BNZ struggled to abide by anti-money laundering laws
The Bank of New Zealand has struggled to comply with laws meant to prevent criminals and terrorists laundering money through its accounts, leaked documents reveal.
That is just one of a series of failings within the bank which have come to light through a trove of documents released by an Australian whistleblower.
Stuff journalists working with leading Australian investigative reporter Adele Ferguson have trawled the documents and revealed a picture of bankers falling short of both internal and external controls, including the bank's own risk-management systems, as well as the anti-money laundering laws.
The files, which also cover the BNZ's Australian parent National Australia Bank, show that in some cases the bank was more concerned about suffering reputational damage than facing action from authorities.
The whistleblower who released the files - drawn from internal documents prepared by NAB and the professional services consultancy EY - said they wanted to raise the alarm over the banks' lax approach to managing risks, slow customer remediation, and conflicts of interest between the bank and its consultants.
The whistleblower said that after working for many years in the financial services industry, they were tired of turning a blind eye to the lies and unethical behaviour so executives can keep their bonuses.
LIFTING THE VEIL
The documents give a rare insight into the internal mechanics and culture of the BNZ.
In April last year, its Australian group chief risk officer reported that a KPMG audit of BNZ identified "11 findings that considers placing BNZ at risk of non-compliance with the [Anti-Money Laundering and Countering Financing of Terrorism Act] 2009".
The AML/CFT Act was introduced in a bid to make it harder for crooks and terrorists to operate, and shift money around the globe. It required banks like BNZ to identify and report suspicious transactions to the regulators in New Zealand, as parent bank National Australia Bank (NAB) did to AUSTRAC in Australia.
The stakes were high for banks in mid-2018. Commonwealth Bank of Australia (CBA) had been shredded in the media for failing to prevent crooks laundering money through its smart ATMs, and was just two months away from agreeing to pay A$702 million to settle the case with Australian regulators.
But the leaked documents show that BNZ was confident it would not be pinged by New Zealand authorities and rated the risk of fines as "minor", though it worried about the public finding out, and its reputation being damaged.
There were, BNZ acknowledged internally, "areas of potential non-compliance include ongoing account monitoring, suspicious transaction reports, EDD (enhanced due diligence) and politically exposed person screening".
In a statement to Stuff, BNZ spokesman Michael Burgess said: "BNZ complies with all New Zealand anti-money laundering and countering financing of terrorism regulation.
"We are extremely vigilant on all matters relating to money-laundering, sanctions and terrorist financing. We constantly review and strengthen our controls to manage a continuously changing regulatory and operating environment."
RISK CONTROLS 'STUCK ON AMBER'
The whistleblower documents highlighted that BNZ had problems with its risk-management systems, designed to ensure the safety of the banking system against a swathe of measures, including whether it was abiding by all laws and regulations, and whether it could quickly recover from a major disaster.
Its own "traffic light" system to highlight how well it was managing the compliance risks was stuck on amber for three-and-a-half years - amber suggesting that it wasn't meeting all its regulatory obligations.
Around the same time as this problem was being debated in the bank, BNZ was on a profits roll, just months away from announcing a record $1.029 billion after-tax profit thanks to a mortgage and business lending boom.
But there was no sense of triumph as the leadership of BNZ's parent NAB was under intense pressure thanks to the Australian Royal Commission to bring the risk of law and regulation-breaking within the bank down to acceptable "green" levels.
Burgess said this week, in response to the whistleblower revelations: "Internally, we use a traffic light system to identify areas we believe require work to drive continuous improvement and strengthen our compliance settings.
"As part of our efforts to drive continual improvement, we undertook an external review of our systems and processes last year. The review identified a number of findings all of which were resolved by December 2018."
"BNZ complied with all New Zealand anti-money laundering regulation during this time," he said.
BANKS UNDER PRESSURE
In Australia, the revelations have immediately sparked calls for a parliamentary inquiry into the relationship between the big banks and the nation's largest accounting firms. They follow that country's 2017 Royal Commission into the banking, insurance and financial services industry. Some events detailed in the documents took place around the same time as the inquiry was under way.
The leaked documents show NAB chairman Ken Henry privately told consultants in the midst of the Royal Commission that the bank was selling products that were ripping off customers and would eventually need to be compensated.
In New Zealand pressure on the banks has been mounting too.
On April 30 last year, Reserve Bank Governor Adrian Orr and the Financial Markets Authority chief executive, Rob Everett, met with 16 chief executives of New Zealand banks, including the four major Australian-owned banks, seeking assurance that the issues identified in Australia were not evident in New Zealand.
In May it formally handed the banks information requests for a conduct and culture inquiry, which reported in November last year, finding the banks were error-prone, slow to pay back money they had overcharged customers, and had under-invested in their IT systems.
It also warned the banks to drop sales incentives to staff to flog products like loans, credit cards, insurance and KiwiSaver to staff.
BNZ'S CUSTOMER PROMISE
In New Zealand, in June 2018, BNZ chief executive Angela Mentis told Stuff the bank would be "ruthlessly vigilant" in ensuring customers' trust in it was well-placed.
Mentis took up the New Zealand role after a stint as chief customer officer, business and private banking, with NAB.
She told Stuff: "In our focus to deliver a seamless banking experience, we assess global best practice in relation to conduct and are taking learnings from several recent financial sector inquiries across Australia, the UK and the US."
She said she had noticed differences since she came to New Zealand.
"There's quite an openness of the New Zealand regulatory environment, which is a cultural hallmark."
The bank would need to build trust by focusing on customers, she said. "We're not perfect and we will make mistakes ... we need to fix them and make the customer whole. That's the only way to hold on to customer trust."
The same month, Mentis spoke with EY about some of BNZ's internal issues.
She said the bank was getting an increased level of proactive inquiries from regulators.
And, she said, more needed to be done to ensure that "bad news" got up to senior leaders as well as the good news, in an echo of concerns within NAB that the board and executives were not hearing about the true scale of the risks that the bank was taking in areas such as abiding by anti-money laundering laws, or consumer lending laws.
BAD RUN FOR NZ BANKS
The BNZ Files follow weeks of damaging revelations about the corporate culture within our biggest bank, ANZ, after its chief executive, David Hisco, lost his job over concerns about his use of expenses. Meanwhile, the four big banks have been involved in an ongoing dispute with the Reserve Bank over the prospect of them having to increase the amount of risk capital they hold.
The Government has so far resisted calls for New Zealand to conduct its own Royal Commission into the banks, arguing that it is satisfied practices here have not matched the excesses revealed during the Australian inquiry.
However, the BNZ Files highlight various parallels and shared problems between the two banks' trans-Tasman operations, with the revelations bound to bring fresh scrutiny around how the four big Australian owned banks (ANZ, BNZ, Westpac and ASB) are really operating. (via Stuff)