Judicial tick for $700m CBA fine

Commonwealth Bank’s record-breaking $700 million penalty has been approved by the Federal Court.

CBA was hit with a record corporate fine

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, which believes the mammoth fine will be enough to deter other companies from the same conduct.

Justice David 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 recognised its behaviour deprived regulator Austrac and other law agencies of intelligence that affected the safety and wellbeing of the Australian community.

The penalty is the largest in Australian corporate history and stems 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 CBA, the size of the lender, the actions of the bank’s board and senior management, and its 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.

“Money laundering, terrorism financing and serious financial crime are very real issues with very real impacts on the lives of everyday Australians,” Austrac chief executive Nicole Rose said.

“This is about the safety of our community and that is why this penalty today is so important.”

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 illegal activity worth “several million dollars” 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 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.