Originally published by Cuffelinks
When I started work in CBA Treasury in 1979, it was like a startup. Personal computers and trading screens were new technologies, access to foreign bond markets was opening and financial markets were deregulating. Balance sheet management techniques were in their infancy, there were no capital adequacy rules and product pricing was naive. Everything was possible.
At one stage, I had an idea for a new deposit product, where the rate increased the longer the deposit stayed with the bank. Within a few months, a product called ‘Excel-A-Rate’ was rolled out across the entire retail network. A few lines of code, some marketing material and let’s give it a try. Then I travelled the world doing global bond issues by the billion before I turned 25. It was experimental, new, untested, exciting … and not a compliance person or risk committee in sight.
Needless to say, I loved it.
So what? Roll forward a few decades to the sophisticated world of finance and banking, and no decisions are made without endless meetings, committees, compliance, legal, systems … you name it, there’s always another box to tick or person with veto authority. Hundreds of people check everything to minimise mistakes. Innovation is slow and staff are exasperated, but the business is now incredibly complex. Entire departments monitor and report risks.
Needless to say, I hated it.
Which is why I can’t fathom Commonwealth Bank Of Australia's (AX:CBA) anti-money laundering debacle. What happened to all the reporting? Regardless of CBA chair Catherine Livingstone’s statement that succession planning is an ongoing process, there’s little doubt the AUSTRAC investigation hastened CEO Ian Narev’s exit. More executives will follow. The claims in the AUSTRAC Report are unbelievable in a bank with such a compliance structure:
“In May 2012, the Respondent (Commbank) rolled out Intelligent Deposit Machines (IDMs) … Deposits through an IDM are automatically counted and are credited instantly to the nominated recipient account … The funds are then available for immediate transfer to other accounts both domestically and internationally.
IDMs can accept up to 200 notes per deposit, that is, up to $20,000 per cash transaction. CommBank does not limit the number of IDM transactions a customer can make in a day … IDMs facilitate anonymous cash deposits. The card can be from any financial institution … In the 6 months from January 2016 to June 2016 cash deposits through this channel grew to about $5.81 billion.” BILLION!
AUSTRAC then outlines the activities of various illegal activities by customers, such as:
“Money laundering Syndicate No 3
From November 2014 to August 2015, cash deposits totalling $27.2 million were made to one CommBank account. Almost immediately after each deposit, the money was transferred internationally. The deposits were the proceeds of a drug manufacture and importation syndicate … Very large cash deposits, up to $532,000, were also regularly made at branches.”
The IDMs seem to be designed to launder cash. For example, on 15 July 2015, staff at the Market City Sydney branch watched a man stuff $40,000 into an ATM and the money was immediately sent offshore, but this did not cause an investigation or a stop on the account. Another time, $527,900 in cash in a sports bag was deposited in the Chatswood branch. And on it goes. Who would have believed any of this was possible under our money laundering and financing of terrorism laws, especially in a place like CBA? The consequences will play out for a long time.