Playing the blame game in CBA’s money laundering scandal

By Justin Ware. Published at Aug 22, 2017, in Features

It turns out that ‘smart’ ATMs aren’t that smart after all.

Since civil proceedings were opened against the Commonwealth Bank of Australia on August 3, the Australian financial agency has revealed that CBA is being sued for over 53,000 breaches of law, with the bank failing to report on $77 million of suspicious transactions stemming from its smart ATMs.

It’s understood that one particular laundering operation saw over $21 million deposited across 11 CBA accounts between February 2015 and May 2016.

The repercussions have been significant, with shareholders bearing the brunt of the blow.

CBA shares fell four percent on August 4, and have fallen over seven percent since Austrac presented its case against the banking giant.

Commonwealth bank shares

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The scandal has already claimed CBA chief executive Ian Narev, who will depart at the conclusion of the current financial year.

Peter Clark, who is the acting chief executive of the Australian Transaction Reports and Analysis Centre (Austrac), indicated that Westpac, ANZ and National Australia Bank had been cleared of wrongdoing.

“We’ve looked at the other major banks in particular and we have not identified the same issues with those banks,” he said on August 18.

CBA has reaffirmed that it accepted the investigation and was cooperating with Austrac personnel.

Austrac believes up to four organisations deposited amounts at thresholds low enough to avoid initial suspicion. It’s alleged that the bank also ignored advice from the Australian Federal Police, which indicated that a number of the accounts involved where the subject of an ongoing investigation into serious criminal offences, including terrorism.

Despite becoming aware of the suspicious activity, CBA allowed the transactions to continue.

Austrac’s statement of claim – which was presented to the federal court – believes CBA was not exhaustive enough in the R&D phase of its smart ATMs.

CBA’s Intelligent Deposit Machines hit the streets in May 2012, with the aim of providing a quick and convenient form of banking for customers on the go. The ATMs count deposits automatically, in an effort to reduce waiting times that stem from human tellers.

Unfortunately, it didn’t take long for criminal elements to find ways to manipulate the system.

In just three years, CBA failed to flag 53,000 transactions which exceeded $10,000, the amount that must be reported to Austrac.

Outgoing CBA chief executive Ian Narev has indicated that a software error was the culprit behind thousands of transactions falling through the cracks.

“One very important piece of context here is that the vast majority of cases is related to one software coding error in 2012 that we picked up in 2015, fixed within a month and rectified,” he said.

How is this possible?

The ATMs allowed unlimited anonymous deposits into an account, which meant untraceable transactions totalling thousands could be made at will.

ABC business editor Ian Verrender has since urged banks to reconsider their reliance on technology.

“My gut feeling is that banks and all sorts of corporations over the years have replaced human beings with machines, intelligent machines, thinking the machines will do everything you do,” he said.

“I think they’ve just cut down on the number of staff, the number of people who are looking at compliance issues, and the numbers of people who are supposed to police and monitor these type of issues.”

He added that the fines heading CBA’s way were ‘extraordinary’.

“$18 million is the maximum fine deliverable for failing to notify the regulator of transactions exceeding $10,000. You’ve got more than 53,000 issues in dispute here. So, you know... do the maths.”

Phillip Lowe, who is the governor of the Reserve Bank, spoke on the issue August 11.

“Banks should not be participating in money laundering, and they should know who is operating the accounts they open,” he said.

“It’s very serious. We have these laws for a reason.”

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