Five top tips for managing AML in the mutual banking sector.

By Simon Bligh, CEO illion

AUSTRAC has recently released the latest in a series of risk assessments into money laundering and terrorism, focusing this time on Australia’s mutual banking sector. This insightful report  has confirmed AUSTRAC’s overall assessment of the money laundering and terrorism funding risk for mutuals is medium, however some specific risks that need to be considered are identified. AUSTRAC points to new evidence suggesting entities who pose a high risk of terrorism financing may be turning to mutuals ‘after a period of transacting with other banks’. Certainly it is becoming clearer that sophisticated actors are targeting the sector and there is endemic and ongoing risk due to extensive merger and acquisitions activity. I believe there are now two key questions on the table for directors or executives in mutual banks:

1) Is your organisation managing its risks appropriately?

2) If you have been part of a merger or acquisition, or are planning for this, is the other organisation you are involved with managing their risks appropriately?

My top tips to manage AML risks

illion can help you to answer these questions with many identified risk vectors.  Here are my top tips for your consideration:

1) Identify politically exposed persons (PEPs) within your customer base

This is a big issue for mutuals, with AUSTRAC reporting more than half of mutuals approached confirming they were finding PEPs in their suspicious matter reports.

  • While PEP and Sanctions checks are performed during on-boarding, we are aware that some mutuals may not keep their customer profiles up to date.
  • Adverse news checks are typically not performed in the mutual sector. This is critical in identifying risk in your customer base, for example customers linked to criminal activity or terrorism.
  • illion has a class-leading PEP & Sanctions solution in Australia, which is monitored daily, can be hosted locally, and provides low false positive rates.
  • Keeping false positive rates low is key to ensuring your staff costs are controlled and time is not wasted investigating spurious alerts

2) Understand the risk posed by charities and charitable donations

Charities are singled out in the report as being a risk vector. illion has every registered charity on our database, categorised by risk, with a range of three tiered reports containing different levels of information on charities. illion sees banks who:

  • Think they are banking charities, but the organisation is not actually a charity.
  • Are banking charities, but these haven’t been identified.
  • Are banking charities that have had their status revoked.
  • Have not distinguished between high-risk charities (e.g. raising funds for high-risk overseas areas) and low-risk entities such as World Vision.
  • Have not investigated the control structures of charities to identify the individuals running the charity.

If you want to investigate Charities who are your customers, please be aware of our solutions.

3) Remitters are high risk

We frequently see high risk remitters mis-categorised as belonging to another segment, for example as a newsagent.  Its critical to correctly identify remitters in order to categorise high risk customers correctly. illion incorporates information from the AUSTRAC remittance register on our database, enabling us to see every AUSTRAC-registered remitter, including remitters that have not been identified as such e.g. newsagents.

4) Remember deceased persons also pose a risk

illion is a founder participant in accessing the government’s ‘Fact of Death’ database.  This brand-new data set provides access to up to date information on deaths across >86% of the population in Australia:

  • We see dead people all the time who have not yet been identified.
  • This can lead to poor customer experience, as well as being an AML risk.

5) Watch out for identity fraud – it happens more often than you think

  • illion income and expenditure (I&E) checks help avoid fraud. Twenty-three per cent of the suspicious matter reports in AUSTRAC’s sample group indicated possible fraud against individuals, with the most common fraud types being scams and identity fraud.
  • In addition to I&E checks, illion provides the market-leading individual verification product ‘greenID’ which confirms identity.
  • We also offer an advanced facial biometrics product which is a next-level check that matches the actual individual to the identity.

In summary

As the mutual sector expands, AUSTRAC says the scale and complexity of its customer base, product offerings and delivery channels will also increase: ‘Unless well-managed, increasing scale and complexity will also increase the sector’s vulnerability to criminal exploitation’. Finally, AUSTRAC recommends that mutuals need to continually review their systems and controls to ensure they remain adequate in relation to their changing profile.

For a confidential discussion about how illion can help you manage all of your AML risks, please don’t hesitate to reach out to our AML expert Richard Atkinson (richard.atkinson@illion.com.au).