MAA250: Ethics for Financial Professionals - CBA's Money Laundering Scandal Case Study - Accounting and Finance Assignment Help

Assignment Task:

Case Study: 
 
The knowns and unknowns in CBA's money laundering scandal:

As talkback presenter Alan Jones was calling for Commonwealth Bank boss Ian Narev to head the Australian Rugby Union on the basis he knows the difference between "black and red figures", the government's financial transaction regulator, Austrac, was reminding parliament about a different set of CBA-related numbers. 

After batting off a series of questions from senators relating to its landmark legal action against the Commonwealth Bank, the acting boss of Austrac Peter Clark made it clear at a Senate hearing on Friday he views the 53,000-plus failures in the bank's automated reporting system as individual breaches.
    
This is in sharp contrast to the CBA, which sees them as one breach of the law on the basis they emanated from a systems error. This interpretation puts an entirely different spin on the magnitude of penalties – and dollar figures – it could face.

One breach faces a penalty of up to $18 million, but if it is 53,000-plus breaches, we are talking potentially billions of dollars. Depending on the size of the fine, could be the difference between black and red figures. 
 
Austrac alleges CBA breached the Anti-Money Laundering and Terrorism Funding Act by failing to report more than 50,000 deposits over a certain size in its network of more than 500 Intelligent Deposit Machines (IDMs), which it rolled out in 2012. It also alleges it failed in its obligations to monitor 778,370 accounts knowns as "affected accounts" between 2012 and 2016.

It alleges "serious and systemic non-compliance," and that CBA's controls and procedures were not effective and in some cases, enabled customers to be anonymous and create fake names, which enabled drug dealers, organised crime syndicates and terrorists to launder and transfer money overseas.

As Austrac's Peter Clark told parliament "these are contraventions of our act, they are civil penalty contraventions, they relate to a range of non-reporting." He said the Federal Court takes into account a range of issues when determining a penalty, including the number of contraventions and the totality of the alleged behaviour.
 
When asked by Senator Derryn Hinch to clarify the number of breaches of non-reporting of transactions over $10,000, he confirmed it was more than 53,000. Clark also confirmed that six of the late transaction reports relate to cash transactions by five customers with links to terrorism and terrorism finance. That means one customer completed two transactions, which is frightening in this era of terrorism. But he refused to go a step further and respond to a question from Labour senator Murray Watt about whether the various examples of criminal activity, including drug and money laundering, that it had outlined in its statement of claim was exhaustive.
 
Questions were also batted away about who knew what and when which is something class-action lawyers, the Australian Securities and Investments Commission (ASIC) and the Federal Court will try to find out. 
 
Six of the late transaction reports related to cash transactions by five customers with links to terrorism and terrorism finance. That means one customer completed two transactions, which is frightening in this era of terrorism. 
 
As Austrac's Peter Clark told parliament "these are contraventions of our act, they are civil penalty contraventions, they relate to a range of non-reporting." He said the Federal Court takes into account a range of issues when determining a penalty, including the number of contraventions and the totality of the alleged behaviour. 
Some of the more shocking allegations relate to a notice issued by the Australian Federal Police on May 18, 2015, requesting information in respect to an account in order to proceed with an investigation relating to 16 suspicious accounts. "No customer due diligence was carried out in response to this request," the statement says. 
Against this backdrop, the bank went to the market and raised $5 billion in September 2015. It published an entitlement offer to investors that included a warning that one of the risks the bank had to manage was the risk to its reputation if it breached a string of things including its anti-money laundering obligations. What it did not say in the booklet was that it had already breached anti-money laundering laws and on an eye-watering scale.

It would take two more years before the breaches, along with other issues, would reach the market, damaging its reputation and its share price. CBA, for its part, is preparing its defence. Moreover, Austrac's allegations remain just that. However, it has put everyone on high alert about the importance of abiding by the law to ensure banks do not help facilitate criminal and terrorist activities. 

In this, the other big four banks can breathe a sigh of relief after Clark confirmed that Austrac had looked into their monitoring of intelligent deposit machines (IDMs) and had "not identified the same issues as it had at Commonwealth Bank".

Required.

Question 1:
• Explain briefly your understanding of the facts of the case. • Who were the stakeholders impacted in this case? 
                            
Question 2:
• Applying your understanding of the ethical theories and principles learnt to date, how would you categorise the actions of the Directors, CEO and the CFO, with specific emphasis on the actions of the CFO
• Would you agree with their actions taking into consideration stakeholder expectations and the market competition? 
 
Question 3:
• Applying Kohlberg’s theory how would you categorise the actions of the Board, the CEO and the CFO. 
                           
Question 4:
• Based on the facts presented what is your understanding of the culture of the bank taking into consideration the following statement by the CEO-“  In his evidence to the commission this week, CBA’s chief executive, Matt Comyn, admitted that the bank’s management culture needed to change but it was very hard to do so.
• What would be required to rectify and improve the culture and ethical standing of the bank? 
                   
Question 5:
• Why did the CBA agree to pay $700 M fine without challenging it through the courts? • Was the punishment sufficient in your view? 
                 
Question 6:
• Having read the current “Banking Code” in your view has the bank failed in its adherence to the code- be specific in applying the banking codes.

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