CBA will pay $700 million to settle the money laundering case

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  • The Commonwealth Bank is closing one major problem in a string of scandals by closing a deal with AUSTRAC, the Australian Government’s financial intelligence agency, over massive money laundering regulation breaches.
  • The bank has agreed to pay $700 million, the largest civil penalty in Australian corporate history, and $2.5 million in AUSTRAC’s legal costs.
  • CBA also admitted further contraventions of Australia’s Anti-Money Laundering and Counter-Terrorism Act.

The Commonwealth is paying $700 million, the largest civil penalty in Australian corporate history and almost twice as much as the bank initially forecast, to settle the massive money-laundering and counter-terrorism financing case.

CBA has done a deal with AUSTRAC, the Australian Government’s financial intelligence agency, to close civil proceedings in the Federal Court.

The agreement, to pay a civil penalty of $700 million together with AUSTRAC’s legal costs of $2.5 million, follows court-ordered mediation and is subject to Federal Court approval.

As part of the agreement, CBA has admitted further contraventions of Australia’s Anti-Money Laundering and Counter-Terrorism (AML/CTF) Act beyond those already admitted, including contraventions in risk procedures, reporting, monitoring and customer due-diligence.

“This agreement, while it still needs to be approved by the Federal Court, brings certainty to one of the most significant issues we have faced,” says CBA Chief Executive Officer Matt Comyn.

“While not deliberate, we fully appreciate the seriousness of the mistakes we made. 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.”

In early trade, Commonwealth Bank shares were up almost 2% to $70.05.

The Commonwealth was taken to the Federal Court in August last year to face alleged breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act over combined cash deposits of $624.7 million.

The civil proceedings follow an investigation into the use of intelligent deposit machines which, it is claimed, became the outlet of choice for criminal syndicates to shift offshore cash from drug deals. AUSTRAC alleged more than 53,800 contraventions of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

The Commonwealth had provided for an estimated penalty of $375 million in the half year to December. CBA will now recognise a $700 million provision in its financial statements for the full year ending to June.

The bank is facing further costs of $200 million for expenses relating to currently known regulatory, compliance and remediation program costs, including the Financial Services Royal Commission where a series of scandals involving the big four banks are being investigated.

The settlement with AUSTRAC, which runs for 38-pages, includes CBA admitting to:

  • Late filing of 53,506 Threshold Transaction Reports for cash deposits through Intelligent Deposit Machines (IDMs).
  • Inadequate adherence to risk assessment requirements for IDMs on 14 occasions.
  • Transaction monitoring did not operate as intended in respect of a number of accounts between October 2012 and October 2015.
  • 149 Suspicious Matter Reports were filed late or were not filed as required.
  • Ongoing customer due-diligence requirements were breached in respect of 80 customers.

Comyn says banks have a critical role to play in combating financial crime and protecting the integrity of the financial system.

“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,” he says.

“To date we have spent over $400 million on systems, processes and people relating to AML/CTF compliance and will continue to prioritise investment in this area.

“We have changed senior leadership in the key roles overseeing financial crimes compliance supported by significant resources and clear accountabilities.

“We have started implementing our response to the recommendations provided to us by our prudential regulator, APRA, to ensure our governance, culture and accountability frameworks and practices meet the high standards expected of us.

“I am also very focused on ensuring we have clear lines of accountability across our entire business. This includes an approach to risk management that recognises the importance of non-financial risks, including an escalation framework that ensures key operational and compliance issues such as these are identified, escalated and resolved in a timely manner.

“These changes are part of a large and concerted effort to become a better, stronger bank – one that earns the trust of our customers, staff, regulators and shareholders.

“Today is another very important step forward, and continuing to make the changes we need in an open, transparent and timely way is my absolute priority as CBA’s new chief executive.”

Largest civil penalty in Australian corporate history

AUSTRAC says the parties will jointly approach the Federal Court. It is anticipated that a hearing on penalty will be scheduled in the coming months.

If agreed by the Federal Court the $700 million will represent the largest civil penalty in Australian corporate history, says AUSTRAC.

Nicole Rose, AUSTRAC’s CEO, says the penalty sends a strong message to industry that serious non-compliance will not be tolerated.

“As we have seen in this case, criminals will exploit poor business practices to launder the proceeds of their crimes,” says Rose.

“This has real impacts on the everyday lives of Australians and puts the community at risk by increasing opportunities for terrorists to support attacks here and overseas, and enabling organised crime groups to peddle drugs to our families and friends.

“We know that businesses are the first line of defence in protecting the community and our financial system from criminal abuse, and it is critical for AML/CTF compliance and risk management to be embedded in business strategy and practices.”

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