On Thursday the Afterpay Touch Group Ltd (ASX: APT) share price fell heavily after the payments company revealed that AUSTRAC had ordered an audit in respect of its Anti-money Laundering Counter Terrorism Financing (CTF) compliance.
The news sent Afterpay's share price down as much as 14.5% before it closed 12% lower at $22.55.
Is this a buying opportunity?
According to a note out of Goldman Sachs, its analysts appear to believe this is a buying opportunity for investors.
Although Goldman Sachs has taken no view on the outcome of the announced audit, its analysts have retained their conviction buy rating and $27.10 price target on the company's shares.
This price target implies potential upside of just over 20% based on its last close price.
What are the potential outcomes of the audit?
Goldman notes that there are several potential remedies available to AUSTRAC in circumstances where it finds reporting entities in breach of their compliance obligations under the AML/CTF Act.
This includes civil penalty orders like the one dealt to Commonwealth Bank of Australia (ASX: CBA) in 2018 for its breaches. That led to the banking giant paying a penalty of $700 million.
Tabcorp Holdings Limited (ASX: TAH) is another company which was hit with a civil penalty order. It paid $45 million of civil penalties for 108 contraventions of the Act
Another potential remedy is an enforceable undertaking. This is a written undertaking made by the reporting entity that is enforceable in a court, given to and accepted by AUSTRAC.
Then there are infringement notices. AUSTRAC could issue an infringement notice if they have reasonable grounds to believe that a person has contravened an infringement notice provision.
And finally, there is the option of a remedial direction. This would see AUSTRAC provide Afterpay with instructions on what actions it wants implemented to ensure compliance. Afterpay would then have 28 days to comply with these directions.
What now?
Whilst Goldman acknowledges that there is a risk that the AUSTRAC audit could have a material impact on the company's business model, it continues to see the risk/reward on offer as compelling as it believes Afterpay has an opportunity to replicate its ANZ success in the US market.
As a result, it continues to be positive on the investment opportunity.
