A day after consumer credit group, Afterpay Touch raised more than $300 million and the three founders sold shares worth more than $100 million to two US investment companies, the shares plunged 12% after the financial intelligence regulator, AUSTRAC revealed it believes the company had been involved in money laundering.
It is the second major financial group in a year to be revealed as being caught up in an audit and investigation by Austrac – the other was the Commonwealth Bank.
It is a major blow to the credibility of Afterpay Touch which has become one of the hot stocks on the ASX this year with a low-value credit payment system for small purchases.
AUSTRAC has hit the company with demands for an external audit of its compliance with anti-money laundering and counter-terrorism financing laws.
“The audit will help identify if Afterpay has developed and implemented the systems and controls it needs to ensure it complies with its obligations,” AUSTRAC chief executive officer Nicole Rose said in a statement on Thursday morning.
Afterpay’s shares plunged more than 15% to a low of $21.93 after the announcement – below what investors paid for their shares in the company’s $300 million capital raising on earlier in the week.
The shares ended down 12% on the day (the biggest fall in the ASX 200) at $22.55, below the $23 a share issue price in this week’s $317 million fundraising.
The notice served to Afterpay by AUSTRAC, which was released to the ASX, states the regulator has “reasonable grounds to suspect that Afterpay is a reporting entity that has contravened and/or is contravening sections 32 and 81 of the AML/CTF [anti-money-laundering and counter-terrorism financing] Act”.
“The audit will help identify if Afterpay has developed and implemented the systems and controls it needs to ensure it complies with its obligations. These laws are in place to protect businesses, the financial system and the Australian community from criminal threats,” Ms. Rose said in the statement from the regulator.
The audit will determine the extent of any compliance issues and whether further regulatory action concerning Afterpay was required, AUSTRAC said.
The regulator said it was looking at potential compliance issues dating back to January 19, 2015.
Afterpay said it did not know of AUSTRAC’s decision to serve the notice until it was received on Thursday morning. Yet the risk had been “previously identified”, Afterpay said in response to the regulator’s notice.
“Beyond the update as to AUSTRAC’s issue of the notice, Afterpay does not currently have any material information which is in addition to the disclosures made in the investor presentation released to the ASX on June 11, 2019, and the risk factor regarding AML/CTF laws.”
AUSTRAC said “The extent of the auditor’s examination is determined by AUSTRAC and will be at Afterpay’s expense. A preliminary audit report must be provided to AUSTRAC within 60 days.”