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BFCSA: The toughest cop on finance beat -AUSTRAC Nicole Rose

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The toughest cop on finance beat

The Australian 12:00am June 5, 2018

Pamela Williams


With one hand on the throttle of a record-breaking $700 million fine against Australia’s biggest bank and one foot on the throat of criminal syndicates that ran rings round the bank and shovelled millions through its accounts, Nicole Rose has had a good week.

As the new chief of Austrac, Australia’s small but intense ­financial intelligence regulator, Rose has been an uncompromising new cop on the beat, steering the organisation’s breathtaking Federal Court action against the Commonwealth Bank into a huge and mortifying settlement that may have drawn tears from hardened bankers.

After signing a heads of agreement early yesterday with CBA chief executive Matt Comyn, Rose and Austrac achieved the distinction of striking the biggest financial settlement in Australian corporate history.

Face-to-face negotiations since May 21 between Rose, Comyn and their legal teams stretched into last weekend, now by email and phone. No one has described the talks as anything but tough.

Rose intends Austrac’s $700m hit on CBA, and the red light it ­signals, to register across the banking sector — along with CBA’s shame. She has done the rounds of the banks since taking over last November from acting chief executive Peter Clarke (who sent the action against CBA to the courts).

“The thing I’ve said to all the bank boards and CEOs in the banks is that they are not my ­target,” she says. “It’s the criminals who are the targets. And that’s why we want the banks to work with us. And that’s why we took the CBA action. We think that 70 per cent of our organised or ­serious crime has links to, or originates overseas. And that’s an Australian Criminal Intelligence Commission statistic.”

Rose says it is not Colombian drug cartels that have been ­involved. “It’s people driving up to our suburban banks and putting in this sort of cash,” she says. “A lot of it is criminal gangs. We know ­Australia is a country of choice for drug importation due to the ­mark-up … and that definitely means the proceeds of crime is in the ­economy.”

CBA was yesterday forced to concede publicly that it had sent late filings to the financial regulator on more than 53,000 suspicious matters, accounting for $625m; that about 780,000 ­accounts were not monitored in accordance with money laundering and terror financing laws; that it failed to do any ­reporting at all on other transactions worth tens of millions; and that it did not monitor customer accounts even after it suspected there was money laundering involved.

Rose was in her Canberra office last Friday — a room so small that three people squashed into the space made it hot enough to put the fan on. Outside it was cold enough for gloves.

Rose herself has a cool assurance, perhaps courtesy of years in the hothouse of criminal justice and NSW policing.

Without previewing anything of her talks with Comyn, she made it clear nevertheless that Austrac would not settle for chicken feed. The regulator wanted a big fat fine, something that would remind CBA now and others in the future that Austrac’s regulation was about black-and-white issues of law.

Asked what she thought of ­evidence before the financial services royal commission last week from CBA’s chief risk officer David Cohen, in which he estimated a three to five-year timetable to ­revamp the bank’s risk-reporting systems due to the investment cost, Rose took on a look somewhere between quizzical and dismissive. It was clear she intended the bank to speed that up.

CBA argued last year after Austrac filed its claim that there was really only a single breach — a coding error in 2012 — and that any fine should reflect this. It was an unconvincing claim and CBA had picked the wrong regulator.

Hundreds of pages of documents filed with the Federal Court that outlined the sheer hubris of the criminals and the ease with which they used CBA’s fancy new smart ATMs to pump cash into ­accounts and back out the other side, suggested the sophistry of the bank’s “one error” argument was not going to hold up.

CBA had plenty of form on surviving ghastly financial planning scandals and insurance scandals in recent years. Other regulators struggled to force real contrition at the bank.

Then Austrac arrived loudly on the scene, after years of operating in such a quiet zone that many people thought it was a railways organisation.

Months after extracting a then-record fine of $45m against ­Tabcorp for breaching moneylaundering laws, the regulator slammed CBA against the wall with its Federal Court action.

Arguably, it was Austrac that provided the final impetus for the government caving in to a royal commission into banking misconduct.

On August 3 last year, Austrac’s action arrived in the Federal Court. CBA, it was alleged, was riddled with accounts used by money launderers, drug gangs, methamphetamine importers, firearms dealers and terror financiers who just had to rip and burn their way in and out of smart ATMs that could take $20,000 in cash at a time.

Treasurer Scott Morrison ­described it as an “epic fail”. Then head of the Australian Securities & Investments Commission Greg Medcraft who had previously been widely attacked for describing Australia as a paradise for white-collar criminals, said sharply of CBA: “Basically it’s cleansing money that is dirty.”

Hard on the heels came ­Reserve Bank governor Philip Lowe who out-rated anything Medcraft had to say: “Banks should not be doing money laundering and they should know who is operating the accounts that they open … we have these laws for a reason and they need to be ­enforced and people need to be held to account.’’

Four weeks after the 600 pages of Austrac allegations arrived at the Federal Court, the Australian Prudential Regulation Authority stirred into action, launching its own inquiry, which by the time it was completed, would completely fry the bank over failings of both culture and conduct.

Within three months the banks put up a white flag, writing to the government to suggest an inquiry. It looked like a stunt co-ordinated with the government, but with Labor into its second year of calling for a royal commission into banks, conceding was probably the only option left after the Austrac shock.

