The Commonwealth Bank has defended its decision to allow an unusually high $20,000 deposit limit on its “intelligent” deposit machines, which allegedly allowed drug syndicates to launder tens of millions of dollars, saying small businesses liked the larger limit.
Ian Narev, CBA’s chief executive, also tetchily defended the bank’s financial performance in the wake of the money laundering allegations, saying despite CBA’s share price falling 6% the share price was still higher than it was after the bank’s capital raising in 2015, and shareholders had received five dividends in recent years.
“All the Australians who bought into that capital raising, even after all this in the market, have done very well,” Narev said on Friday. “But that’s beside the point”.
Appearing at a parliamentary inquiry into the major banks on Friday, Narev was joined by the CBA chairman, Catherine Livingstone, who was appearing before the committee for the first time.
The committee chair, the Liberal MP David Coleman, subjected Livingstone to a grilling, asking her why she had approved bonuses for CBA executives when she knew the bank had breached anti-money laundering laws by failing to report – more than 53,000 times – that its intelligent deposit machines (IDMs) had been used for cash transactions of $10,000 or more between 2012 and 2015.
The Australian Transaction Reports and Analysis Centre has alleged that CBA failed to provide to authorities a total of 53,506 reports – known as threshold transaction reports – from November 2012 and September 2015.
It has alleged CBA became aware in April 2015 of “repeated suspicious and connected patterns of structured cash deposits followed by international money transfers”.
The explosive allegations led the lawyers Maurice Blackburn and the litigation funder IMF Bentham in August to announce a potential class action on behalf of Commonwealth Bank shareholders over a share price drop caused by money laundering allegations.
Coleman wanted to know why CBA’s board didn’t disclose to shareholders in its 2015-16 remuneration report that it was aware of the IDM reporting breaches, and why CBA executives were still paid bonuses.
“When it published that annual report in August, when you were on the board … there were five criteria for so-called short-term executive bonuses … and what the board said was … four of those five were on target, and that one was above target,” Coleman said on Friday.
“The board did not identify in that remuneration report any issue related to the executive management team’s conduct despite the fact that you knew about the TTR [threshold transaction reports] issue which, as you know, is potentially literally billions of dollars of exposure to the bank in terms of the potential fines that can be issued.”
Livingstone told Coleman she was “firmly of the view” that the bank had met all its continuous disclosure obligations at the time, and she stood by her decision to sign off on the remuneration report.
“On the basis of the facts that the board knew at that time, we made the right determination,” she said. “A board has to operate on the basis of the knowledge that it has at any one time. We believe we have done that. We take these matters extremely seriously.”
Coleman replied: “You signed off on a remuneration report that found all metrics had been met, and one, which actually relates to risk … was above target … It is very hard to see how at bare minimum that is not extraordinarily incompetent, if not more problematic for the individual directors than that.”
Livingstone said: “The period to which you relate, and the events of that time, are the subject of Austrac civil proceedings and therefore unfortunately I’m not in a position to go into detail.”
Narev, who will be leaving CBA by mid-2018, said the bank had decided to set a 200-banknote deposit limit on its IDMs to satisfy its small business customers, and that had set a theoretical deposit limit of $20,000.
The Labor MP Matt Thistlethwaite said: “If you’re a criminal and you want to launder $3.5m and send it overseas through one of these machines, if CBA’s takes 200 notes and the other [banks’ machines] take a quarter of that, it’s a no-brainer isn’t it, for a criminal?”
Narev said: “We are certainly open and eager to have any discussions we can based on what we’ve learned about whatever changes we should make [to these machines] that will make us do our job better.”
