CBA says ‘not every problem’ fixed after money-laundering allegations

Commonwealth Bank chief Ian Narev admits “not every problem” has been fixed following allegations it breached money laundering laws.

Mr Narev was grilled by journalists today over civil action against the bank taken by regulator Austrac, which alleges more than 53,000 breaches of money-laundering laws.

CBA today set out action it had taken to comply with the laws since it was first alerted in 2015 to failures in reporting transactions by its smart ATMs.

But when asked why Austrac would take action against CBA if the problem had been rectified, Mr Narev said: “We’re not saying every problem’s been fixed.

“We need to go through and work……and I’m not going to sit here and say every problem’s been fixed.

“It is important to bear in mind that we have a regulator here that is a very diligent regulator with an extremely important job to do. Austrac needs to exercise its powers, and be seen to exercise its powers very forcefully.”

CBA retreated 0.7 per cent after Mr Narev’s press conference began to a new session low of $80.87.

Mr Narev also defended CBA’s decision not to report alleged breaches to the market before Austrac last week launched civil action in the Federal Court.

“We report around four million transaction reports to Austrac each year. We exercise judgment as to what requires disclosure … our view is that these things didn’t come anywhere near (that requirement) in the form they came at the time.”

Austrac alleges CBA’s repeated failures to deal with suspiciously large and repeated cash deposits into its smart ATMs delayed and hindered enforcement ­efforts, costing agencies intelligence­ and evidence while ­allowing money laundering to continue.

Questioned today, Mr Narev said: “We’re going to look very carefully at the claims and why warnings that claimed to have been given were not heeded.”

He added: “It’s going to be important to make people understand that a lot of work has been done since these claims were brought to our attention. A lot of work still needs to get done and we’ll continue working closely with Austrac.

“The reality is, when dealing with criminal elements, people find ways to circumvent the limits that you put on (the machines).”

Mr Narev also denied CBA had profited from transactions at the centre of the civil action.

“There is no economic reason that would underpin the alleged activity and that’s not part of the equation,” Mr Narev told journalists. Nor was there any evidence the bank had assisted with any terrorist funding.

Mr Narev was speaking after the CBA said earlier it had no reason to believe alleged breaches of money-laundering laws arose from deliberate or unethical behaviour, or any commercial motive.

The statement came as CBA’s board moved to create a dedicated subcommittee to deal with the allegations by Austrac, with $40 million worth of new anti-money laundering technology to be delivered over the next 12 months.

CBA released its update after today unveiling a bumper $9.9 billion full-year profit, and after it yesterday slashed bonuses for CEO Ian Narev and senior executives, and cut directors’ pay, in the wake of over 53,000 alleged breaches of money-laundering laws.

In a statement earlier today, CBA said it had become aware in the second half of 2015 of “alleged issues” relating to threshold transaction reporting (TTRs) on CBA’s network of intelligent deposit machines (IDMs).

CBA said it had already made some progress in strengthening its policies and processes relating to its obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act.

The board has already moved to cut the short-term variable remuneration outcomes for Mr Narev and group executives for the financial year ended June 30, 2017. Fees for non-executive directors have also been slashed 20 per cent during the current 2018 financial year.

“This reflects our view that the board, CEO and group executives take ultimate collective responsibility for the reputation of the bank,” the CBA board said.

With management accountability now under a microscope, CBA’s board maintains that the bank had not been deliberately complicit in any laundering activity carried out over its network of smart ATMs.

“The board notes that it has no reason to believe that the allegations arose from deliberate or unethical behaviour, or any commercial motive,” it said.

CBA said this week its automated reporting system was knocked offline by a coding error introduced during a software update in 2012.

The bank added that the error was rectified as soon as it was notified and it had taken significant additional steps, including the addition of manpower to its criminal compliance team, the development of a specialist hub to strengthen its Know Your Customer (KYC) processes; and an upgrade of its financial crime technology capabilities.

Mr Narev added this afternoon: “We are not saying it’s all about a software error … we’re saying a significant proportion was due to a coding error. We are going into this with an open mind and we’re going to look at every single claim under the supervision of the committee. It’s going to take a while.”

Mr Narev today repeated the bank made “made mistakes”.

“It’s been a tough time at the Commonwealth Bank since the Austrac proceedings were filed and we’re taking them very seriously,” Mr Narev said. “We know that we’ve made mistakes; we have fixed a lot of those mistakes and we will continue to look to make our business better and better.”

While each of the more than 53,000 alleged contraventions carries a maximum penalty of $18m, the bank has downplayed the prospect of a massive penalty, arguing the breaches overwhelmingly relate to a single software error.

In a separate development, ANZ responded to media reports by declaring it has

systems in place to ensure it complies with anti-money laundering obligations.

“We are also subject to continuous supervision from Austrac and have no outstanding requirements,” ANZ said.

ANZ said Austrac had reviewed its smart ATMs in late 2015 and found no evidence of noncompliance with anti-money laundering regulation.

http://www.theaustralian.com.au/business/financial-services/cba-says-no-unethical-behaviour-behind-moneylaundering-scandal/news-story/f5fed05fa40066ce18af27042878620f

Photo: James Croucher