Law Of Financial Institutions And Securities †MyAssignmenthelp.com

Question: Discuss about the Law Of Financial Institutions And Securities. Answer: An Analysis of the Commercial Bank of Australia Money Laundering Case The Commonwealth Bank of Australia (CBA) has recently found itself in legal trouble after the Australian Transaction Reports and Analysis Centre (AUSTRAC) brought a case in court against it over breach of anti-money laundering andfinancial terrorism laws (Knaus, 2017). The Bank allegedly failed to take necessary action where suspicions arose that its Intelligent Deposit Machines where being used as a vehicle by drug syndicates to launder money. According to the Anti-Money Laundering and Consumer-Terrorism Financing Act 2006, sections 41 and 43, reporting entities such as banks are required to make reports to the AUSTRAC where they believe suspicious transactions are underway or where deposits surpass set thresholds. AUSTRAC alleges that CBA breached these provisions my failing to or delaying reports on suspicious matters even when they had been alerted of investigations by police(White Adhikari, 2017). Further, it is alleged that the bank failed to adequately assess the risk of thei r systems against money laundering and financial terrorism thus making them susceptible to misuse(Eyers, 2010). The following is an analysis of the issues arising in the case study mentioned above with a focus on the role of AUSTRAC and the liability of CBA with regard to its monitoring systems. The Role of AUSTRAC The AUSTRAC is a statutory authority which takes the role of Australias anti-money laundering and counter terrorism financing regulator and specialist financial intelligence unit(AUSTRAC, 2009). Its major role is to ensure and supervise the compliance of financial service providers and other institutions that deal in financial services such as the gambling industry, designated remittance service providers and bullion sellers, with the provisions of the AMI/CTF Act 2006. By doing so, the body ensures transparency and promotes integrity within the Australian financial industry. Its duties can be encompassed in two major roles; the role of a regulator and the role of a financial intelligence unit. In its regulatory role, AUSTRAC is tasked with promoting the obligations of the AML/CTF Act by educating and reaching out to relevant organisations to ensure they understand and comply with the duties bestowed on them. In this role, AUSTRAC collects reports from the aforementioned organisation with regard to their compliance commitment as well as programs set in place and their effectiveness in preventing money laundering and finance terrorism. It further monitors compliance by setting in place assessment programs and where non-compliance is uncovered the body has enforcement powers to address it. The execution of this role is evidenced in the aforementioned case study; AUSTRAC required reports of suspicious matters from CBA as per the law. Further, it noted non-compliance and exercised its enforcement powers to institute a suit against the bank. Additionally, in fulfilment of its roles, it conducted an assessment of the CBA systems so as to uncover the failure in the systems with re gard to monitoring money laundering and financial terrorism activities. Additionally, in its intelligence role, the organisation is tasked with collecting and analysing financial intelligence which it gains through financial transaction reports. Reporting bodies are required to make reports of their transactions to AUSTRAC, the body analyses this information to determine compliance and highlight areas that require further action to prevent money laundering and financial terrorism. These analyses aid it in determining reporting bodies that have weak systems or have failed to comply with their statutory obligations in the war against money laundering. It is through this role that the body was able to highlight the alleged failures in CBAs systems that led to the laundering of millions of dollars obtained through drug trafficking. CBAs Monitoring Systems As highlighted in the case study, CBAs liability arises from their failure to report the suspicious transactions as well as failure to report transactions that were above the set threshold. According to the opinions provided as well as AUSTRACs allegations, the failure stems from lack of proper monitoring systems. According to the law, banks are required to have money laundering control officer to regularly assess potential risks in their systems(Sathye, 2017). However, the allegations purport that CBA failed to conduct a proper risk assessment of their Intelligent Deposit Machines which were ear marked as the vehicle for laundering activities. The machines allow for a deposit of up to twenty thousand dollars at a go; as per the Act, deposits above the threshold of ten thousand dollars should be reported to AUSTRAC. The body alleges that there is a significant number of instances where the bank either failed to make a report of delayed in the same. In essence, these