Blockchain a solution to boost AUSTRAC compliance
Updated: Nov 26, 2019
Anti-Money Laundering and Counter-Terrorism Financing compliance is back in the news, with the announcement that AUSTRAC will allege in the Federal Court that major Australian bank Westpac has contravened the AML/CTF Act on over 23 million occasions, potentially leading to a billion dollar fine.
These contraventions primarily relate to Westpac self-reporting a large number of international fund transfer instructions (IFTIs) which ought to have been reported earlier. This latest AUSTRAC action follows its record $700 million penalty against the Commonwealth Bank of Australia, also for serious breaches of the AML/CTF Act.
Given these problems appear to be so prevalent, any entity with AML/CTF obligations will be (or should be) considering whether they are meeting their obligations, and whether there is a better way of doing so.
Eric Knight, an associate professor at the University of Sydney Business School and Nick Armstrong, CEO of Identitii have argued in an editorial published in the AFR that blockchain technology is the obvious, and optimal solution to this problem.
...even though blockchain has been much maligned recently for its socially questionable use in cryptocurrency, we believe that making international payments safer and more compliant is arguably one of the most important use cases for blockchain... [Blockchain] allows for an auditable, unalterable and trusted distributed ledger that provides a secure data store alongside the bank payment and reporting engines.
Many international clients already pay Piper Alderman via cryptocurrency to take advantage of fast transfers and low costs. The use of blockchain for international transfers will undoubtedly continue to grow.
We agree with Knight and Armstrong's comments that the regulatory requirement for reporting (and the data that needs to be reported) is only likely to grow in the future. It seems clear that currently, legacy IT systems used by banks and other non-bank financial institutions will increasingly fail to be fit for purpose compared with blockchain powered solutions.