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CBA may face regulatory scrutiny in New Zealand over money laundering violations

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CBA may face regulatory scrutiny in New Zealand over money laundering violations

Experts warned that Commonwealth Bank of Australia may face regulatory scrutiny in New Zealand on possible violation of money laundering standards, as its subsidiary in the country could be probed over the use of ATMs similar to those exploited by criminals in Australia, The Australian Financial Review reported Aug. 8.

A spokesman for the Reserve Bank of New Zealand said "smart ATMs will be on the agenda for regular anti-money laundering discussions that we have with our supervised institutions."

Gary Hughes, an Australian and New Zealand barrister in financial crime, said New Zealand laws explicitly require banks to assess the money laundering risk for smart ATMs before they are rolled out.

CBA's ASB Bank Ltd. rolled out smart ATMs that are similar to those that have been used by criminals to launder money in Australia. The ATMs allow customers to deposit cash instantly to their bank accounts and then move the funds into other accounts or move the funds overseas. The CBA ATMs had no daily transaction limit, in comparison with other banks with hard limits and oversight. The loophole allowed criminals to exploit the system, as claimed by the Australian Transaction Reports and Analysis Centre, or AUSTRAC.

AUSTRAC had filed a civil lawsuit against CBA for violating money laundering and counter-terrorism financing laws, alleging that the bank made more than 53,700 contraventions of the law. CBA claimed that a software error was responsible for most of the anti-money laundering law violations it was accused of.

The Reserve Bank of New Zealand warned in April that smart ATMs present a high level of risk given their ease of use and anonymity given to users.

Nathan Lynch, Thomson Reuters' head of financial crime intelligence for Asia-Pacific, said regulators in New Zealand were studying CBA's anti-money laundering controls as it was revealed that ASB Bank's ATMs had similar vulnerabilities. Lynch said New Zealand regulators will now pressure CBA to conduct an internal review on the controls of its network.

An ASB Bank spokesperson said its smart ATMs were a different model and used a different operating system to CBA's machines. The bank has processes in place to ensure compliance with New Zealand's anti-money laundering regime, the spokesperson added.

Meanwhile, CBA said Aug. 9 that it has established a subcommittee of four directors that will oversee its response to AUSTRAC's statements and the ongoing execution of the bank's program of action to strengthen its obligations under anti-money laundering and counter-terrorism financing laws.