CBA Fraud and Money Laundering Case Study

The Commonwealth Bank of Australia (CBA) money laundering activities hit the media and became known globally after a series of scandal events. Since 2012, the company has been accused of not reporting several breaches to the AUSTRAC to monitor them, and thereby establish if the money could be channeled to either to terrorist networks or criminal gangs. The bank, therefore, faced a substantial penalty for not following the set-out laws and regulations by the AUSTRAC.

CBA FRAUD AND MONEY LAUNDERING CASE STUDY 1
THE COMMONWEALTH BANK OF AUSTRALIA (CBA) FRAUD AND MONEY
LAUNDERING CASE STUDY
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Executive summary
The Commonwealth Bank of Australia (CBA) money laundering activities hit the media and
became known globally after a series of scandal events. Since 2012, the company has been
accused of not reporting several breaches to the AUSTRAC to monitor them, and thereby
establish if the money could be channeled to either to terrorist networks or criminal gangs. The
bank, therefore, faced a substantial penalty for not following the set-out laws and regulations by
the AUSTRAC. The failure of the CBA was mainly attributed to its organizational behavior
whereby the managerial team chose not to report the breaches when they occurred in time. There
were no mitigating risk measures put in place to avoid the occurrence of such scandals.
Therefore, these issues had dire consequences to the organization as it affected their relationship
with the stakeholders as well as leading to mistrust issues. For the company to restore their
relationship with their customers and also their operations, the senior leaders had to review their
corporate governance mechanisms. They implemented technology projects that would aid in the
prevention of attacks by intruders; they also encouraged the use of manual checking for the
reports generated automatically as well as following the due diligence of the law (anti-money
laundering and anti-terrorism trafficking laws).

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Table of Contents
Executive summary.......................................................................................................................2
1.0 Introduction..............................................................................................................................3
1.1 Managerial role and behavior towards the money fraud.......................................................4
1.2 Consequences of the failure to the organization’s stakeholders............................................5
2.0 Organizational behavior.........................................................................................................6
2.1 Organizational behavior factors that contributed to the CBA failure....................................6
2.2 Group and individual behavior within CBA..........................................................................8
3.0 Post-failure mechanisms that CBA used to prevent possible re-occurrence and their
effectiveness....................................................................................................................................8
4.0 Conclusion................................................................................................................................9
References.....................................................................................................................................11

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1.0 Introduction
Money laundering in banks is a severe crime in Australia that has severe consequences for the
bank (Crofts 2018, p. 5). The CBA was established in the year 1991 as a public organization but
became a private company in July 1996. In the year 2015, CBA was hit by the biggest scandal
ever of money laundering. The two men arrested in connection with laundering $1,784,408, on
Thursday night of May 21st, 2015, were Salman Khan- 24 years old and Arlsan Shaffi- 25 years
old. Over $3 million were found in their apartments in banking receipts indicating the CBA’s
deposit machines printed by them. The CBA culture relies mostly on the use of technology and
advanced tools to carry out their operations (Demetis 2018, p. 99). These two men, therefore,
were as well involved in the ‘cuckoo smurfing syndicate,’ which is a method of money
laundering using multiple individuals in making deposits in separate branches of the bank in
various regions. Also, it employs the technique of piggybacking whereby the unwitting
customers make transfers regarding the international legal funds. The top management claim that
the root cause of the problems of CBA was due to software errors. They did not employ
appropriate risk management measures in place, thereby causing the breach of their systems.
This paper, therefore, discusses the CBA money laundering scandals concerning the role that the
mangers played and how the organization failure affected their relationship with stakeholders,
Organizational behavior factors that contributed to the CBA failure, and Post-failure mechanism
that CBA used to prevent possible re-occurrence and their effectiveness.
1.1 Managerial role and behavior towards the money fraud
The AUSTRAC accused the CBA by of failing to report any suspicious matters to the police
(Russell 2018, p. 495). The top management and leadership of the organization have the sole

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responsibility of understanding the whole operation of the organization. Once they notice
suspicious matters in the company, they are supposed to report to the concerned authorities. For
instance, numerous suspicious transactions between the year 2012 and 2015 involved the
‘intelligent deposit machines’ totaling about $625 million. Managers are responsible for ensuring
effective task performance through human resource management. CBA is an international
organization with a diverse workforce of a different culture (Willcocks & Reynolds 2015, p. 89).
The leadership as such have the task of ensuring all the needs of their employees are catered for
through motivation and appropriate decision-making. As such, Ian Narev, the Chief Executive
Officer of the CBA was on limelight for bad governance. Together with other top officials, they
were accused of facilitating the money laundering process as well as turning a blind eye to the
process of terror financing. The leaders of CBA admitted that the breaches were as a result of
software error. Nevertheless, it’s the executives and directors of the company that has the
responsibility of setting out appropriate measures and risk controls to mitigate any breach within
the organization (Chaikin 2018, p. 306).
1.2 Consequences of the failure to the organization’s stakeholders
The governance of the CBA is bureaucratic. The top management has the power of making the
necessary decisions of the company, setting rules and regulations, and creating a large
specialized division of labor. The scandal at CBA opened a can of worms regarding the corporate
governance of the company, internal culture, and how the leaders enforce the financial regulation
within the organization. The scandal had severe detrimental effects for the organization as well
as to the stakeholders at large. Usually, according to the law, the bank is supposed to disclose
any suspicious matter in the company (Unger & Den Hertog, 2012, p. 296). However, the
managers and directors chose not to alert the concerned authority after realizing the breach. As

