In the recent judgment of Justice Nye Perram in the interlocutory matter AUSTRAC v Tabcorp (TAB Limited), the judge made comments which should make boards, senior management, risk and compliance teams, and AML professionals sit up and take note. The comments of most significance related to anti-money laundering (AML) compliance programs, money laundering and terrorist financing (ML/TF) risk assessments, and AML program governance. The judge’s comments also have relevance to record creation and record keeping obligations.
AUSTRAC V Tabcorp Background
The background of this matter is an application from TAB to set aside certain paragraphs of a notice to produce served upon them by the Australian Transaction Reports and Analysis Centre (AUSTRAC). Essentially, TAB did not want to produce, or could not produce, certain documents requested by AUSTRAC within the prescribed timetable.
Aside from AUSTRAC’s originating application coupled with its statement of claim, and TAB’s defence, this notice is the most enlightening to date as it sheds light on the proceedings in general and TAB’s defence in particular.
The judgment of Perram J can be downloaded here.
In his decision Justice Perram states: “The gist of Austrac’s case, at least so far as disclosed on the present application, is, first, that the TAB has failed, in a number of instances, to have complied with its obligations in relation to the obtaining of customer identification information contrary to Part 2; and, secondly, that it does not have in place (or perhaps enforce – there is some controversy about this) an adequate anti-money laundering and counter-terrorism financing program as required by Part 7 (the interests of brevity will be best served if such a program is hereafter referred to only as an ‘AMLCTF program’). Obviously, this is denied by the TAB.”
A high level outline of AUSTRAC’s case was given by the solicitor for TAB, mentioned in Para 15, namely:
- the credit betting allegations (it being contrary to the Act to provide a credit betting facility);
- the NRL betting incident allegation;
- the suspected credit card fraud allegations;
- the program allegations;
- the online ACIP allegations; and
- the retail ACIP allegations.
Mention was made at Para 16 of TAB’s defence to the allegations. Justice Perram states: “Associated with each of those sets of allegations was an independent issue known as the Section 236 Defence issue. In short compass, s236 will provide the TAB with a defence to a claim for a civil penalty in respect of a contravention if it proves that it ‘took reasonable precautions, and exercised due diligence, to avoid the contravention’.”
If this action proceeds to judgment there will be much interest in how the s236 defence operated, if at all.
DOCUMENTS REQUIRED TO BE PRODUCED BY TAB
Money laundering/terrorist financing risk assessments
Paragraph 9 of the notice requires production of the documents or things “which evidence or record…the risk assessment(s) referred to in Section 9 (pages 13-14) of the Joint AML/CTF Program v0.09 dated 25 September 2012.”
Justice Perram states at Para 31: “A copy of the document [TAB’s Joint AML/CTF program v0.09] was in evidence. At pp13-14 there is a section headed ‘risk assessment’. To give the flavour of the current problem, one part of this section reads ‘Tabcorp Wagering has assessed the AML/CTF risks in its wagering business and considers that the wagering business poses a low AML/CTF risk.’ Paragraph 9 seeks the risk assessments carried out to come to this conclusion.”
Paragraph 32 states: “The TAB submits that there is no issue to which the risk assessments could go. It says that when one looks at the way the case has been pleaded and the way its defence works, the real issue between the parties is whether the program which it has in place meets the statutory requirements of Part 7.”
At paragraphs 33 to 35, Justice Perram discusses AML programs in general citing sections 81-87 of the AML/CTF Act. He paraphrases AUSTRAC’s case in relation to the TAB’s AML program as follows:
“The way the pleaded case works, therefore, is that there is an allegation that the TAB’s program does not ‘identify, mitigate and manage’ the risk of some particular kind of default (in the case of paragraph 1322, credit card fraud), and this is then said to be a breach of s 81, as a result of non-compliance with s 85(2)(a) (infra). The case, therefore, is not that the TAB has an adequate program which it has failed to enforce; rather, it is that it has failed to put in place an adequate program in the first place (although paragraph 1324 does include an allegation that there was a failure to maintain an AML/CTF program).”
Further discussing the link between ML/TF risk assessments and an AML program, at paragraph 39, Justice Perram states:
“This calls for an inquiry into the purpose of a document. It seems to me legitimate to say that a program does not have the requisite purpose under s 85(2)(a) if no risk assessment was carried out in formulating the program, or if any process of risk assessment was manifestly inadequate. If the risk assessment process which led to the formulation of the program was devoid of merit or merely formulaic then it is at least arguable that it will be possible to contend that the ensuing program lacks the purpose required by s 85(2)(a). Indeed, a purely formulaic assessment process may well lead to the conclusion that a program derived from it is not intended to identify and manage relevant risks.
This view is a salient warning with regard to the need for reporting entities to carryout effective ML/TF risk assessments.
