Example 1: Asking your customer questions 

Sam enters a Capital City Credit Union (Capital City CU) branch to deposit $150,000 cash into an account.

The teller asks Sam for identification, in line with Capital City CU’s customer due diligence and threshold transaction reporting (TTR) procedures. Given the large sum of money being deposited, the teller asks additional questions about the source of the funds and the reason for the deposit.

Asking questions about a customer and their transactions is good practice, and a standard part of most due diligence procedures regardless of whether you have formed a suspicion of the customer or not.

These questions don’t reasonably infer that you are suspicious of the customer’s activities, and most customers will expect to be asked questions when making a transaction on behalf of someone else.

This is not considered tipping off.

Disputing the customer’s explanation 

Following the teller’s questions, Sam explains that the cash being deposited is his share of an inheritance following the death of his aunt.

The teller suspects that Sam has made up the story to make the transaction appear legitimate, and tells Sam that his story appears questionable. The teller asks why an inheritance would be distributed in cash, and says that he thinks that Sam is being dishonest about the source of funds. The teller implies that Sam is involved in criminal activity.

Following this exchange, Sam argues with the teller and cancels the transaction. Sam takes the cash back and leaves. The teller flags the cancelled transaction as unusual behaviour, which leads Capital City CU to form a suspicion and submit an SMR to AUSTRAC.

The teller’s conduct is a breach of the prohibition against tipping off because the conduct enabled Sam to reasonably infer that Capital City CU would report an SMR to AUSTRAC. The teller shouldn’t have indicated that they suspected Sam was lying, even if this was the case. Instead, the teller should have accepted Sam’s story, and flagged the transaction so that a further review is undertaken and consideration given to submit an SMR.

As a result of the teller’s conduct, the transaction was cancelled. While the SMR will provide valuable information to law enforcement, it’s likely that if Sam is involved in illegal conduct, he will use a different method to hide his activities in the future. This could ultimately hinder law enforcement investigation efforts.

When reviewing its AML/CTF risk awareness training program, Capital City CU enhanced its training of front-line staff on the prohibition of tipping off obligations, and how to manage interactions with customers who may be engaged in unusual or suspicious behaviour activities.

Example 2: Enhanced customer due diligence after forming a suspicion 

Henry deposits $200,000 into an account at Zee Bank. During the transaction, the teller identifies that the quantity of cash being deposited is greater than would normally be expected from customers with a similar profile to Henry.  

In response, the teller asks Henry about where the money has come from.

Henry advises the source of funds is cash-in-hand wages, which doesn’t seem to align with the customer’s profile or the amount being deposited. When answering the question, Henry appears flustered and uncertain of his answer. The teller suspects that he is deliberately trying to avoid suspicion and decides not to ask further questions. The teller flags the transaction.

Zee Bank undertakes a further review and decides to submit an SMR to AUSTRAC.  It then carries out enhanced customer due diligence (ECDD) procedures in accordance with its AML/CTF program.

After reviewing the transaction and Henry’s reaction to the teller’s questions, Zee Bank decides that any direct contact with Henry as part of the ECDD activities could tip him off to their suspicions and breach the prohibition against tipping-off.

Instead, Zee Bank re-verifies Henry as a customer using an electronic verification service provider and performs additional background checks. Zee Bank also conducts a review of past transactions to identify any potentially suspicious activity, and monitors the account to determine whether the deposited cash is moved within a short timeframe.

Following this analysis, Zee Bank identifies more suspicious activities involving past transactions, and transactions involving cash deposits. Zee Bank submits an SMR to AUSTRAC detailing this suspicious activity.

Zee Bank briefs its senior management on Henry’s heightened risk profile and seeks approval to maintain the relationship with this customer. Senior management makes a risk-based decision to maintain the business relationship, provided Henry’s accounts continue to be monitored in line with the procedures for high-risk customers recorded in Zee Bank’s AML/CTF program. Senior management also agree to withdraw banking services if the suspicious activity continues. The assessment and the review of Henry’s continuation as a customer are documented. In line with its transaction monitoring program, Zee Bank also utilises enhanced monitoring to this customer’s account activity in accordance with their customer’s revised risk profile. Zee Bank has not breached the tipping off provisions.

Example 3: Providing legal or financial advice to a client 

Growth Financial Advisors is a reporting entity that provides financial and accounting services to New Constructions Pty Ltd, a construction business in Australia. During the course of their engagements, New Constructions asks for advice on a range of tailored strategies and local investment products that could considered for the purposes of enabling New Construction’s to reduces its costs and overheads as well as lawfully minimising its tax obligations.

In June, as part of a suite of documentation completed to change its banking provider, superannuation funds manager as well as opening an investment portfolio in a managed investment fund, New Constructions sends Growth Financial Advisors a number of invoices for work performed by a consultancy company based overseas. New Constructions asks Growth Financial Advisors to arrange payment of the invoices.

Growth Financial Advisors asks New Constructions what work was performed by the overseas company. New Constructions is unable to provide any information concerning the activity allegedly conducted offshore. Growth Financial Advisors indicates that generating false invoice for work purportedly undertaken by by an offshore company may constitute a serious criminal offence.

Growth Financial Advisors further advises New Constructions that unless the invoices are for legitimate services, they should not be paid. Growth Financial Advisors has not breached the prohibition against tipping-off by providing this advice.

New Constructions acknowledges Growth Financial Advisors for their advice and the matter is not discussed again. However, based on their interaction with the customer, Growth Financial Advisors suspects that New Constructions has not been dissuaded from trying a similar tactic in the future. Growth Financial Advisors submits an SMR to AUSTRAC because it suspected on reasonable grounds that New Constructions attempted to conduct transactions for the purposes of tax evasion and implements the ECDD measures for higher risk customers, as outlined in its AML/CTF program.

Related pages

• Suspicious matter reports (SMRs)
• Enhanced customer due diligence (ECDD) program

Related legislation

• Sections 49, 123 and 124 of the AML/CTF Act