Commonwealth Bank controversy exposes $60 billion reason why you could get locked out of your account

Yahoo

5 days ago

Australians have been warned that if they don't comply with their bank's request for personal information, they could be blocked from accessing their accounts. That's what happened to Louis Christopher, who branded a Commonwealth Bank of Australia (CBA) request for information as "disgusting".
A CBA spokesperson told Yahoo Finance the bank was following anti-money laundering legislation and the Know Your Customer policy, which is handed down by the Australian Transaction Reports and Analysis Centre (AUSTRAC). It's another slice of power financial institutions have in their arsenal to combat financial crimes, like money laundering, fraud or scams.
Outside of freezing accounts to determine a person's funds are legitimate, the banks have also recently been scrutinised over their power to refuse cash withdrawal requests.
If customers can't explain where the money is going, or if the bank determines there's a risk of scam, you could end up like Tim, who was stopped by Westpac from seizing a $6,500 cryptocurrency opportunity.
Swinburne University Professor Steve Worthington told Yahoo Finance banks are caught between a rock and a hard place as they try to stop financial crime, and that sometimes customers won't agree with their methods.
"You're damned if you do, and damned if you don't," Worthington said.
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Stopping scams and money laundering from happening is a no-brainer.
Aussies lost a collective $2 billion to scams in 2024 (although thankfully that's a 25.9 per cent decrease from 2023). Similarly, the Australian Institute of Criminology estimated that serious and organised crime cost Australia up to $60.1 billion in 2021.
Criminals are coming up with new ways to steal and launder money in this increasingly digital world, which they use to fund sex and drug trafficking, child exploitation, fraud, terrorism and other illicit activities.
In order to prevent this scourge on the community, banks have to ask certain questions about your money, where it came from, and why it's being spent.
Unfortunately, that leaves people furious because it seems invasive.
A poll of more than 10,000 Yahoo Finance readers found 71 per cent felt banks have no right to ask you about your money.When it comes to KYC requests, banks will ask you a range of questions to make sure their systems are as up to date as possible.
It can be as simple as your name and address, or, in Christopher's situation, you can be asked to explain your "source of your money and your wealth".
The 52-year-old SQM Research founder told Yahoo Finance that handing over that type of personal information left him worried.
He's been with CBA for nearly 50 years and said there hasn't been anything "abnormal" recently that he felt warranted such a specific probe.
"I regard that as a potential security threat to have that information out there on my family," he said.
"I've been treated as a likely criminal if I don't provide this very, very personal information, and that's not on."
CBA sent him an email in April and a follow-up in May, warning that if he didn't comply with the information request within seven days, he would be locked out of his account.
He was told he also wouldn't be able to use his cards at ATMs, shops or online, and was told there would be "flow on consequences" for not acting fast enough.
The SQM Research founder felt he was being unfairly singled out, even though he had done nothing wrong.
However AUSTRAC told Yahoo Finance why everyday Aussies with no history of misdeeds might be asked for information like this.
"Banks ask customers questions and ask them to provide verification so they can understand what a normal transaction looks like for their customers," a spokesperson said.
Knowing what a regular transaction history looks like can help financial institutions spot ones that might be dodgy in other peoples' accounts.
AUSTRAC said it doesn't prescribe what type of punishment to dish out for non-compliance in KYC requests, as that's up to each financial institution to decide.
"AUSTRAC does not require banks to deny services, freeze or close customer accounts," a spokesperson told Yahoo Finance.
"Banks need to know the money laundering risks posed by the services they provide and the customers they provide them to, and have processes to manage those risks."
But, anti-money laundering legislation has a specific clause that grants financial institutions this power.
The law states that banks are well within their rights to do the following until customers do eventually comply:
refuse to continue to provide a designated service to the customer
refuse to commence to provide a designated service to the customer
restrict or limit the provision of a designated service to the customer
Banks will also have terms and conditions that allow them to do this for cash withdrawals or movements of money, which customers agree to (whether every person reads those T&Cs is up to them).
Commonwealth Bank was supported by the Australian Banking Association (ABA), which said this type of punishment was necessary to ensure KYC protocols are followed by customers.
"Banks have strict obligations under Australia's anti-money laundering laws to verify customer identity and understand the nature of their financial activity," a spokesperson told Yahoo Finance.
It said KYC isn't just for banks to stop money laundering, but also plays a "vital" role in protecting Aussies from fraud, scams and the use of accounts by money mule networks.
Money mule networks are bank accounts used for illegal activities and serves, and act as an intermediary between the scammer and the illicit funds.
Rather than having all the scammed money in one account, they can send it to multiple, both in Australia with different banks and overseas, to make it harder for authorities to track it down.
"Banks are required to periodically confirm that KYC information is correct and are not permitted to continue to provide services when they are aware that information is out of date," the ABA spokesperson added.
"This means that if a customer doesn't respond to repeated requests for information, banks may be legally required to restrict or close the account.
"These checks are essential to protect customers and the financial system from fraud, scams and criminal misuse."