AUSTRAC Commences Federal Court Proceedings Against Mounties Over Alleged AML/CTF Failures
Australia’s financial intelligence and anti-money laundering and counter-terrorism financing (AML/CTF) regulator, AUSTRAC, has commenced civil penalty proceedings in the Federal Court against Mount Pritchard District and Community Club (Mounties). The action is the first to be taken against a licensed club group in Australia.
AUSTRAC has alleged that Mounties contravened the AML/CTF Act by offering designated services without adopting and maintaining an AML/CTF program that complied with the AML/CTF Rules.
According to AUSTRAC, these failures exposed Mounties to criminal exploitation with risks being heightened on account of Mounties’ exposure to cash transactions.
About Mounties’ OperationsReliance on Third Parties
Mounties operates 10 venues in New South Wales, with approximately 1,400 electronic gaming machines (EGMs) across 8 of those venues. It operates in a sector recognised as presenting a medium-risk for money laundering, particularly due to the cash-intensive nature of EGMs. Cash remains the primary method by which criminals extract value from illicit activity.
From 1 July 2019 to 30 June 2023, Mounties’ EGM revenue (excluding GST) totalled $459,158,462. Its flagship venue in Mount Pritchard ranks third in number of EGMs but first in net profit per machine. During the same period, customer EGM deposits exceeded $4.17 billion.
AUSTRAC alleges that throughout the relevant period, Mounties provided designated services without adequate AML/CTF controls. The Regulator identified a sample of 10 “high-risk customers” to whom Enhanced Customer Due Diligence (ECDD) was not applied. This group alone generated more than $139 million in turnover and received more than $10.4 million in payouts. AUSTRAC claims Mounties permitted large sums to be gambled without adequate monitoring or risk mitigation measures.
Enhanced customer due diligence (ECDD) is discussed further in our blog: ‘Is your customer who they say they are? A Guide to Customer Due Diligence (CDD) in Australia’.
AUSTRAC’s Allegations
AUSTRAC has published court documents in relation to the Mounties proceedings, which are available here.
It alleges that Mounties’ AML/CTF program:
did not have an adequate risk assessment
did not contain appropriate staff risk awareness training
did not contain appropriate risk-based systems and controls in its transaction monitoring program
did not include appropriate risk-based systems and controls in its enhanced customer due diligence processes
was not subject to an independent review that met the requirements of the Rules
It is also alleged that Mounties failed to appropriately monitor a number of its customers with a view to identifying, mitigating and managing the money laundering risk that Mounties faced.
Reliance on Third Parties
The development of Mounties’ AML/CTF program and various compliance functions were outsourced to an external provider, a practice not uncommon in the industry. However, AUSTRAC has emphasised that outsourcing does not shift responsibility.
Brendan Thomas, AUSTRAC CEO, stated:
“Relying on third party providers doesn’t absolve a business of its obligations under the AML/CTF Act. If a reporting entity outsources key parts of its program to a service that is not fit for purpose – especially without proper oversight or resourcing – they run a real risk of non-compliance.”
“All reporting entities, regardless of size, must stay actively involved in how their AML/CTF program is designed, implemented and monitored and I would say the same thing to other pubs and clubs who think bringing in a provider is a set and forget solution.”
More on selecting the right AML/CTF advisor: ‘Questions to Ask When Engaging an AML/CTF Advisor and Independent Review Provider’.
Alleged Contraventions
Each of the following alleged breaches carries a potential maximum civil penalty ranging from $21 million to $31.3 million:
1. Understanding of Mounties’ AML/CTF program
AUSTRAC alleges that Mounties’ AML/CTF program was inadequate and “not designed to enable Mounties to understand, recognise, identify, mitigate or manage the ML/TF risks” specific to its operations. It is alleged that it lacked detail on how to recognise evolving risks, instead outlining only general obligations without practical guidance or processes to address emerging threats in line with regulatory requirements.
AUSTRAC also criticised Mounties’ Risk Management and Risk Assessment Tables for being vague, listing risks and responses without explaining how they were identified, rated, or to be managed in practice.
2. AML/CTF Risk Awareness Training
AUSTRAC alleges Mounties failed to implement a risk awareness training program capable of equipping staff with a clear understanding of the organisation’s obligations under the AML/CTF Act and Rules. The training did not address the consequences of non-compliance, the ML/TF risks relevant to the venue, or the procedures employees were expected to follow.
The program was not aligned with Mounties’ risk profile and failed to account for behaviours indicative of suspicious activity, such as gambling or transactions inconsistent with a customer’s known profile. The program also lacked a supporting risk methodology to guide employee understanding.
3. Independent Reviews of the AML/CTF program
Between 2019 and 2023, five reviews of Mounties’ AML/CTF program were conducted by an external provider. AUSTRAC alleges these did not meet the requirements of a formal review under the AML/CTF Rules, as they failed to test or verify the effectiveness of Mounties’ systems and procedures. The reviews involved limited interviews and document review, without engagement with senior management or examination of how designated services were actually delivered. AUSTRAC claims the reviews were inadequate to assess whether Mounties was complying with its AML/CTF obligations.
4. Transaction Monitoring Program
AUSTRAC alleges that during the relevant period, Mounties’ AML/CTF program did not include a compliant transaction monitoring program (TMP) as required by the AML/CTF Rules. While the program contained a TMP section and a checklist, AUSTRAC claims it lacked appropriate risk-based systems and controls to monitor customer transactions effectively. The TMP was vague, omitted clear responsibilities, lacked guidance on how to conduct analyses, and provided no practical steps for identifying or escalating suspicious behaviour.
5. Non-Compliant ECDD Framework
AUSTRAC alleges Mounties’ AML/CTF program did not include a compliant ECDD program. Although the program included a section on ECDD and a related form, it lacked appropriate risk-based systems and controls. The program misstated when ECDD measures were required, excluded certain mandatory triggers, and incorrectly suggested that enhanced measures applied only to customers on the “Persons of Interest Register” or to high-risk PEPs. It was unclear, provided no defined risk levels or criteria, and gave no practical guidance on how to assess or apply ECDD proportionately to different risk scenarios.
6. Board and Staff Training
AUSTRAC alleges that Mounties failed to comply with the training obligations set out in Part A of its AML/CTF program. While the program required all Board members to complete AML/CTF training every two years and for staff training records to be maintained, Mounties did not meet these requirements. Not all Board members received training within the required timeframe, and records of staff training were incomplete.
7. Failure to Undertake ECDD
AUSTRAC has submitted that Mounties failed to apply appropriate ECDD measures to customers who posed a high ML/TF risk, as required by the AML/CTF Act and Rules. While Mounties identified certain customers as high risk, it did not carry out appropriate risk-based checks, including source of funds or wealth inquiries, transaction monitoring, or senior management review. Some high-risk customers were not identified as such at all.
It is now a matter for the Federal Court of Australia to determine whether Mounties contravened the Act and, if so, what penalties or orders should be imposed.
Please contact the team at Senet if you would like to discuss any of the topics covered in this article in further detail.
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