CBA chair Catherine Livingstone has fate of Australian sharemarket on her shoulders

A whistleblower and the possibility of human involvement demand a special probe into CBA’s money-laundering scandal.

The fate of the sharemarket is on Catherine Livingstone’s shoulders. Pic: Renee Nowytarger.

No chairman in Australia’s history has more on her shoulders than Commonwealth bank’s Catherine Livingstone.

Her actions in the coming months will play a big role in the fate not just of CBA shares but of the entire sharemarket.

Around Sydney at the weekend the rumour-driven intense sulphur fumes arising from the Federal Court action by Australia’s financial intelligence and regulatory agency, Austrac against the Commonwealth Bank swirled relentlessly. The essence of the rumours was that there could not have been 53,700 contraventions of the money-laundering act without human involvement.

Those rumours will continue for months and will unfairly damage the reputations of honest bankers.

But there is one story that I have been able to verify. During the period November 2012 to September 2015 (the dates mentioned by Austrac) a whistleblower alerted the bank to cultural and other serious problems in the broadly-defined systems and technology procurement sector of the bank.

The warnings did not (repeat not) cover the money-laundering issues. Whether the CBA board or its CEO knew of the whistleblowing I do not know. But the senior person left the bank soon after the allegations.

If in the Federal Court case the CBA makes statements that are later proved to be false then there is grave risk that the fines could wipe out the shareholders’ funds of Australia’s largest company. The bank would return to government ownership.

This is not an issue about whether Ian Narev should or should not be the CEO. At the moment that is a side issue. This is an situation that is far bigger than the CEO and requires the most intense investigation, given the stakes.

The CBA is fortunate to have someone of the standing of Ms Livingstone as chairman. She joined the board in March 2016 (after September 2015) and has been chairman since January 2017. She is a chartered accountant and a former director of Telstra and Macquarie Group.

With the fate of the Australian sharemarket on her shoulders, Ms Livingstone must find all the facts. But it is also in the interests of honest CBA executives that she should do this. This cannot be a task that is left to CBA executives.

In my view she must set up a sub committee of trusted CBA directors who suspend all other activities. That committee needs to recruit the best people available who have no connection with the bank (they will probably come from overseas): take secure offices and investigate the detail of each of the 53,506 non-threshold transaction reports and the 778,370 bank accounts referred to by Austrac.

It’s an immense task but so are the stakes.

There are only three possibilities in each of the transactions and accounts:

* First, that Austrac simply got it wrong. This is highly unlikely but it is possible that the level of 53,506 threshold transactions and 778,370 accounts may be too high. That will be essential material for the court case.

* Second, that each of the 53,506 threshold transactions was ---as the CBA claims---- purely a systems failure. Only by going through each transaction in detail can this be determined with accuracy. If this is proven to be the case then it will greatly help the CBA defence but any such statement must be able to stand up to severe QC cross-examination. That is only possible if the most detailed independent check of each transaction is undertaken.

* Thirdly, that there was human involvement in the breaches and, if that is the case, how high did it go. If it does not already know, the board committee needs to discover the identity of the whistleblower and conduct extensive and frank discussions with that person. No executive should be involved in that interview. (If they can’t find the identity of person I will seek permission to reveal the name)

I know a number of highly-reputable and honest CBA executives. They need the Livingstone committee and top outside researchers to remove the unfair sulphur fumes that surround them.

And if there is the most detailed check possible (I think Austrac will help in isolating areas), CBA can go to the Federal Court and swear there was no human involvement or detail what it was. If I am wrong and human involvement went higher up the executive tree then it’s essential to know and throw yourself on the mercy of the court.

There will also be calls for a royal commission.

I think the Austrac Federal Court case must take its course before any parliamentary royal commission. It would be a travesty of justice if the two were held together.

Remember, for each of the 53,506 cases there is potentially an $18 million fine. Even if the fine is halved there will be no shareholders’ funds. The bank will claim in the courts that because it was one system failure it faces only one alleged breach.

That’s why this cannot be handled by an internal CBA investigation, although that should also take place.

And again, because the claim is so high, it will not be easy for Austrac to settle out of court. What is a reasonable fine amount — $1 billion; $10 billion; $100 billion; $1,000 billion or more?

The penalties prescribed by parliament were so large that no government agency can slash them. Only a court can do that.

And remember the Australian sharemarket levels are at stake.