Federal Court approves $700m penalty for Commonwealth Bank

The largest penalty in Australian corporate history has been delivered, with CBA to pay $700m over Austrac breaches.

A Commonwealth Bank branch in Sydney. (Hollie Adams/The Australian)

Commonwealth Bank’s record-breaking $700 million penalty for breaches of anti-money laundering and counter-terrorism financing laws has been approved by the Federal Court of Australia, which believes the mammoth fine will be enough to deter other companies from the same conduct.

Justice Yates said the penalty reflected the bank’s recognition of its “failure to serve and fulfil” its obligations under the anti-money laundering Act.

He said CBA (CBA) recognised its behaviour deprived the regulator Austrac and other law agencies of intelligence to which they were entitled, which impacted the safety and wellbeing of the Australian community.

The $700m represents the largest penalty in Australian corporate history, stemming from a settlement between CBA and Austrac, after the bank admitted to breaching the law 53,750 times.

The fine is almost double the bank’s provision of $375m for a civil penalty, which it outlined in its interim result in February. It is equivalent to 7 per cent of its $9.93bn profit in 2017.

Justice Yates said he took into account the absence of past misconduct by the CBA, the size of the lender, the actions of the bank’s board and senior management, the bank’s actions to overhaul its compliance in the wake of the charges, the “willingness” of the bank to agree to the “substantial penalty”, and CBA’s “contrition and remorse”.

“I am satisfied that the sum of $700m is an appropriate penalty,” Justice Yates said.

The legal action, launched by Austrac in August last year, triggered an overhaul of the bank, including the early resignation of then chief executive Ian Narev, and a board and executive clean-out. The action also paved the political groundwork for the banking royal commission.

The $700m civil penalty, plus Austrac’s legal costs of $2.5m, are lighter than the $1bn-plus fines analysts had expected

CBA’s intelligent deposit machines, which were rolled out in 2012, failed to send Austrac thousands of legally required reports of money being washed through the smart ATMs by criminal syndicates and terrorist financiers.

In a statement of agreed facts, CBA admitted that if it had listened to Austrac and limited the access criminal syndicates had to its machines, it could have disrupted gun runners and drug gangs importing and distributing methamphetamine. The bank also failed to notify Austrac of six transactions that were made by five potential terrorist financiers. Despite finding that “several million dollars’” worth of illegal activity went undetected due to the bank’s failures, Austrac said it still suspected there was a further “significant” amount of money laundering through other -accounts.

The statement shows CBA continued to fall short of the law until late April this year, when it finally implemented Austrac’s advice to limit the amount of money that could be pushed through its machines.

“The bank has … agreed to a very significant penalty which reflects that breach of trust,” said Simon White QC, representing Austrac.

He said $180m of the fine was attributable to CBA’s failure to carry out proper risk assessments of its machines.

“If you don’t undertake risk management then you’re falling at the first hurdle. That’s why the parties have accepted that in relation to the contravention it should be at the top end of the range,” Mr White said.

Barrister John Sheahan SC, acting for CBA, said the bank had expressed “sincere contrition”.

“When I was thinking about why he court should adopt the very high penalty that has been agreed to between the parties, when the respondent has agreed to such a penalty it is an expression of its deep and sincere and regret it failed to meet the standards imposed on it by the AML legislation,” Mr Sheahan said.

He said the size of the penalty would “achieve protection of the public” by deterring other financial institutions from falling into the same mistakes CBA did. “Your honour have no doubt …. the penalty will have achieved that specifically and in general,” Mr Sheahan said.