were allegedly committed by structured cash deposits made into a number of CommBank accounts. as part of a "cuckoo smurfing? syndicate. NSW Police alleged that some Page 4 32. 33. 34. $1.784 million was laundered through 99 CommBank accounts between 7 October 2014 and 21 May 2015 (Strike Force A1). NSW Police first advised CommBank that it was investigating money laundering and structuring on these accounts on 26 May 2015. Between 24 October 2011 and 18 June 2016, 902 cash deposits under $10,000, totalling $7.2 million, were deposited into 12 OommBank accounts 10 of these accounts being Strike Force A1 accounts and a further two accounts related to Strike Force A1 accounts. On 20 occasions, CemrnBank failed to report $2,311,902 in cash deposits to 11 of these 12 accounts that it Suspected were structured, contrary to 41. CommElank failed to monitor these customers with a view to identifying, mitigating and managing risk. in January 2015, another individual was arrested and charged with money laundering and structuring offences, which were allegedly committed by structured cash deposits made into a number of CommBank accounts, as part of a cuckoo smurfing syndicate. NSW Police alleged that some $273,432 was laundered through 39 CommElank accounts between 10 October 2014 and 19 January 2015 (Strike Force A2). NSW Police advised CommBank that it was investigating money laundering and structuring on these accounts on 20 March 2015. Between 31 January 2012 and 18 April 2016, 276 cash deposits under $10,000 totalling $1.7 million, were deposited into 6 of the Strike Force A2 accounts. On 20 March 2015 NSW Police advised CommBank that it believed these 6 accounts had been specifically generated for the purposes of money laundering. On 11 occasions, CommBank failed to report $1,250,534 in cash deposits to 5 of these accounts that it suspected were structured, contrary to 41. CommBank failed to monitor these customers with a view to identifying, mitigating and managing risk. Additional suspicious matters involving structuring, IDMs and unlawful activity Unregistered remittance business 35. 36. Having identified patterns of suspicious cash deposits into IDMs, in mid?2015 CommBank carried out a review of all customers that made 3 or more ATM cash deposits over $5,000 since 1 January 2015. This review resulted in CommBank suspecting a number of customers as being linked to unlawful activity. CommBank failed to report its suspicions with respect to 1 of these customers who was suspected of running an unregistered remittance service. OommBank had previously failed to report suspicions with respect to this customer. Between 25 June 2014 and 14 July 2014, 85 cash deposits, both large and structured, at branches and through and totalling $491,724, were made into this CommBank account. CommBank failed to report its suspicions in relation to this customer and the $491,724 in third party cash deposits, contravening 41 on 2 occasions. CommBank failed to monitor this customer with a view to identifying, mitigating and managing risk. January 2017 deposits 37. 38. 39. Over 5 days in January 2017, CommBank accepted cash deposits totalling $320,000 through into a single bank account. CommBank failed to submit an SMR to AUSTRAC reporting its suspicions in relation to both large and structured cash deposits, and reported suspicious third party transfers into this account late. THE RELIEF SOUGHT FROM THE COURT The Applicant seeks the following relief from the Court: a. Declaratory relief under 21 of the Federal Court of Australia Act 1976 b. Orders for civil pecuniary penalties under 175 of the Act; and c. Costs. THE PRIMARY LEGAL GROUNDS FOR THE RELIEF SOUGHT By failing to comply with its Part A Program, CommBank has contravened 82 of the Act on 9 occasions. Page 5 40. By failing to file the Late TTRs within the time required, CommBank contravened section 43 on 41. 53,506 occasions. CommBank has contravened 41 of the Act on each of the 174 occasions that it failed to file an SMR on time, or at all, in relation to the money laundering and cuckoo smurfing syndicate accounts, and other accounts the subject of structured and large cash deposits. where it had formed a suspicion that it held information that may be relevant to the investigation or prosecution of an offence, including identity fraud. 42. Having identified suspicious activity on accounts the subject of structured and large cash deposits, CommBank failed to monitor customers in relation to the provision of designated services with a view to mitigating and managing the risk reasonably faced. In some instances due to the lack of transaction monitoring alerts or the timely review of those alerts, CommBank failed to monitor customers in relation to the provision of designated services with a view to identifying, mitigating and managing the risks reasonably faced. CommBank's conduct in respect cf 71 of these customers is in breach of 36. THE ALLEGED HARM SUFFERED 43. As a result of the failure to file TTRs and SMRs on time or at all, in accordance with the Act, 44. AUSTRAC and other law enforcement and designated agencies have been deprived of information which the Act is intended to provide. Non~reporting and late reporting both delays and hinders law enforcement efforts. Delays in this case have resulted in lost intelligence and evidence (including CCTV footage), further money laundering and lost proceeds of crime. It is essential to the integrity of the Australian financial system that a majcr bank such as has compliant and appropriate risk?based systems and controls in place to deter money laundering and terrorism financing. The effect of CommBank's conduct in this matter has exposed the Australian community to serious and ongoing financial crime. Date: 3 August 2947/ xii" (7ef?h ned by S'onja Marsic GS Lawyer for and on behalf of the Australian Government Solicitor Lawyer for the Applicant PageE