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such, these breached the rights of the stakeholders such as the investors as they ought to know
how their shares are affected. The shareholder’s price dropped significantly when the matter was
known to the public. Approximately $7.8 billion shareholder’s expenditures were estimated.
According to the human relations theory, it is crucial for the organization to maintain an open
and honest relationship with the employees, investors, customers, and the rest of stakeholders.
Breach of this, makes the stakeholders feel left out, and they start fearing for their future life in
the organization. As such, many investors and stakeholders withdrew from the company after the
scandal of money laundering became pronounced (Ferwerda & Kleemans, 2018, p. 11). The
performance of the organization, thereby, was tremendously affected.
2.0 Organizational behavior
Organizational behavior deals with understanding people (groups and individuals) within the
organization (Miner, 2015, p. 11). The organization behavior of the CBA encourages upholding
of their high standards and core values by the employees and stakeholders. Their culture revolves
around inclusivity of every member, and they should be respectful of each other. It aims,
therefore, at investigating thoroughly for any inappropriate behavior by an employee, and hence
take the necessary action. Nevertheless, after the money laundering scandal was brought to light,
it came as a surprise to the people since the CBA sold itself as an organization built on integrity.
2.1 Organizational behavior factors that contributed to the CBA failure
The failure of CBA which resulted as a result of severe scandals and breaches such as the money
laundering fraud was as a result of bad organizational behavior. After review of the bank’s
culture by Narev in 2014, he realized that there was a lack of consistency between the leadership
and culture across the group. A lot of cultural issues were left unattended that made people

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within the organization feel unsafe talking about them. The underlying issue is that the CBA
organization system has placed too much power in the hands of very few individuals
(Schlagwein, Thorogood, & Willcocks, 2014, p. 3). The top management receives very high
incentives and salaries as compared to the junior staff. Such dynamic creates inequality within
the organization, and cause the managers and directors make poor long-term investments plans.
It is probably true that the subordinates staff knew about everything that was happening
underground, however, since there was no open and free flow of information, the concerns were
not raised to the top management. The senior leaders, therefore, need to encourage, inspire, and
motivate the employees in working together as a family and build a culture of honesty and
integrity in the future.
Another organization factor that led to the failure of the CBA is the poor decision-making
process by the managerial team. The CBA was accused of failing to adhere to the anti-money
laundering laws as well as non-compliance to the counter-terrorism laws (Samantha, Raymond,
& Liu 2011, p. 96). The management made the worst of decisions by covering up the case when
they first realized the occurrence of the crimes. For instance, although most of the money
laundering was due to a software coding error, the manager chose not to notify the AUSTRAC
(financial intelligence agency) of the same. Media has over and over again reported these issues
but the leadership of CBA did not respond to the matter urgently has it ought to be (Hussain et al.
2017, p. 5). The AUSTRAC, therefore, accused CBA of breaking the law by over 54, 000 times
when it failed to notify the authorities of their suspicious transactions (Scott 2018, P. 378). Mr.
Narev, the CEO, believes that the bank does not have to reveal to its investors of such suspicious
every time. Such decisions caused the bank a great deal when the whole matter reached the
concerned authorities costing them huge fines. They also led to mistrust issues and

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misunderstandings between the management and the stakeholders. As such, the CBA has to work
in rebuilding trust among the members, developing a robust system of risk management and
mitigation as well as providing high-quality services to the stakeholders and customers (Chaikin
2018, p. 297).
2.2 Group and individual behavior within CBA
Organizational behavior such as group or individual has a significant influence on the failure or
success of a company. At CBA, both group and individual behavior influenced significantly the
problems experienced by the company. Most of these money laundering events were carried out
by a group of employees (Ewa & Udoanyang 2012, p. 35). When the CEO got to know about the
misconducts, he covered them up and refused to expose the unethical behavior going on in the
company. The rogue financial planners, for instance, exhibited individual unethical behavior
whereby they placed the savings of the elderly retirees into high-risk products going contrary to
the given guidelines. They also forged and falsified documents. The CBA CEO also
demonstrated unethical individual behavior by covering up the mistakes of the financial planners
a well as for other employees. The CBA top management as well committed a group unethical
behavior whereby they encouraged continual of bad behavior within the company such as
offering incentives to financial planners who performed better by meeting their targets. It is
crucial to understand the working of the agency theory and how it influences individual behavior
(Pepper & Gore 2015, p. 1055). The financial planner has to act ethically towards the client or
agent as they aim to achieve profits. Also, contextual factors and the organizational culture
significantly determines the behavior of the company. They include; the role an individual play
in the company as well as remuneration structures, ethical culture, ethical leadership, and ethical
decision-making.

