Commonwealth Bank to pay $700 million fine for anti-money laundering, counter-terror financing laws breaches
Updated
The Commonwealth Bank has agreed to pay a $700 million fine in relation to breaches of anti-money laundering and counter-terrorism financing laws.
The Federal Government's financial intelligence agency AUSTRAC had accused the bank of serious and systemic breaches of the laws last year.
As part of the settlement, CBA has admitted to the late filing of 53,506 reports of transactions above $10,000 through its "intelligent deposit machines" (IDMs).
For a period of three years, the bank also did not comply with the requirements of its AML/CTF (anti-money laundering/counter-terrorism financing) program relating to monitoring transactions on 778,370 accounts.
It also admitted that 149 suspicious matter reports were filed late, or not filed at all.
The bank also admitted that it breached its obligations to perform checks on 80 suspicious customers and transaction monitoring did not operate as intended on a number of accounts between October 2012 and October 2015.
That investigation also exposed 14 occasions where the bank failed to properly assess risks related to its IDMs.
While many of the deposits were for legitimate purposes, the bank has admitted that it failed to report "millions of dollars of suspected money laundering".
"AUSTRAC suspects that there was significant further undetected money laundering through CBA accounts that ought to have been detected and reported," noted the statement of facts agreed between the bank and AUSTRAC.
"The money laundered through the CBA accounts included the proceeds of drug and firearms importation and distribution syndicates predominantly involving methamphetamine.
"Criminal syndicates rely upon money laundering syndicates to import and distribute their drugs."
The Commonwealth Bank had originally considered challenging the number of breaches, arguing that a single coding error had led to the failure to report 53,506 transactions that were over the $10,000 reporting threshold.
However, it later decided to admit most of the alleged breaches and try to reach a settlement.
'Acknowledgement of failures'
The Federal Court still needs to accept the terms of the agreement, but AUSTRAC has heralded the settlement as a warning to other banks.
"I hope this result alerts the financial sector to the consequences of poor compliance, and reinforces that businesses need to take their obligations seriously," AUSTRAC chief executive Nicole Rose said in a statement.
"We will continue to work collaboratively with CBA as it progresses this work and I am encouraged by the manner in which CBA has handled these negotiations.
"We want compliance to be voluntary, and even taken on with enthusiasm, however we will not shy away from using our enforcement powers where necessary."
The Commonwealth Bank's chief executive, Matt Comyn, acknowledged the seriousness of the breaches.
"While not deliberate, we fully appreciate the seriousness of the mistakes we made," he said in a statement.
"Our agreement today is a clear acknowledgement of our failures and is an important step towards moving the bank forward. On behalf of Commonwealth Bank, I apologise to the community for letting them down.
"We are committed to build on the significant changes made in recent years as part of a comprehensive program to improve operational risk management and compliance at the bank.
"To date we have spent over $400 million on systems, processes and people relating to AML/CTF (anti-money laundering/counter-terrorism financing) compliance and will continue to prioritise investment in this area."
Treasurer Scott Morrison said he warned CBA's chairman Catherine Livingstone last year that the bank had a long way to go in restoring public trust.
"I made it very clear that the Government expected that CBA would be taking action and accountability in relation to restoring trust," he said.
"I think their admissions today, actions that have been taken since that time, and actions planned, provide an indication of CBA doing just that, but, as always, the proof will be in the pudding."
The bank said it will account for the $700 million in penalties in its full-year accounts, but had already provided for $375 million of this in its most recent half-year results in anticipation.
CBA will also pay $2.5 million to cover AUSTRAC's legal costs.
Fine dwarfs other corporate penalties
The fine agreed to by the Commonwealth Bank will be the largest civil penalty paid in Australian corporate history, if the court approves it.
The previous biggest settlement for money laundering breaches was a total of $45 million paid by wagering company Tabcorp for 84 failures to report suspicious transactions.
However, both companies could have faced much bigger penalties, with a maximum fine of $18 million per breach.
In CBA's case, the theoretical maximum fine totalled nearly $1 trillion, several times the market value of the bank.
Corporate law expert Professor Ian Ramsay from Melbourne University said such an outcome was never a realistic possibility.
"It would be exceptionally rare for a court to go to the very highest end of a penalty and, indeed, it was always a very real prospect that we would see a settlement in this particular matter," he told ABC News.
Professor Ramsay said it was in the bank's interest to reach a settlement before trial, even if it was costly.
"I'm sure what the bank did not want was a very lengthy trial where every day more evidence is brought before the court and then promptly reported in the media of systemic, serious failings by CBA," he said.
Scott Morrison argued the fine matched the seriousness of the offence.
"We don't operate within a margin of error on this," Mr Morrison said.
"We make sure that where there are breaches, that there should be a very clear understanding that these rules are there for a reason, and whether those rules have been breached intentionally or not intentionally, that the penalty will fit the breach."
While the Federal Court must approve the terms of the settlement, Professor Ramsay said it is rare for the judiciary to change the agreed penalty.
"In the strong majority of cases, the court carefully looks at the evidence and makes its own decision that what is suggested or recommended to it is appropriate," he observed.
Topics: banking, industry, business-economics-and-finance, australia
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