When it came to negotiating with CBA after the court ordered the parties to start mediation last month, Rose held a strong and possibly invincible hand: besides Austrac in the case against CBA, there was a network of law-­enforcement co-operation ranging from the Australian Federal Police to the NSW and West Australian police.

Rose pointed out last week that Austrac’s statement of claim showed the exponential growth of money-laundering funds running through CBA’s new machines, with criminals literally arriving with stacks of cash to deposit, spreading out across suburbs and branches to build structured transactions, each falling just below the reportable amount, but building into the millions of dollars.

Rose is forthright about the ­decisions to take action against CBA that were made by her predecessors — Paul Jevtovic, a one-time AFP commissioner who had resolved that tough action against CBA was warranted, and then Clarke who put the case into the Federal Court.

The bank is known for its self-confidence and resistance to admissions of wrongdoing under former chief executive Ian Narev.

“It was a brave decision (by Austrac) and it was the right decision,” Rose says. “This is one of the great risks of fast-moving technology; and everyone has to catch up.”

Rose waves off CBA’s claims in the months after Austrac unleashed its action last year that the bank had been ambushed. “It’s ­before my time, but my understanding is that it wasn’t a surprise,” Rose says coolly.

Austrac regulates 14,000 reporting entities; the big banks make up a tiny percentage of this number. Rose intends to push them to stand beside the regulator, rather than becoming its targets.

“My nirvana state in five years is that the big professional institutions such as the banks will not only be willingly complying but actively assisting us to fight money laundering and terror financing,” she says.

Other big strands of Austrac’s attention are the pubs and clubs across the country, gaming and gambling. Even golf clubs. Anything that attracts big cash and transfers. Austrac has taken to running education “webinars” on suspicious transactions as well as information on digital currencies that it now regulates; digital currencies are attracting dirty money.

The CBA action has woken up entities across the country fearful they will be next in the sights of this small but active organisation. Where there is money and the movement of money, there is ­potentially crime.

The organisation is already in a type of catcher and gamekeeper relationship with banks and others through its Fintel Alliance to combat financial crime. This sees both sides sharing information in a ­secure environment to work on data patterns and data matching.

“We can have a private enterprise analyst sitting with a government intelligence analyst, sharing their skills and the agency’s information; it’s something that’s never been done before,” Rose says. “And it’s not just industry partners, it’s international.

“The industry members teach our staff their special skills and our staff are able to teach them more of the criminality; both sides have ­access to the sort of information you would not normally have ­access to.”

One example of this partnership was a bust co-ordinated with Western Union, to identify and disrupt child sexual abuse by watching patterns of spending. For example, analysts watched a man in Australia clicking $80 a time on a computer to order the abuse of a child in Asia — in excruciating circumstances where a poverty-stricken family abused the child live on camera for the pleasure of the remote visual molester.

Austrac has its own unusual mix of staff from both compliance and intelligence backgrounds working side by side.

“One of the things that makes Austrac the enemy of many, is we have many of our super-intelligent, spy-background analysts sitting with our compliance staff — and saying, ‘our data says you should go and look at that’,” Rose says. “We can direct our resources at the highest risk — with the compliance regulator and the intelligence in the one place.”

She describes the agency as comfortable now with the way things are going with CBA’s new chief executive.

“We’ve got a really good relationship with them and I’ve been particularly impressed with Matt Comyn. I’d like to think when this is all out of the way they will take the lead (in combating money laundering).”

She says the other big banks are anxious about compliance and very keen to assist.

Without smiling, she says: “It’s a great opportunity for us. The media reporting that CBA was taken by surprise has made them very nervous. But I’ve told all of them that they won’t be taken by surprise. I’ve told them they will be well aware early on.

“Having systems is one thing. But if there’s a flaw in the system it can be identified by risk assessment. We’re focused on the existence of risk assessment and risk management. And that means people (in regulated entities) identifying the flaws, and the processes to avoid them.

“Money laundering is not just about tax avoidance and sending your money to Panama. It occurs in everyone’s local community. It includes people turning up with a suitcase of money to buy a car. Everyone involved in financial transactions needs to be aware of it. Everyone has a responsibility for making Australia safe.”

In her earlier career as director of the office of NSW Police Commissioner Andrew Scipione, Rose was in charge of policy, internal audit, security and governance; she had been Scipione’s deputy when he was deputy commissioner. Later, she took a secondment to Canberra to CrimTrak (which runs things such as fingerprints) to manage its merger with the Australian Crime Commission to create the Australian Criminal Intelligence Commission.

She stayed with the ACIC as deputy chief executive, until an ­appointment last year as deputy secretary in charge of criminal ­justice in the Attorney-General’s Department. Last year she took over Austrac.

It was not an easy decision. “I’d moved around a lot in the previous four years,” she says. “Like everyone else I understood that Austrac was doing a good job, but it was not on my radar — they were such a ‘flying-under-the-radar organisation’.”

Justice Minister Michael Keenan wanted Rose based in Can­berra, with the other law-enforcement agencies. She started with one of the biggest actions in regulatory memory on her plate.

Austrac now, unexpectedly, has the highest profile of any of the regulators. The mafia may no longer be running guns, but the Commonwealth Bank of Australia became Exhibit A for the ­prosecution.

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