Unprecedented wake-up call for AML/CTF in pubs & clubs: AUSTRAC sues Mounties

Key takeaways:

• First AUSTRAC civil penalty proceeding brought against a pubs & clubs business, after ~5 years of putting the industry on notice
• Case stems from alleged failure to properly assess the specific ML/TF risks facing the business, which led to a deficient, outsourced “set and forget” AML/CTF Program that was not tailored to those risks
• Together with imminent, significant law reform to the AML/CTF regime, the case serves as a timely wake-up call for a sector coming under increased regulatory scrutiny

AUSTRAC’s case in a nutshell

AUSTRAC has commenced civil penalty proceedings in the Federal Court of Australia against

Mount Pritchard District and Community Club (Mounties), alleging that it engaged in serious and systemic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act).

AUSTRAC alleges that, between 1 July 2019 and 30 June 2023, Mounties’ AML/CTF Program was seriously deficient, in that it failed to:

• conduct and maintain an adequate ML/TF risk assessment;
• provide appropriate ML/TF risk awareness training to its staff;
• contain appropriate risk-based systems and controls in its:
  • Ongoing customer due diligence (OCDD) processes, including its transaction monitoring program (TMP);
  • Enhanced customer due diligence (ECDD) processes, including its failure to assess customers as high risk, or apply ECDD to those customers.
• subject its Program to a comprehensive and independent reviews;
• appropriately monitor its customers in order to identify, mitigate and manage their ML/TF risks.

Repeated warnings

AUSTRAC’s history of civil penalty proceedings, and other proactive regulatory engagement, shows that its concerns in this space are not new.

In 2017, AUSTRAC obtained a civil penalty of $45m against Tabcorp, including for failing to have a compliant AML/CTF Program in place and lodge suspicious matter reports (SMRs) on time, or at all.

In 2023 and 2024 respectively, AUSTRAC obtained civil penalties against two large casino groups ($450m against Crown and $67m against SkyCity) for similar serious and systemic failings.

More recently, in 2024 AUSTRAC commenced civil penalty proceedings against the Entain Group (T/a Ladbrokes, Neds and others), marking the first such proceedings in the online betting sector.

Back in 2022, the NSW Crime Commission released its joint “Project Islington” report, following its inquiry into money laundering via EGMs in pubs & clubs.  It found that a significant proportion of the ~$100b put into the State’s 100,000+ EGMs was the proceeds of crime or “dirty money”.

This was preceded by AUSTRAC’s national education campaign, which included visiting over 200 sites, in an effort to stop criminals laundering proceeds of crime through EGMs.  AUSTRAC actively promoted its Regulatory Guide for Pubs and Clubs, and engaged with queries from industry participants.

In 2023, following a healthy increase in the number of SMRs submitted by the sector, AUSTRAC released further guidance resources including videos, listing examples of suspicious activity indicators and steps to take to protect businesses.

Detailed alleged failures

AUSTRAC acknowledges that Mounties had what “purported to be” an AML/CTF Program.  However, it heavily critiqued the Program, which was significantly outsourced to a third party service provider, including conducting ML/TF Risk assessments, designing and delivering and AML/CTF risk awareness training program, and providing assessments and advice on suspicious matter reporting (SMRs).

In its media release, AUSTRAC was critical of any reporting entity seeking to outsource its AML/CTF obligations, reiterating that reliance on a deficient service provided by a third party, especially without proper oversight or resourcing with a “set and forget” mentality, runs a real risk of non-compliance.

Starting with the ML/CTF risk assessment, which is the foundation for any AML/CTF compliance, AUSTRAC alleges that the Program:

• did not explain the methodology used to understand, mitigate or manage ML/TF risks it faced, including new or emerging risks;
• therefore, could did not substantiate how or why certain risks were classified between “very low” and “low”; and
• contained risk management measures that were too general in nature, and did not explain how any measures were to actually be deployed.

This allegedly led to known methods of money laundering in the pubs & clubs sector, known as “typologies”, not being properly identified and managed.  These typologies included large amounts of cash being fed into EGMs, engaging in little or no game play, being redeemed in a cheque (known as “bill stuffing”).  It also included customer collusion, such as purchasing winning tickets or playing on behalf of third parties, as well as customer groups gaining the trust of and colluding with gaming staff to avoid detection or identification.

Turning to AML/CTF risk awareness training, AUSTRAC alleged this was not tailored to the actual ML/TF risks faced by Mounties, so it did not enable employees to understand the nature of those risks as well as their compliance obligations.

Similarly, AUSTRAC alleges that OCDD was deficient, vague and lacked detail:

• The TMP was not capable of logical implementation by staff, and thus failed to effectively identify or manage suspicious transactions;
• The ECDD process misstated when it should be applied, introducing limitations that resulted in it not being applied when it should have, including when customers were classified as high risk. Several customer examples are detailed, and while SMRs were filed in some instances, ECDD was not applied, including no “source of funds” (SOF) or “source of wealth” (SOW) checks.  Ten such customers turned over approximately $139m with Mounties.

Finally, AUSTRAC alleges the Program lacked any comprehensive and compliant independent review.  While reviews were conducted 5 times over several years, none of these were detailed enough, with very few staff interviews, no engagement of Board or senior management, and no analysis or investigation of how Mounties in fact provided designated services, or otherwise complied with its Program.

Law reform fast approaching

Whilst having multiple civil penalty proceedings on foot, AUSTRAC is also busily rolling out the most significant set of reforms to the AML/CTF Act since its introduction in 2006.

Amended AML/CTF Program requirements will be applied to existing reporting entities from March 2026, and thousands of new entities are set to come under the AML/CTF umbrella from July 2026, including lawyers, accountants, and real estate professionals.

Where to get help

AUSTRAC’s proceedings against Mounties, as well as the imminent law reforms, are a timely reminder that AML/CTF Programs need to be comprehensive, up-to-date, and properly implemented.

Holley Nethercote Lawyers advises clients in the gambling sector as to their AML/CTF obligations, including conducting independent reviews of their AML/CTF Programs.  We also recently successfully represented Finder Wallet in an appeal brought by ASIC in Federal Court civil penalty proceedings.

In addition, Holley Nethercote Compliance regularly assists businesses with preparing tailored AML/CTF compliance documentation, as well as risk awareness training.