Combatting money laundering in the superannuation sector


Combatting money laundering in the superannuation sector

Forensic Foresight: February 2017

New insights and intelligence to refresh your perceptions of risk

AUSTRAC’s ML/TF Risk Assessment for the superannuation sector (SSRA) represents the first in a series of sector-specific deep dives by Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regulator and financial intelligence unit. It provides insight into contemporary criminal threats and vulnerabilities impacting the superannuation sector. The paper offers wide-ranging insights and information drawn from intelligence collected by AUSTRAC through suspicious matter reports (SMRs), expertise and experiences contributed by regulated superannuation funds, professional bodies and other criminal intelligence and law enforcement agencies.

Historically, superfunds have generally considered their exposure to ML/TF risks to be low due to a perception that their products, customers, jurisdictions and channels represent a less attractive channel for criminal activities. However, in recognition of contemporary threats, the sector has been rated ‘Medium’ risk in the SSRA, based on a shared view by the industry that superfunds are being targeted by organised crime groups and cyber fraud attacks.

In order to best act on the intelligence within the SSRA, superfunds should be considering three key activities to ensure the threats and risks identified in the SSRA are assessed and mitigated effectively through sound ML/TF risk-management practices. We set these out below.

Call to action
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1. Enhance your understanding of ML/TF risks

A comprehensive and robust risk assessment remains an important asset for Australian reporting entities to effectively identify and manage their ML/TF risks, and to comply with their regulatory obligations for mitigating ML/TF risk. The risk profile of a reporting entity should always be informed by a carefully rationalised and well-documented methodology that is robust and comprehensive.

Guidance and risk intelligence provided by regulators, law enforcement or industry bodies about ML/TF risks within the industry are important considerations for understanding risk. The SSRA arms superfunds with real examples, industry insights and expertise to strengthen coverage and mitigation of the risks and threats identified using their own assessments of the four vectors of risk – customer (including politically exposed persons), product, channel and jurisdiction.

The SSRA specifically calls upon superfunds to revisit their risk assessments and consider the strength of their AML/CTF programs in combatting the threats that are faced by the industry. This is especially true where risk is assessed to be low and may not have fully considered the relevance and weight of threats and factors that have led to a medium risk rating for the industry in the SSRA. ML/TF risk scales are relative and a generic medium risk ranking can, in some environments, for example product/channel combinations, represent a higher relative risk which requires mitigation.

2. Tailor and strengthen your AML/CTF program

The enduring expectation on reporting entities to adopt a risk-based approach maintains that each reporting entity is best placed to understand its ML/TF risk and develop policies, processes, systems and controls within the various components of an AML/CTF program that are commensurate and proportionate to that risk. Changes in ML/TF risk profile can impact numerous risk-based systems and controls, such as employee due diligence, training and ongoing monitoring, including transaction monitoring and enhanced due diligence, and reporting.

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As part of a risk-based approach, changes to the assessment of risk trigger a need to assess the strength of existing controls within the AML/CTF program that mitigate risk to determine whether they need to be improved or whether new controls are required. This means that superfunds would be expected to undertake activities to refresh and update their AML/CTF programs in acting upon changes to ML/TF risk stemming from the SSRA, including consideration of:

  • Changes expected to resources, system and technology requirements and business processes and procedures to facilitate operationalisation of the AML/CTF program
  • Communication and management of expectations on administrators or third parties that have responsibilities under the AML/CTF program
  • Governance involved with a review of the AML/CTF program, particularly oversight by senior management and the governing board.
3. Report SMRs

The SSRA raises direct concerns of under-reporting of SMRs in the industry based on statistics about the volume and types of SMRs received by AUSTRAC. AUSTRAC has indicated that it will monitor levels of SMR reporting in the sector and it expects reporting to increase. 

The SSRA hypothesises that low reporting may be an indication of ineffective detection and reporting controls. Superfunds that have continuously reported a low number of SMRs should closely examine whether transaction monitoring, ongoing due diligence and training and awareness around detection of suspicious matters and reporting are effective in ensuring that SMRs are being identified and reported appropriately. As part of expected enhancements to governance arising from the SSRA, reporting volumes should be regularly reported to and closely monitored by senior management.

Please don’t hesitate to contact our team to request further information, ask questions or discuss your AML/CTF program.

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