allegations highl ight a failure in internal governance as the systems put in place were not administered accordingly. Conclusion In conclusion, CBA appears to have breached the provisions of the AML/CTF Act 2006 by failing to act on suspicious transactions and report transactions in excess of the threshold to AUSTRAC as required. Their failure highlights a failure in governance as well as breach of statutory duty as discussed above. Lamba versus Empire Bank Esther Guo: A Case Study Analysis on the Bank-Customer Relationship Lamba contracted Empire Bank Ltd for their financial services, that is, savings and credit card facilities. Having filled the necessary forms he was instructed that he would receive his cards and other documents via mail. While at the bank he decided to make inquires with regard to available investment options for an inheritance he had recently received from his father; he was directed to Esther Guo, the financial planner who promised to send recommendations via mail. A week later, Lamba was able to collect his cards via mail, however the post did not include any related documents or the recommendations from Esther as promised. Esther Guo however called him stating that she has passed on all his details to an acquaintance at Australian Managed Investment Ltd (AML) which specialises in investments in high risk gold mining projects; what she failed to disclose however was that she would get a commission for her referral to AML. The following discussion purposes to highlight the legal d uties owed by the bank and Esther to Lamba as a customer as well as the recourse available to Lamba if Esther or the bank breached these duties. Legal Obligations Owed to Lamba The relationship between banks or bankers and their customers is a contractual relationship governed by principles of common law, equity and statutory provisions such as those encompassed inconsumer protection laws (Wentworth, 2012). As such, as a contractual relationship, both parties are obligated to perform certain duties; the emphasis of this discourse will be the obligations of the bank to the customer. Firstly, banks are tasked with the duty of confidentiality or secrecy with regard to customer information; this is a commonlaw duty that has been observed for decades in the industry(Chaikin, 2011). In Tournier v National Provisional and Union Bank of England [1924] 1 KB 461, the English Court of Appeal observed that bankers are tasked with the implied obligation not to share customer information with third parties without the customers consent. In Australia, the application of this duty is limited to the extent that it promotes misleading or deceptive conduct contrary to the provisions of Australian Consumer Law (2010)(Tyree, 2005). In essence, in as far as reasonably applicable, Empire Bank Ltd as well as its employees is tasked with maintaining secrecy with regard to Lambas information; forwarding the information to AML amounts to a breach of this duty as the act was not in exercise of any other obligations that may limit the duty of secrecy. Secondly, banks and their agents are tasked with the duty to disclose; that is, where failure to disclose may lead to misleading or deceptive conduct. The concept of silence as an obligation was illustrated by Black CJ in Demagogue Pty Limited v Ramensky [1992] 39 FCR 31 at 32. Where a bank deliberately fails to disclose information, it could be held liable for breach of duty where the plaintiff or claimant can prove that withholding said information amounted to conduct that was deceptive or misleading under the provisions of the Australian Consumer Law (2010). In Miller Associates Insurance Broking Pty Ltd v MMW Australia Finance Ltd (2010) it was held that silence in a commercial setting could amount to misleading or deceptive conduct where circumstances avail an obligation to disclose. Therefore, although parties in commercial agreements cannot rely on section 18 of the Australian Consumer Law to shift their obligation to conduct due diligence(Geer, 2013), where circumstances ari se that bestow the duty to disclose, bankers can be held liable for breach. In the case study provided, Lamba had the duty to conduct due diligence with regard to the transactions undertaken with the bank in order to protect his interests. However, the engagement with AML by Esther creates an obligation to disclose, Esther was entitled to disclose to Lamba that she would benefit personally from the transaction. Her conduct was misleading and deceptive as she acted on her own interests and not those of Lamba or the bank. Further, a consumer is generally guaranteed that services offered, according to the Australian Consumer Law 2010, are to be provided with reasonable care and skill and within a reasonable time frame(ACCC, 2017); Lamba was to receive all documents and cards promised via mail within a few days. He however received them a week later, this may be considered a minor inconvenience as there was no time set for delivery; further delay could however amount to a breach of duty. It is important