CBA says class action ‘infected by hindsight bias’

The Commonwealth Bank says a shareholder class action targeting the bank’s disclosure of mass anti-money laundering breaches is based on hindsight, as the lender did not know if it would be sued when it became aware of the issue.

Noel Hutley SC, representing CBA, also hit back at the plaintiffs’ interpretation of 2015 emails, between former chief executive Ian Narev and CEO Matt Comyn, before an expected cross-examination of Narev next week.

CBA is defending a class action that alleges is breached disclosure rules.Credit: James Alcock

Hutley on Wednesday outlined CBA’s defence in a class action that alleges the bank failed to tell investors about material information before it was slapped with a 2017 lawsuit from the anti-money laundering watchdog, Austrac.

The Austrac lawsuit, which was ultimately settled for a $700 million fine, led to a 5 per cent fall in CBA’s share price in the days following its announcement to the market.

The Federal Court class action, brought by Maurice Blackburn and Phi Finney McDonald, alleges CBA knew about serious instances of non-compliance with anti-money laundering laws, and the fact it did not tell investors earlier breached its disclosure obligations.

A key plank in Austrac’s 2017 bombshell case was that CBA failed to lodge more than 53,000 reports with the regulator to alert it to cash deposits of at least $10,000 that had been made through its ATMs.

Jeremy Stoljar, SC, acting for shareholders, on Monday told the court the sheer number of contraventions was “law-breaking on a grand scale.”

But Hutley argued that when CBA first became aware of these breaches, it did not know that Austrac would launch a lawsuit against the bank, and Austrac repeatedly told the bank it had not decided whether it would sue the bank.

“We say this material shows the real world in which people were properly approaching this issue. And in our respectful submission, the case of the applicant is wholly infected by hindsight bias that we were sued, a claim was made and a penalty was agreed on, which your Honour approved,” Hutley said.

Hutley also hit back at the plaintiffs’ interpretation of emails between Comyn and Narev from September 2015, in which they discussed concerns about the possibility cash deposits had not been reported to Austrac. This was almost two years before the Austrac lawsuit was lodged and CBA announced the issue to the ASX.

Narev and Comyn both referred to a need to manage “stakeholders” in 2015, and Stoljar on Monday argued the term stakeholders included investors. Hutley said this was “simply wrong,” and the plaintiffs could put the issue to Narev directly.

Stoljar on Monday argued the emails showed senior CBA executives regarded the issue as “extremely serious,” referring to a 2015 email to Narev from Comyn (who ran CBA’s retail bank at the time), which said: “I’ve also put a rocket up a few people because there are still some details that we need before we can accurately update stakeholders with the facts.”

Hutley on Wednesday pointed to Narev’s reply, which said: “All good. No need for rockets. Just keen to make sure we are in front of the issue, not behind it.”

Hutley said the Austrac breaches were “obviously a serious issue,” but the response from Narev showed nothing more than the issue being dealt with in a “wholly appropriate manner.”

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