Information that showed the Commonwealth Bank of Australia may have committed “law-breaking on a grand scale” by breaching anti-money laundering laws should have been disclosed to the market by the bank, a court has heard.
Emails between senior CBA executives in 2015, in which they discussed concerns about the possibility that large cash deposits had not been reported to financial intelligence agency AUSTRAC as required by law, were aired in court on Monday as part of a shareholder class action trial.
The class action was brought by Maurice Blackburn and Phi Finney McDonald on behalf of investors who suffered losses when AUSTRAC announced it would begin legal proceedings against CBA in 2017. The bank’s share price fell more than 5 per cent, over several days, on the back of the AUSTRAC announcement.
CBA later agreed to pay a $700-million fine to settle the case with the watchdog, admitting to a host of breaches of anti-money laundering laws, including the laundering of millions of dollars through its ATMs by criminals.
The class action alleges that CBA knew about instances of non-compliance several years before AUSTRAC’s announcement and by failing to disclose that information to the ASX, it breached its continuous disclosure obligations. CBA has denied allegations of liability, stating that there was no price sensitive information about the matters raised in the AUSTRAC proceeding that required disclosure to the market.
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Jeremy Stoljar, SC, acting for the plaintiffs, told the court on Monday that by September 2015, CBA had breached the Anti-Money Laundering and Counter-Terrorism Financing Act a total of 53,506 times over three years.
“The issue is, is this information of the kind that would or would be likely to influence investment decisions? Well, of course it would. Look at the sheer number of contraventions: 53,506 contraventions is, objectively, a very large number to say the least. It’s law-breaking on a grand scale,” he said.
Stoljar said emails between senior executives at the bank in September 2015 were “instructive” as they showed how seriously the issues had been taken at the time.
The emails included messages between Ian Narev, the bank’s chief executive at the time, and Matt Comyn, who was head of the retail bank at the time and is now the chief executive.
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They discussed the discovery of an issue in which some large transactions made through intelligence deposit machines (IDMs) - a type of ATM that allows anonymous cash deposits - had not been reported to AUSTRAC for several years. CBA was required to make “threshold transaction reports” to AUSTRAC within 10 business days of any transactions that involved the transfer of physical currency over $10,000.
“It goes without saying we need to take this extremely seriously,” Narev wrote in an email on September 6. “I have let [chief risk officer] Alden [Toevs] know he should personally be in touch with AUSTRAC about this and offer up a discussion with me. We need to adopt a similarly senior posture with AFP.
“Whilst this is the result of unintentional coding errors, the circ*mstances warrant very senior oversight ... The absolute priority here is effective stakeholder management.”
Comyn replied: “I’ve also put a rocket up a few people because there are still some details that we need before we can accurately update stakeholders with the facts.”
Stoljar argued that the term stakeholders included investors, who he said would have been concerned that CBA had contravened money laundering legislation more than 50,000 times.
“What we draw from this is that the actual reaction of the most senior persons at the bank on discovering this issue is totally in contrast with the case which is now being sought to be put; a case by CBA, a case which seeks to minimise this issue and says that information of this kind was simply not material,” Stoljar said.
“CBA’s most senior officers regarded it as, not just serious, but extremely serious. They were concerned about it enough to say it needed senior oversight. The stakeholders were concerned, or they believed they would be concerned. The regulator had serious concerns.
“CBA’s case seemed to be that, unlike all the persons that I’ve just mentioned, the investors of Australia were, or would have been, quite uninterested and not at all perturbed about these serious and multiple contraventions of the money laundering legislation.”
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Stoljar said when the contraventions were made public the response was “universal and unanimous”, referring to an article in The Australian Financial Review, which outlined how the share price had fallen and $5 billion had been wiped from CBA’s market capitalisation after AUSTRAC announced legal proceedings.
He said the question at the heart of the class action was whether the information that CBA had been late in reporting large transactions to AUSTRAC would be likely to influence investment decisions.
“The answer is, well, it was law-breaking on a grand scale. Of course, it would,” he said.
A CBA spokesman said that the bank vigorously denies the allegations and is defending the actions.
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