to note that Esther was acting as an agent of the Bank and in as far as Lamba is concerned her actions reflect the actions of the bank. Legal Actions Available to Lamba Having established the legal obligations owed to Lamba as a customer and the subsequent breach of these obligations, the following are the legal actions available to Lamba as recourse with regard to the existing contract. In Australia, consumers in the financial services industry can seek recourse from the Financial Ombudsman Service or the Credit Investments Ombudsman. The two bodies handle disputes arising between consumers and their financial service providers where they are concerned about a breach of law, industry code or practice or a failure to meet standards or good practice that amounts to unfair treatment(Credit Investments Ombudsman, 2017). Where a consumer is dissatisfied with the determination of these bodies, they can proceed to court for further recourse which may be by way of damages or prayers to rescind the contract. The main remedies available for breach of the duties above include damages and injunctions(Dechent, 2009). Lamba can apply for an injuction to stop AML from further use of his personal information to create an investment contract. Further, he can rely on the remedy of rescission under contract law to terminate the contract with the bank if he is of the view that the contract cannot proceed due to the magnitude of the breach. He can further sue for damages with regard to inconvenience caused by the conduct of Empire bank and Esther. Conclusion In conclusion, the relationship created between Lamba and the bank is a contractual one. The contract bestows certain obligations on both Lamba and the bank and in extension the banks employees who act as its agents herein. The legal obligations arising are stipulated in statute as well as under common law. They include the duty to secrecy or confidentiality, the duty to disclose in order to avoid misleading or deceptive conduct, and a reasonable duty of care in upholding its obligations. The discussion above has succeeded in ascertaining breach by the Esther as an agent of Empire Bank Ltd. She disclosed Lambas personal information to a third party AML without his knowledge or consent. Further she referred him to the investment entity without mentioning that she had vested interest in the transaction. Lamba can seek legal recourse against Esther and Empire Bank by way of rescission as well as damages. He can apply to court to have the contract rescinded on the grounds of misleading o r deceptive conduct as well as the breach of confidentiality and request damages for loses suffered. References ACCC, 2017. Consumers' rights and obligations. [Online] Available at: https://www.accc.gov.au/business/treating-customers-fairly/consumers-rights-obligations#consumer-guarantees-applying-to-services [Accessed 3 October 2017]. AUSTRAC, 2009. AUSTRAC Annual Report 2008-09, s.l.: AUSTRAC. Chaikin, D., 2011. Adapting the Qualifications to the Bankker's Common Law Duty of Confidentiality to Fight Transnational Crime. Sydney Law Review, Volume 33, pp. 265-294. Credit Investments Ombudsman, 2017. Complaint Resolution. [Online] Available at: https://www.cio.org.au/complaint-resolution/complaint-faqs.html [Accessed 3 October 2017]. Dechent, S., 2009. Liability for Misleading or Deceptive Conduct in the Banking Industry. The Finance Industry, Volume 11, pp. 27-33. Eyers, J., 2010. AUSTRAC allegations are jaw-dropping. The Australian Financial Review, 4 August, p. 13. Frost, J., 2017. CBA faces laundering rap. The Australian Financial Review, 8 August, p. 11. Geer, T., 2013. Misleading and deceptive conduct: be wary of the silences-limited protection for commercial parties under the ACL. [Online] Available at: https://www.lexology.com/library/detail.aspx?g=030271ee-5e44-4c26-bc32-3eca7ca9abae [Accessed 3 October 2017]. Knaus, C., 2017. Commonwealth Bank accussed of Money Laundering and Terrorism-Financing Breaches. [Online] Available at: https://www.theguardian.com/australia-news/2017/aug/03/commonwealth-bank-accused-of-money-laundering-and-terrorism-financing-breaches [Accessed 2 October 2017]. Miller Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) HCA 31. Sathye, M., 2017. CBA scandal raises questions of governance and regulatory failurer. The Australian, 7 August. Tournier v National Provisional and Union Bank of England (1924) 1 KB 461. Tyree, A. L., 2005. Implied Consent. [Online] Available at: https://www2.austlii.edu.au/~alan/bankers-references.html [Accessed 3 October 2017]. Tyree, A. L., 2005. Section 52 and the Banker's Duty of Confidentiality. [Online] Available at: https://www2.austlii.edu.au/~alan/secret.html [Accessed 3 October 2017]. Tyree, A. L., 2014. Banking Law in Australia. 8th ed. s.l.:Lexis Nexis Butterworths. Wentworth, E., 2012. Essential Banking Law and Practice, s.l.: Banking and Financial Services Ombudsman Ltd. White, A. Adhikari, S., 2017. Bank Faces Massive Fines Over Allegations: CBA 'failed on money laundering'. The Australian, 4 August, p. 19.