Citibank’s European arm has been revealed as “Bank A” in AUSTRAC’s damning legal complaint against Westpac, a potential embarrassment for the US institution which was fined $117 million last year for failing to comply with anti-money laundering regulations.
The US bank was identified by AUSTRAC as being responsible for more than 99 per cent of the 23 million transactions which were not correctly reported to Australian authorities.
In its court filings, AUSTRAC criticised Citibank for failing to provide sufficient information for Westpac to identify the source of funds or purpose of payment in a “significant” number of instances where the risk of money laundering or terrorism financing was elevated.
Citibank is not part of AUSTRAC’s case against Westpac, nor is it under investigation. But having its name associated with such a high-profile case is likely to arouse regulatory scrutiny in other jurisdictions.
“The allegations in this matter are only made against Westpac Banking Corporation and no other AUSTRAC reporting entity. Citibank is not under investigation by AUSTRAC in relation to this matter,” the agency said in a statement.
AUSTRAC alleges software glitches in Westpac’s monitoring systems prevented the bank from reporting 19.4 million transfers totalling $11.1 billion into Australia by Citibank.
Other Westpac errors deleted a further 3.5 million records of Citibank transfers in its back-up system, according to court documents filed by AUSTRAC.
Citibank was not responsible for Westpac’s errors, and was not involved in any of Westpac’s outbound payments which AUSTRAC said had been used for child exploitation.
It is understood the majority of the Citibank payments coming into Australia were on behalf of pension funds or large corporates. In other instances, they were associated with goods purchased on cross-border e-commerce platforms.
But AUSTRAC did raise concerns that inadequate information had been supplied for $3.1 billion worth of transactions received by Westpac since January 2014. It is unclear if Westpac ever sought this information from Citibank.
“A significant number of payments … with Bank A related to the transfer of funds by payment processors that potentially carry higher [money laundering/terrorism financing] risks,” AUSTRAC said.
One foreign processor comprised 40 per cent of all these payments from Citibank between 2017 and 2018.
More than 2.7 million transfers by Citibank totalling $1.48 billion only listed the payment processor, and in 206 cases the payer was listed only as a series of numbers.
In January 2018, Citibank was fined $US70 million by a US regulator after it was found to have not adhered with a 2012 order to strengthen its compliance around money laundering.
The Office of the Comptroller of the Currency found Citibank had “deficiencies in its compliance program, failing to file suspicious activity reports, and weaknesses in controls related to correspondent banking”.
Westpac is facing a fine of more than $700 million for its reporting failures, which Attorney-General Christian Porter has described as “off the charts”.
Mr Porter, who would approve any settlement, said the “unbelievably serious” allegations of money laundering and compliance breaches were of “enormous concern” to the Morrison government.
His comments suggest a civil penalty above the $700 million which Commonwealth Bank of Australia was fined in 2017 can be expected.
“I think common sense would tell us that if the Commonwealth Bank matter was at the level of utmost seriousness, this looks like it’s off the charts,” Mr Porter told The Australian Financial Review.