Friday, August 18, 2017

Five Commonwealth Bank customers allegedly financed terror says Austrac

Five customers of the Commonwealth Bank allegedly financed terrorism through six transactions using intelligent deposit machines, according to the financial intelligence agency Austrac.

Listen to my report on The World Today

In response to questions from a senate committee about its case against the CBA, the agency's acting chief executive Peter Clark pointed the terror financing allegations contained in Austrac's 600 page statement of claim filed in the Federal Court on August 3.

"Of the late threshold transaction reports we've claimed that six of those relate to cash transactions by five customers whom the bank has accessed as (having) a potential link to terrorism or terrorism financing," Mr Clark said.

Mr Clark also refused to say if he was confident that the CBA was now complying with anti-money laundering and counter terrorism legislation given that the case set to begin on September 4.

However in response to a question from Queensland Labor senator Murray Watt, Mr Clark gave Australia's other major banks - Westpac, the ANZ, and National Australia Bank - an "all clear".

"We've looked at the other banks in particular and we have not identified the same issues with those banks," Mr Clark said.

The Commonwealth Bank is defending allegations from Austrac (the Australian Transactions Reports and Analysis Centre) that it breached anti-money laundering rules on almost 54,000 occasions and did not report suspected criminal activity when it emerged.

While conceding "mistakes were made", the Commonwealth Bank has repeatedly said there was intention to financially benefit from alleged transactions by drug runners, terrorist financers and other criminal elements.

Mr Clark was also pressed by Greens senator Peter Whish-Wilson to explain why Austrac had levelled civil rather than criminal charges against Australia's biggest bank.

"The evidence we've gathered as part of the matter supports taking civil penalty action. We do have some criminal provisions but they don't apply to the particular offences in this matter," Mr Clark said.

"We give very careful consideration to what measures we seek to apply particularly when it's of a serious nature. So a lot of careful consideration was given before filing civil penalty proceedings in this case."

Independent senator Derryn Hinch quizzed Mr Clark on the extent of the potential penalties which if applied to each of the 54,000 breaches would amount to around $960 billion.

"I can't comment on the penalty other than to say it's a matter for the Federal Court. There's a maximum penalty per contravention and that's $18 million," Mr Clark said.

However industry figures say speculation in the media about the maximum penalty is unrealistic and unsustainable while Ian Narev told the ABC that some estimates were "out of the ballpark".

Earlier this week, Commonwealth Bank chairman Catherine Livingstone said chief executive Ian Narev would retire by June 30, 2018 as part of succession planning.

Mr Narev's scheduled departure follows a decision by the CBA board to cut 2017 bonuses for Mr Narev and the CBA group executive to zero as it deals with the Austrac allegations.

In a separate investigation, the Australian Securities & Investments Commission is examining whether the CBA breached continuous disclosure rules when it did not report the money laundering risks when they emerged in 2015.

Friday, August 11, 2017

ASIC to probe Commonwealth Bank's handling over money laundering allegations

The Australian Securities and Investments Commission has confirmed it will investigate the Commonwealth Bank's handling of suspicions that its intelligent deposit machines were used by money launderers and criminal gangs.

Chairman Greg Medcraft says the corporate regulator will investigate whether the CBA's board complied with continuous disclosure laws when it decided not to alert investors to the suspicious behaviour.

Commonwealth Bank chairman Catherine Livingstone said earlier this week that the bank's board first became aware in the second half of 2015 that the CBA's intelligent deposit machines were at risk of being targeted by criminal elements including money launderers.

Speaking to a parliamentary joint committee in Sydney this morning, Mr Medcraft said ASIC would look specifically at whether the CBA's officers and directors complied with their disclosure duties under the Corporations Act.

"I wanted to inform the committee that ASIC has commenced inquiries into this matter and any consequences this matter has for the laws we administer," Mr Medcraft said.

Mr Medcraft said the probe would examine whether the CBA complied with their licensing obligations "to act efficiently, honestly and fairly" in line with a requirement to report potential liabilities.

Chief executive Ian Narev has rejected criticism that the bank's board should have informed investors as soon as it became aware of the gravity of the money laundering allegations.

"In an organisation of this size there are individual items that come to the attention of board and management from regulators and others all the time," Mr Narev told the ABC on Wednesday.

"We shouldn't and can't be in a situation where we could disclose every time anything comes to our attention. That would end up being very confusing to the market."

The Treasurer Scott Morrison yesterday described the latest scandal engulfing the Commonwealth Bank as "an epic fail" and "incredibly serious".

Mr Morrison said the decision not to disclose the suspicions to investors was one of the reasons he was "puzzled" about the CBA's handling of the allegations.

Mr Medcraft noted that companies including the CBA were not required to alert ASIC to breaches of anti-money laundering and terror financing laws.

