Westpac has spotlight, CBA an ongoing inquiry

Commonwealth Bank chairwoman Catherine Livingstone and CEO Matt Comyn.

All eyes remain on Westpac after the corporate watchdog confirmed it’s kicked off an ­investi­gation into the bank’s dealings with Austrac, but the “forgotten” 2017 Austrac scandal involving Commonwealth Bank is reaching a regulatory crossroads.

This column understands that the Australian Securities & Investments Commission has recalled a handful of CBA witnesses for second-round interviews.

Legal experts say this is often consistent with an investigation nearing completion.

Both CBA and ASIC declined to comment on Monday.

There’s a lot of intrigue surrounding the CBA investigation, which focuses on possible ­breaches of ­directors’ duties and continuous disclosure obligations.

Interest will be further fuelled by the revelation that the recalled witnesses are executives, not ­directors. This could suggest a disconnect between what the board was told and what was known by management about CBA’s expos­ure to money laundering and counter-terrorism financing risks.

As a non-CBA director said: “You’re only as good as what’s in your board pack.”

There’s been more than just murmurings from the CBA board that the information flow from management on the Austrac matter was inadequate.

In a memorable appearance a year ago before the Hayne royal commission, Catherine Livingstone, who joined the board in March 2016 and succeeded David Turner as chair in January 2017, conceded that the board’s ­response to the crisis was not sufficiently rigorous.

“There were always responses (from management), ‘Yes, we’re doing this; yes, we’re spending that money,’ ” Livingstone said.

“So those responses were taken as assurance that the issue was being addressed but I absolutely accept that was an inadequate conclusion on the part of the audit committee and the board.”

Livingstone also got into difficulty, asserting that she had challenged management about the Austrac issue at a board meeting in October 2016 before she became CBA chairwoman.

The problem highlighted by senior counsel assisting Rowena Orr was that the board minutes failed to record her protest. “No they don’t, but that wouldn’t mean that there wasn’t a discussion,” Livingstone said.

The previous May, months ­before her examination, the independent review of CBA’s governance and culture found the board had a “light hand on the tiller”.

It concluded that before Livingstone’s elevation to chairwoman, the board agenda was “relatively static” and meetings between Turner and then-chief executive Ian Narev were infrequent.

The APRA review said the light hand on the tiller of earlier years had been replaced by “a firmer and more visible hand, and oversight and challenge had intensified”.

These are all matters that ASIC would be weighing up as it con­siders where it should direct its legal fire, if at all.

The issue of what the board knew and when the directors knew it will also feature in class ­actions against CBA.

CBA’s share price fell more than 5 per cent on August 3, 2017 after Austrac launched its case, which settled for $702.5m in June last year in the only reliable indicator of Westpac’s likely financial exposure.

Among other things, the class actions hang on the core allegation CBA knew about the Austrac investigation for two years.

Knowing about an investigation is one thing but knowing about its negative findings and failing to disclose it to the market is another.

Westpac said at the weekend it first learned Austrac had specific concerns in relation to the 12 customers linked to child ­exploitation on November 15 this year, and knew none of the details until it ­received Austrac’s statement of claim last week.

 Unequal treatment?

In-demand Arnold Bloch Leibler litigator Leon Zwier is not exactly prolific on Twitter, averaging a single tweet every 12 months or so since he joined the social media platform in 2012.

The unfolding Westpac drama, however, has piqued his interest.

On Monday morning, Zwier tweeted that Westpac was fortunate its chairman is Lindsay — as opposed to Lindsey — Maxsted.

Juxtaposing the experience of former AMP chairwoman Catherine Brenner, who was hounded from office over the company’s fees-for-no-service scandal and an expert’s report that was said to be independent but had significant internal input, Zwier said Westpac’s issues with Austrac would have been seen as a failure of gender diversity in the boardroom if Westpac’s chairman were female.

Zwier told Four Pillars it was an issue he felt strongly about. “I’m very concerned that ­female directors appear to be treated more harshly in a corporate crisis than male directors,” he said.

After giving up the AMP chair, Brenner also stepped down from the Coca-Cola Amatil and Boral boards.

This newspaper reported last month that she was edging back into the life she once knew, joining the global board of Sydney-based George Institute and participating in a private corporate governance forum in Salzburg, Austria.

The forum was hosted by the Salzburg Global Seminar at the Hotel Schloss Leopoldskron, dub­bed the Sound of Music palace because of its ­appearance in some of the outdoor scenes in the 1965 film.

The corporate watchdog could decide before the end of the year if it will take any enforcement action as a result of its long-running AMP investigation. Ironically, one of the SGS directors is former ASIC chairman Greg Medcraft.

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