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3.0 Post-failure mechanisms that CBA used to prevent possible re-occurrence and their
effectiveness
CBA needed to rebuild its reputation and regain the stakeholders’ trust. In doing so, it had to
introduce mechanisms that could prevent the occurrence of such incidences from occurring
again. Therefore, the bank introduced limits into the amount of money that could be inserted into
the new ATMs. In 2017, CBA introduced a limit of $20 000 on every cash deposit made using
CBA branded card to personal accounts of CBA. Additionally, in the year 2018, it went a step
further of including an extra $10 000 limit to all cash deposits made to business as well as
personal CBA accounts. Such measures are effective in preventing the withdraw of money to a
certain threshold. The AUSTRAC commended the bank for putting proper risk-based control
measures that were able to curb the money laundering (Sanusi, Rameli, & Isa, 2015 p. 109) as
well as terrorist financing risks that the IDMs were posing a threat. If the bank had put such
measures before, it would have prevented the money laundering activity used by people in
distribution and importation of drugs such as methamphetamine.
Further CBA invested in the advancement of technology and innovation where it introduced
machines that were unlikely to be targeted by the terrorists. By this, they could easily notice any
breach fast, and hence put a stop to the accounts involved. They also undertook enhanced
customer due diligence measures (ECDD) that ensured the security of the customer’s money
(Alhosani 2016, p. 6). They also updated their TTR coding system that fixed the code error bug.
The management as such installed a broad program of work such as new procedures, new
investments, and enhanced risk assessment procedures.

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4.0 Conclusion
Organization behavior and culture which a specific company follows influences significantly the
success or failure of their operations. CBA managerial team chose to breach the Terrorism
Funding Act as well as Anti-Money Laundering Laws by failing to notify them in time when
they first noticed their system violation. Failure of effective control and risk mitigating measures
contributed significantly to the troubles experienced by the company. They received heavy
penalties, and the relationship between the company and the stakeholders was affected. Both
individual factors such as failure by the manager to report the breaches as well as group factors
such as employees joining in laundering money, contributed significantly to the woes of the
company. However, the company devised post-failure mechanisms such as new technology
projects, manual checking for the automated reports, and better communication services with the
stakeholders that enabled them to restore the fame of the company.

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References
Alhosani, W., 2016, Anti-Money Laundering: A Comparative and Critical Analysis of the UK
and UAE's Financial Intelligence Units. Springer, pp. 1-17.
Chaikin, D., 2018, A Critical Analysis of the Effectiveness of Anti-Money Laundering Measures
with Reference to Australia. In The Palgrave Handbook of Criminal and Terrorism Financing
Law. Palgrave Macmillan, Cham, pp. 293-316.
Crofts, P., 2018, What went wrong with money laundering law? by Peter Alldridge. Current
Issues in Criminal Justice-Sydney, pp. 1-11.
Demetis, D.S., 2018, Fighting money laundering with technology: A case study of Bank X in the
UK. Decision Support Systems, 105, pp.96-107.
Ewa, E.U. & Udoanyang, J.O., 2012, The Impact of Internal Control Design on Banks. Ability to
Investigate Staff Fraud, and Life Style and Fraud Detection in Nigeria. International Journal
Research on Economics and Social Sciences, 2(2), pp.32-43.
Ferwerda, J. & Kleemans, E.R., 2018, Estimating Money Laundering Risks: An Application to
Business Sectors in the Netherlands. European Journal on Criminal Policy and Research, pp.1-
18.

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Hussain, S., Ryan, M., Cripps, H. & Lambert, C., 2017, Role of social media in handling a crisis
situation: A case study of Commonwealth Bank of Australia (CBA), pp.1-11.
Miner, J.B., 2015, Organizational behavior 1: Essential theories of motivation and leadership.
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Pepper, A. & Gore, J., 2015. Behavioral agency theory: New foundations for theorizing about
executive compensation. Journal of management, 41(4), pp.1045-1068.
Russell, D., 2018, Trusts and Foundations: Implications of Common Reporting Standard and
Anti-Money Laundering Legislation. Trusts & Trustees, 24(6), pp.493-498.
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Sanusi, Z.M., Rameli, M.N.F. & Isa, Y.M., 2015, Fraud Schemes in the Banking Institutions:
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Executive, 13(4), pp 1-13.

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Scott, B., 2018, AUSTRAC v Tabcorp: A case study in enforcement action by Australia’s
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