However, in his address to the parliamentary committee Mr Medcraft repeated his earlier concerns about the importance of culture in financial services firms.

"Our view is that culture is a set of shared values and assumptions within an organisation," Mr Medcraft said.

"It reflects the underlying mindset of an organisation and the unwritten rules for how things really work."

"If the culture and values of a business are not aligned with customer outcomes it is easy to see how a trust deficit will emerge and this will impact its long term sustainability."

Without specifically mentioning the Commonwealth Bank, Mr Medcraft alluded to an earlier case involving the Centro property group where disclosure rules were breached.

Mr Medcraft said directors needed to "bring professional scepticism in exercising their role" while ensuring the effectiveness of risk management systems.

The ASIC investigation of the money laundering scandal is the latest chapter overshadowing the CBA's full year profit of $9.93 billion announced on Wednesday.

The financial intelligence agency AUSTRAC has alleged that the Commonwealth breached anti money laundering regulations on almost 54,000 occasions and failed to report suspicious activity when they become aware.

The Commonwealth Bank is preparing a defence while chief executive Ian Narev has conceded that "mistakes were made" in the handling of the scandal.

Friday, August 4, 2017

Reserve Bank bullish on economy but worries about rising Australian dollar

The Reserve Bank has slightly downgraded its growth forecasts for the Australian economy while predicting a bounce back over the next few years as inflation returns to normal levels.

In its quarterly statement on monetary policy released this morning, the RBA sees growth in December 2017 of two to three percent edging back from 2.5 to 3.5 percent in the previous forecast in May.

"The economy is expected to grow at an annual rate of around 3 percent over the next couple of years which is a bit higher than estimates of potential growth," the RBA says.

After falling below the RBA's target band of 2 to 3 percent in the most recent quarter, the central bank seeing inflation returning to 2.5 to 3.5 percent by June next year.

The RBA cites business investment growth, a higher iron ore price and an unemployment rate of below 5.5 percent as evidence of its more positive outlook.

"The outlook continues to be supported by accommodating monetary policy and an improvement in the global economy," the statement says.

The Reserve Bank left the cash rate on hold at its August meeting judging the record low 1.5 percent level to be consistent with sustainable economic growth.

The RBA believes the pickup in inflation will be boosted by a declining capacity in the labour market which is expected to lead to a gradual increase in wages growth from the currently low levels.

The RBA believes the recent decision by the Fair Work Commission to increase minimum and award wages could "add a little" to wages growth in the September quarter.

"Inflationary pressures would instead emerge more quickly if workers seek to catch up after a long period of low wage growth," the RBA says.

It also believes increases in the tobacco excise over the next few years will help push inflation higher.

However, the RBA repeated concerns that the Australian dollar - which broke through 80 US cents earlier this week - has been at levels not seen since 2014.

The statement warns that its forecasts for growth and inflation rely on the exchange rate remaining around current levels.

"Further exchange rate appreciation would tend to generate a slower pickup in economic activity and inflation than currently forecast."

Despite the bullish outlook, the RBA is warning that continued slow wage growth could continue for "some time" and weigh on a consumption driven recovery.

"Some households may feel constrained from spending more out of their current incomes because of high levels of household debt," the RBA says.

"This effect would become more prominent if housing prices and other housing market conditions were to weaken significantly."

The RBA says while established real estate remains strong in Australian east coast cites, conditions have eased more so in Sydney rather than Melbourne.

Tuesday, July 18, 2017

Reserve Bank softens up borrowers for "neutral" cash rate of 3.5 pc; A$ surges

The Reserve Bank is continuing its campaign to soften up highly leveraged borrowers for eventual interest rate rises after a long period at record low levels.

The central bank is now busy estimating what a "neutral" interest rate might look like as the Australian economy continues to show patchy signs of recent strength.

In the minutes from its July meeting a fortnight ago when rates were left on hold at 1.5 percent, the RBA has signalled that to keep growth and inflation in check the "neutral nominal cash rate" would need to rise to around 3.5 percent.

The minutes show the RBA's pursuit for a "goldilocks rate" - not too high or too low - comes as as central banks around the world such as the US Federal Reserve signal conditions are right to slowly raise rates from emergency levels.

The predictions for a higher cash rate will put investor and residential borrowers on alert given high levels of loans issued at the record low cash rate.

"All estimates of the neutral real interest rate for Australia suggested that monetary policy had been expansionary for the previous five years or so," the minutes say.

"A reduction in risk aversion and/or increase in the potential growth rate could see the neutral real interest rate rise again.

"A number of central banks had become more positive about domestic economic conditions, and financial market pricing suggested that there had been upward revisions to the expected path of future monetary policy."

The RBA noted that despite slower economic growth in the March quarter, key indicators such as the labour market, wages growth and retails sales had been gradually improving in Australia.

