Money laundering law pressures financial services

IT managers in the financial services sector are taking a closer look at software used to fight money laundering following moves by the Reserve Bank of Australia to strictly monitor foreign transactions in the wake of September 11.

Software vendor Logica PLC is pitching its HotScan product, an account scanning system, to Australia’s four major banks.

Pressure from the U.S. Government to track down terrorist funds in the wake of September 11 has led IT executives within the financial services sector to consider the technology.

In recent months the U.S. has passed the Patriot Act to combat worldwide terrorism which introduces controversial new measures on money laundering that also have implications for banks outside of the U.S.

Deloitte Touche Tohmatsu partner Tim Philipps said implications are significant as the act puts the onus on Australian banks dealing with U.S. financial institutions to implement enhanced due diligence policies, procedures and internal controls.

He said these procedures must be capable of detecting “reverse” money laundering techniques seen in terrorism financing which involves channelling clean money through entities such as charitable organizations for the purpose of facilitating illegal activity.

However, Deloitte has warned that the requirement to share greater levels of information with the U.S. may breach existing Australian laws, which prohibit the disclosure of account holders’ information.

“The act is far-reaching as the definition of a financial institution is extraordinarily broad and includes not only banks, brokers, investment and insurance companies but also travel and real estate agencies and businesses involved in vehicle sales with the U.S.,” Philipps said.

The provisions are backed by substantial penalties that include the suspension of all U.S. assets and are intended to protect the safety and integrity of banks and the banking system from manipulation.

Logica Australia’s financial services director, Bob Caraian, said money laundering cost Australia hundreds of millions of dollars a year.

“While it is improbable that we will eliminate money laundering completely, it is reassuring to know our financial institutions are doing all they can to prevent illegal activities supporting drug trafficking, terrorism and arms deals,” he said.

Caraian said his company is also planning talks with the Australian Transaction and Reports Analysis Centre, which enforces Australia’s Financial Transaction Reports Act.

In addition to laws in place to counter money laundering, Caraian predicted stiffer penalties will be introduced by the Australian Government later this year.