The federal government is being urged to better arm its financial intelligence unit after leaked documents unearthed trillions of dollars in global money laundering.

Documents from the US Financial Crimes Enforcement Network showed banks unwittingly helped criminals move $US2 trillion ($2.77 trillion) around the globe.

As much as $US166 million ($230.8 million) of dirty money flowed through Macquarie Group and Commonwealth Bank alone – raising questions over their enforcement of anti-money laundering laws.

But La Trobe University’s Louis de Koker, a specialist in financial crime, said banks were only partly responsible and required more support from regulators. 

Professor de Koker said the federal government should strengthen Australia’s financial intelligence unit (FIU) AUSTRAC.

AUSTRAC’s effectiveness questioned

Speaking to The New Daily, Professor de Koker noted banks have no investigative powers of their own and are incapable of reviewing every case internally.

“They have to judge whether the limited facts they have cross the threshold of a reasonable suspicion,” he said.

If so, they have to make a report to government. Once they’ve done that, they’ve done their job.

“It’s then up to the FIU and law enforcement agencies to investigate that and see if any steps should be taken.”

Banks submitted nearly 250,000 of these ‘suspicious matter reports’ (SMRs) to AUSTRAC in the 2018-19 financial year, according to the agency’s annual report.

That was up 96 per cent on the year before – an increase Professor de Koker attributed to banks’ fears of ever-growing fines.

Professor de Koker said AUSTRAC has limited capacity to handle the flood of reports, as it only has 351 staff members and only a fraction of the reports prove valuable to law enforcement.

“The data is certainly being accessed,” he said.

“But we do not have public data on whether the vast AUSTRAC data holding actually results in a sufficient number of convictions and asset confiscations to justify the costs of the system in its current form.”

The 2018-19 annual report shows AUSTRAC’s Joint Agency Task Force made only 10 arrests related to money laundering over that period.

A further 108 arrests were made worldwide using information gathered by AUSTRAC’s world-leading Fintel Alliance.

The Fintel Alliance is a public-private partnership that reviews potentially suspicious activity reported by a range of partner organisations.

Professor de Koker said other countries faced similar problems to Australia.

A United Nations Office on Drugs and Crime report from 2011 estimated only 0.2 per cent of laundered funds worldwide are successfully intercepted by law enforcement.

And, earlier this year, German state prosecutors reportedly raided the nation’s FIU, for failing to pass on critical information on eight cases in a timely manner.

A handful of German FIU staff members now face prosecution for obstruction of public office, leaving the remaining investigators to sort through a backlog of 46,000 suspicious activity reports.

Better reporting, more crime fighting

Fixing the problems within the system will require a full review of how financial crime is reported and policed, Professor de Koker said.

“This global reporting system is 30 years old,” he said.

Millions of reports are compiled and filed at great cost, but only a fraction of these seem to be of value to law enforcement.

“What we need is an in-depth review of all elements of the global system and each national system to assess what actually works for law enforcement and how it could do so more efficiently.”

Higher-quality intelligence, rather than more reports, will give law enforcement agencies a better chance of stopping crime, Professor de Koker said.

It would also free up FIUs like AUSTRAC to spend more time working with law enforcement to find and stop criminals, instead of beating the banks’ brows.

“The system should be focused on combating crime rather than on mere compliance,” he said.

And public-private partnerships like AUSTRAC’s Fintel Alliance will form part of this solution, he said.

Bank fines skyrocketing

Before 2012, fines issued to banks for breaching anti-money laundering rules were rarely larger than several million dollars, Professor de Koker said.

But in December that year, HSBC was slapped with a record-breaking $US1.9 billion fine – worth $2.98 billion in Australian dollars today – for allowing the flow of drug money out of Mexico.

Professor de Koker said the incident triggered a wave of costly fines in the US, before other jurisdictions including Australia followed suit.

“It took AUSTRAC a little time to build up steam on that, but with a Commonwealth Bank fine of $700 million for non-compliance with money laundering laws it was clearly on a roll,” Professor de Koker said.

“Westpac seems to deserve a bigger fine than Commonwealth Bank. If that fine is around $1 billion, what will be the fine where bankers actually collude with criminals?” 

AUSTRAC response

A spokesperson for AUSTRAC said it uses “sophisticated technology” to assess reports received from regulated entities, to “profile, triage and flag high-priority matters for immediate analysis”.

They said 5000 “designated users” within Australia’s law enforcement agencies have direct access to AUSTRAC’s system.

“AUSTRAC is involved in many task forces and national operations … contributing financial intelligence to tackle money laundering, terrorism financing and other serious and organised crime,” they said.

The agency will also continue to develop its Fintel Alliance “to combat and disrupt money laundering and terrorism financing”.