Although the Australian Prudential Regulation Authority (APRA) has been cracking down on banks to maintain a cap on investor loans, the RBA says it is too early to assess their full effect.

While the July meeting was held before the recent resurgence of the Australian dollar, the minutes show the economy remains exposed to any spike against the US currency.

"The depreciation of the exchange rate since 2013 has assisted the economy in the transition from the mining boom," the minutes say.

"An appreciating exchange rate would complicate this adjustment."

Reserve Bank members are also concerned about rising wholesale electricity prices in the first half of 2017.

"This has led to significant increases in the context of efforts to address climate change and to alter Australia's energy mix," the minutes say.

"Concerns about energy security , reliability and costs has been heightened .. partly reflecting policy uncertainty."

Despite the RBA's efforts to manage expectations, concerns remain that anything but a gradual increase would leave indebted borrowers in Sydney, Melbourne and Brisbane potentially exposed to rising repayments.


Monday, July 17, 2017

No real winners in Amber Harrison ruling

There are no real winners from Amber Harrison's high cost, high stakes, circus-like legal battle with the powerful Seven Network.

While Ms Harrison is no unblemished innocent party in this saga, the former executive assistant limps away potentially financially broken and perhaps unemployable at least in the short term.

Here's my report on the ruling broadcast on the ABC's PM program

Justice John Sackar may have ruled in Seven's favour ordering Ms Harrison to pay their costs but will Seven risk the public perception of pushing of a confused single foster mother into bankruptcy in the face of paying Seven's legal bills?

Despite playing a hard and at times brutal game, the ABC understands that given the reputational damage already inflicted by the case, Seven is unlikely to pursue costs against Ms Harrison now having won the legal argument.

The challenge for Ms Harrison's ex lover, Seven West Media chief executive Tim Worner, is to move on from the scandal to recast Seven's image as a caring and compassionate media company with respect for women at all levels.

But as Justice Sackar observed in his ruling, there is no dispute that Ms Harrison brought much of the pain upon herself after breaching the terms of confidentiality agreements in return for payments of around $400,000 which prompted Seven to seek gag orders earlier this year.

At the same time Tim Worner - whose affair with Ms Harrison was consensual - is rebuilding a shattered reputation and remains on Seven's payroll despite calls for his sacking or resignation amid questions about his judgement.

Some company boards or government agencies may well have sacked or sidelined Mr Worner but he survives mainly thanks to the steadfast backing of Seven chairman Kerry Stokes who clearly regards him as a flawed prodigal son.

Seven West shareholders also have cause for concern about Mr Worner's judgement given the direction of Seven West's share price which had fallen to 79 cents from around $1.18 a year ago.

While the Amber Harrison affair is only a small factor in the share price demise, the unwanted headlines and uncertainty about Seven's direction have been the top agenda items for the Seven West board.

Mr Kennett said he was not speaking on behalf of Kerry Stokes or the Seven West board but his aggressive commentary the next morning on the ABC's AM  program came hours before a Seven West Media results briefing where Kerry Stokes came under heavy questioning for his handling of the Amber Harrison matter.

Mr Kennett's abrasive style in slapping down a fragile Ms Harrison also attracted criticism given his role at the time as chairman of the depression initiative Beyond Blue.

All of the above is evidence that Seven needed to shut Ms Harrison down as the damaging case dragged on in the NSW Supreme Court and briefly in the Federal Court when star barrister Julian Burnside QC was enlisted to defend Ms Harrison.

Evidence was tendered to the NSW Supreme Court that Ms Harrison continued to brief journalists despite the confidentiality agreement and released highly sensitive documents unrelated to her affair with Tim Worner after a 2014 raid by the Australian Federal Police over alleged payments to convicted drug trafficker Schapelle Corby.

Seven’s strategy and tactics led by the network's hardplaying commercial director Bruce McWilliam have been brutal in exposing Ms Harrison's pursuit of revenge against Mr Worner.

Seven's payout to Ms Harrison and her decision to break confidentiality agreements has clearly infuriated Seven hence the warlike response to bring Ms Harrison into line.

But given Ms Harrison's decision to release her lawyers and walk away from the case, should Seven have done the same and called off the legal dogs?

The demolition of Amber Harrison - once again, who brought this action upon herself - comes as other parts of corporate Australia assess their policies especially after two senior managers at the AFL were stood down late last week for inappropriate relationships with young female colleagues.

Tim Worner has already apologised but he need to put his words into action to ensure that his mistakes are not repeated and that similar errors will not be tolerated at Seven.

As Australian Financial Review senior writer Aaron Patrick told me: "Kerry Stokes will not want Seven West Media and the Seven Network dragged through the mud again."

"I think they will not want any of their executives sleeping with secretaries ever again."