Justice Perram orders the production of the risk assessments in para 40, concluding that: “In my opinion, production of the assessments referred to at pp13-14 of the Joint AML/CTF program dated September 25, 2012 (or, if there be none, their non-production) is reasonably likely to add to the relevant evidence.”
Suspicious matter formation and reporting
With regard to TAB employees forming or not forming reasonable suspicions with regard to the credit card fraud at paragraph 49, the judge states: “TAB admits that the account was frozen by a person with authority to freeze an account but denies that it suspected a contravention of the law. Mr White submitted that the TAB was going to seek to deny that the employees involved in suspending accounts had authority to form reasonable suspicions.”
This defence might lead to judicial discussion on who in a reporting entity actually “suspects on reasonable grounds” [AML/CTF Act Section 41] and when does that reporting obligation arise?
Board minutes and adoption of the AML program
AUSTRAC seeks at paragraphs 21 to 23 of the notice the following documents:
21. minutes of the board of each respondent adopting or approving the joint program referred to in paragraph 1204 of the defence.
22. the adoption or approval of all AML CTF programs maintained by the respondents for the period September 25, 2012 to February 1, 2013.
23. minutes of the board of each respondent adopting or approving all AMLI CTF programs maintained by the respondents for the period September 25, 2012 to February 1, 2013.
These requests go to the governance or senior management oversight of the AML program. Documents which AUSTRAC, and any good independent auditor, would request of a reporting entity.
Of note, at paragraph 54 Justice Perram states: “The relevance of these matters requires a slight digression. The program upon which AUSTRAC relies in its statement of claim is dated September 25, 2012 and bears the moniker ‘Version 0.09’. In its defence the TAB says that this program was only in place from in or about February 2013. AUSTRAC now seeks to understand what was happening between September 2012 and February 2013. I accept this is relevant.”
AML program compliance framework documents
AUSTRAC seeks at paragraph 29 of the notice the following documents:
29. the following referred to in Sections 2 (page 3) and 3 (page 4) of the Joint AML/CTF Program v0.09 dated September 25, 2012, for the period September 25, 2012 to July 21, 2015:
29.1. Compliance framework;
29.2. Annual compliance plans;
29.3. minutes of the board audit, risk and compliance committee reviewing and approving annually the documents referred to at 29.1 and 29.2 above;
29.4. reports by the GM Regulatory Integrity and Responsible Gambling informing the board audit, risk and compliance committee of significant matters of noncompliance with the AML/CTF program;
29.5. minutes of the board audit, risk and compliance committee’s consideration of the reports referred to at paragraph 29.4 above
Justice Perram agrees that these documents should be produced, stating: “For the reasons I have given in relation to paragraph 9, I am satisfied that this material is relevant in the requisite sense. Paragraph 29 is one of the categories that is relevant to any opinion AUSTRAC’s expert may form on an AMLCTF program.”
Again, these are a class of documents that AUSTRAC and an independent auditor would request from a reporting entity.
Enhanced customer due diligence
At paragraphs 32 to 37 of the Notice, AUSTRAC seeks documents relating the TAB’s applicable customer identification procedures (ACIP), especially TAB’s “customer risk registers”, enhanced customer due diligence carried out on certain customers on the “customer risk registers”, and ACIP with regard to certain customers. Justice Perram accepts AUSTRAC’s arguments at para 59:
“Paragraph 32 seeks records of a determination made in relation to 2 customers using 4 names. There is no dispute between the parties that the two individuals had been identified as high risk. However, the TAB’s admissions do not include any admission as to the time at which the TAB determined that the individuals in question were high risk; that is to say, the date of determination remains unknown. Austrac says it is relevant to know when the determination was made. Various reasons for this are advanced. For example, it is said to be relevant to the case based on s 32 because once it is known when the TAB had identified a customer as high risk, it will become clear what steps it took (or did not take) in light of that information.”
OTHER POINTS OF INTEREST
One agreed fact between the parties is that the TAB has spent a large amount of money in defending the current proceedings to date. Perhaps this is the most significant lesson in this action so far. In a general comment on the cost to TAB so far, Justice Perram says:
“An additional and independent reason for reaching the same conclusion is that I do not accept, given the scale of this litigation, that the A$100,000 put forward by Ms Warner amounts to much more than a drop in the ocean in the context of the amounts of money being spent by the TAB; that is to say, one ought not accept that great expense in litigation of this kind is necessarily positively correlated with the imposition of prejudicial burden.”
TAB has admitted many of AUSTRAC’s allegations.
The trial has been split into liability and penalty, meaning that the issues of liability will be decided at a separate hearing. Only when, or if, liability has been established will there be another hearing to determine the penalty. If AUSTRAC fails to prove its case against TAB then there will be no hearing as to penalty.