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.

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