It was a month on Sunday that the Commonwealth Bank’s great secret and nightmare escaped from the secrecy of the bank’s boardroom and senior management offices in its Sydney HQ and out into the public arena – those devastating claims of money laundering from the country’s financial intelligence group, Austrac.
Since then investor worries, news of an inquiry, the departure of the CEO and more evidence of just who was doing the laundering, have seen more than 12% or around $17 billion wiped from the value of the bank’s shares.
Yesterday, the Commonwealth Bank chair, Catherine Livingstone added three long serving directors to the bank’s CEO who have been forced to walk the plank over the multi-million dollar Austrac money laundering scandal.
The CBA announced Monday morning that it had appointed a new director – Rob Whitfield, the former head of the NSW State Treasury and before that a senior executive at Westpac, and that long time directors Laura Inman (2011), Andrew Mohl (2008) and Harrison Young (2007) were departing.
They join CEO, Ian Narev who will be gone as soon as the bank finishes its search for a new CEO.
Messrs Inman, Young and Mohl were members of the bank’s Audit, Remuneration and Risk Committees. Mohl will stand for election at the bank’s annual meeting later this year and serve one more year. Inman and Young are going at the end of that meeting and Whitfield has been appointed immediately.
And while the Commonwealth revealed higher than expected profits of $9.9 billion for the year to June and a bigger dividend, that played into the gathering criticism of how a big, profit hungry bank ignored regulatory concerns to boost earnings and managerial bonuses and prestige.
The bonuses and short term rewards were taken away from senior management, and the bank says it is working on its case to reply to the Austrac allegations. But control of the issue has been lost and the bank’s board will be next to feel the heat with changes coming.
Any change at the board level will be too little too late and the focus has already spotlighted the performance of the former chairman, David Turner, who retired late last year and hoped to slip into anonymity. No longer, his handling of the Austrac claims (and the new claims about big global fund transfers) will be brought into focus in the inquiry from APRA, the lead regulator.
That will questions about the role of the newish chair, Catherine Livingstone who joined the board in March of last year after chairing Telstra and the Business Council of Australia for two years. She succeeded Turner from the start of this year in the chairman’s role and those 17 months on the board as a director and then chair will have to be examined. Ms Livingstone attended two of three board meetings in the year to June 2016 and all 11 meetings in 2016-17, (and presumably the July meeting in 2017-18) and no once did we hear of the money laundering allegations until Austrac announced them on August 3.
And yet in a statement on August 9 the bank admitted that it had known about the Austrac claims since late 2015 (https://www.commbank.com.au/guidance/newsroom/statement-from-CBA-Chairman-of-the-board-201708.html?ei=card-view) That was one of 12 news releases since August 4 where the Austrac claims were the central issue. A level of public comment at odds with the years of silence, especially since the seriousness of the claims became known in late 2015.
"Significant progress has been made on a program of action focussed on strengthening its policies and processes relating to its obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act. Since the second half of 2015, when the alleged issues relating to Threshold Transaction Reporting (TTRs) in the Intelligent Deposit Machines (IDMs) were brought to the Board’s attention” the statement revealed. on August 9 read in part.
That was the first time we knew the bank had been dealing with the claims for longer than thought. And yet there were no comments from either chairman Turner or his replacement, Ms Livingstone from that time until early last month. That included the 2015-16 annual meeting in Perth last November. That is why both are vulnerable on the question of timely and adequate disclosure.
Now the bank faces the additional problem of dealing with offshore regulators – especially those in the UK and the US (including New York State) who have levied multi-billion dollar fines against some of the world’s biggest banks (such as HSBC and Standard Chartered) over money laundering. They will have no compunction in doing the same. The Hong Kong Monetary Authority and China’s central bank and regulator will also be very interested seeing much of the money was went to Hong Kong. Other cenrtal banks and regulators in Malaysia and Singapore will be interested.
CLSA banking analyst Brian Johnson told clients the situation late last week was “clear evidence that CBA’s present AUSTRAC dispute goes well beyond the simple ‘coding error’ rhetoric from CBA… It’s likely cross border, possibly in domiciles where regulators seem to extract fines of an extraordinary level,” Mr Johnsonsaid. He highlighted a case this week where New York State’s Department of Financial Services said it would seek a fine of up to US$630 million of Pakistan’s biggest bank because of "grave" anti-money laundering compliance failings.
And this is where the Federal Government, regulators and especially Treasurer Scott Morrison will be unable to wash their hands of the scandal by the outsourcing of an investigation into the CBA to APRA. That inquiry (http://www.apra.gov.au/MediaReleases/Pages/17_34.aspx) will not be looking at the Austrac scandal in any depth – as the statement from APRA stated “The independent panel would not be tasked with making specific determinations regarding matters that are currently the subject of legal proceedings, regulatory actions by other regulators, or customers’ individual cases.”
So when foreign regulators start muscling in with reports of massive fines against the CBA, it won’t just be in the hands of the bank and its still discredited board, but regulators (ASIC, APRA and the RBA) and the Treasurer and government who will also be drawn in.
In the first case management hearing in Austrac’s bombshell case against CBA, Federal Court Justice David Yates yesterday ordered the CBA to file its defence by mid-December
Once CBA has filed its defence, financial intelligence regulator Austrac will have until March next year to file its response, before another procedural hearing in April.
CBA is accused of 53 breaches of anti-money laundering laws, most of which relate to the bank not telling authorities about cash deposits of more than $10,000 to its intelligent ATMs.
Austrac accuses CBA of breaking the law 174 times through its failure to lodge suspicious matter reports on time or at all, involving $77 million in transactions. CBA’s barrister, John Sheahan QC, said yesterdday investigating each of these required very extensive work.
For each of thes 174 alleged failures, Mr Sheahan said the bank would need to look at issues including whether the transaction was reviewed; who conducted this review; their authority within the bank; whether they formed a suspicion; why not, and so on.
"That has to be done for each of the 174," he said.
Austrac’s lawsuit (revealed on August 3) against CBA ran to 580 pages, and Mr Sheahan said CBA would need three months to file its defence, which would require an “enormous” amount of work.
