Maurice Blackburn class action takes aim at CBA failure to reveal ATM issue ahead of Austrac action on money laundering breaches

Commonwealth Bank held crisis meetings after being alerted to a failure of the bank’s ATMs to capture large transactions, but still did not think it necessary to warn investors, a court has heard.

CBA finds itself targeted in the class actions over its rollout of the bank’s Intelligent Deposit Machines, which allowed money to be both withdrawn and deposited.

Commonwealth Bank convened a series of crisis meetings after being alerted to a failure of the bank’s ATMs to capture large transactions, but still did not think it was necessary to warn investors, a court has heard.

On the first day of a long-anticipated Federal Court class action, Maurice Blackburn argued the bank failed to inform the market about the risk it faced once regulators caught wind of the anti-money laundering and counter-terrorism financing failure.

Maurice Blackburn has argued the bank should have told investors about the potential for a massive financial hit arising from regulatory action before it faced that action in 2017.

CBA was penalised $700m after the Australian Transaction Reports and Analysis Centre took action against the company when it found it had contravened anti-money laundering and counter-terrorism financing rules on at least 53,750 occasions.

The bank was also hit with additional capital treatment requirements by the Australian Prudential Regulatory Authority, which ordered CBA to hold an extra $1bn on its books after “a series of incidents the damaged the bank’s public standing”. CBA was only able to shed the last $500m of the additional capital in September, after the bank proved to APRA it had cleaned up its act.

Maurice Blackburn is suing the bank on behalf of a suite of shareholders, claiming the bank’s actions saw a destruction in shareholder wealth, with shares in the bank falling 5.4 per cent to $84.69 over several days in the wake of the revelation that Austrac had taken action against the bank.

The marathon class action case, which is set to run for six weeks, will play out before Federal Court judge David Yates.

The case was filed in 2018, with Maurice Blackburn backed by litigation funder Omni Bridgeway. It was joined with a separate class action, launched by Phi Finney McDonald, in July 2019.

CBA said it rejects the allegations put by the class action.

“CBA vigorously denies the allegations and is defending the actions,” a bank spokesman said.

Jeremy Stoljar SC, acting for Maurice Blackburn, said the strong response by the regulators to CBA over the breaches showed the bank had been behind “law breaking on a grand scale”.

“It had continued for a long period of time indicating ongoing and systemic failings,” he said.

“It increased the cost of doing business involving remediation, persistent costs and potentially civil penalties.”

Mr Stoljar lent on a string of emails presented to the court that showed the mobilisation of senior banking executives once the scale of the potential breach was brought to light.

Reading from an email chain sent by Matt Comyn, then head of the retail bank, to then chief executive Ian Narev, Mr Stoljar noted a briefing paper had been prepared that dealt with the technical issues behind the breach.

“Mr Narev goes on, ‘it goes without saying we need to take this extremely seriously’,” Mr Stoljar said. “Mr Narev is telling Mr Comyn that he’s instructed one of the most senior officers in the bank and the chief risk officer that he must personally be in touch with Austrac.”

Mr Stoljar said the high level of concern and communications around the revelations of the money laundering breach showed the weakness of CBA’s case.

“This is absolutely at odds with the case CBA tries to put which is that it’s not material,” he said.

CBA finds itself targeted in the class actions over its rollout of the bank’s Intelligent Deposit Machines, which allowed money to be both withdrawn and deposited.

The bank’s new machines would automatically count the money and credit the funds instantly to the linked CBA account.

However, Austrac found criminal syndicates were using CBA’s IDMs as the bank had failed to introduce daily cash limits on the machines. Austrac also found CBA was failing to submit notices to the criminal transactions regulator when users shovelled in cash in excess of $10,000, the threshold transaction reportable limit.

CBA was required to send suspicious matters reports to Austrac when transactions of this kind were made, to ensure the regulator was aware of who was handling large amounts of cash.

Mr Stoljar said the bank had been repeatedly made aware of the failure of its new IDMs to send reports to Austrac.

Reading from one email, Mr Stoljar noted one CBA manager told his team there would be “big implications” if the bank’s failure were to emerge. “We could be in breach of our reporting obligations,” Mr Stoljar said.