Corporate Governance Failure: An Analysis of Commonwealth Bank of Australia's Money Laundering Scandal
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This annotated bibliography analyzes the corporate governance failure of Commonwealth Bank of Australia's money laundering scandal. It discusses the factors at the individual, group, and organizational levels that led to the scandal, as well as the post-failure responses of the bank. Recommendations for improvement are also provided.
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Running Head: Annotated Bibliography0 Annotated Bibliography Student’s Name 10/29/2018
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Annotated Bibliography 1 Contents Introduction......................................................................................................................................1 Organizational Behavior Factors.....................................................................................................2 Individuals2 Group Level4 Organizational Level5 Post Failure Responses....................................................................................................................6 Conclusion.......................................................................................................................................7 References........................................................................................................................................8 Introduction In the current world, many of the cases are being reported on a daily basis in which corporates held responsible for the breach of corporate governance. Corporate governance is a subject that provides an idol manner of the act to the companies. Recently, Commonwealth Bank of Australia also hold responsible for the breach of corporate governance principles. The issue has been started when in August 2017, Australian Transaction Reports and Analysis Centre (AUSTRAC) has made an allegation to the bank and stated that the same has breached the provisions of money laundering and counter-terrorism financing laws of the nation (Austrlian Government, 2018). In the findings, the bank itself been agreed on the fact that it has breached the provisions of Anti-Money Laundering and Counter-Terrorism Financing Act 2006 on 53,750 occasions (Ags.gov.au, 2018). The bank failed to provide the reports related to around 53000 accounts that were required to submit with Austrac. The bank also failed to report the suspicious matter within the period. It was a serious breach that has affected many of the stakeholders. The lead stakeholders were
Annotated Bibliography 2 shareholders of the company as they have faced ultimate loss. Resulted of the subjective money laundering scandal, the bank had to pay penalty worth $700 million (Doran and Janda, 2018). It brought an adverse impact on the financial condition of the company and therefore shareholders faced a huge loss directly. The other loss, which shareholders faced, was a significant downfall in the market prices of shares. Being the investors of the company, they had a huge interest in the affairs of the company as any downfall in the financial condition of the company could reduce the level of their investments. The other stakeholder was Austrac and Royal Banking Commission. Being a regulator, the authority got affected by the breach. In addition to authority and shareholders, the customers of the bank were main stakeholders. Their money was deposited with the bank and a huge penalty leads a danger over the safety of their deposits. Further, the scandal affected the organization as a whole. The organization was a bank that consisted of interest of the public. The breach was a huge concern as it attracted a penalty worth $700 million to the company that was a significant amountitself.Apartfromthemonetaryloss,thebankalsofacedalossofgoodwill (News.com.au, 2018). The market price of shares went down and the bank lost the trust of the public. The matter was also serious as the same consisted an issue of money laundering which is a huge concern for the government of any nation. Being one of the largest banks of the nation, it was the responsibility of the management of the bank to comply with all the applicable provisions to the bank but the same failed to do so. The management of the bank was responsible for the discussed breach. Austrac alleged that in 2012, the bank was required to assess the risk of the machine in respect to money laundering activities but the management of the bank did not do so till 2015 (Duran, 2018). In the further
Annotated Bibliography 3 activities also, management did not act like a responsible person and pull the company till the boundary of penalties. Organizational Behavior Factors Individuals Every organization consists many of the individuals. These individual works on different posts. No doubt that the management of an organization developed plans and procedures for an organization, some individuals also plays crucial roles in the working of the company. These are the people that affect an organization in several ways. Different individuals have their different personality and thinking. Thinking of management of the CBA as an individual, this can be stated that on an individual level they had stress and moral pressure for the development of the bank. CBA is a very large bank and in such a situation it was the responsibility to of the director to keep the same on that position and hence they have breached the ethics in order to make their organization more strong in a financial perspective. Two kinds of individuals are there in the cases of unethical deeds. One who remains directly involved in an unethical act and another one who watches the issue and acknowledge the same rather than reporting of such issue. Dr. Benjamin Koh, the former medical officer of CBA stated that CBA was used to bullying it is legal and medical experts (Danckert, 2016). This statement proves that it was not only the management of the company that was aware of unethical practices but internal stakeholders were also there who were witnessed of such unethical practices. Although this example is not directly related to the money laundering and fraud scandals of the organization, yet this shows what kind of individuals were there. They all were focusing on their
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Annotated Bibliography 4 targets, were working for the money, facing stress for one or more reasons and ignoring the whistle blowing policy of the company. Emotions are another aspect to study when it comes to the study of individual behavior. Work pressure and stress are the lead causes of negative emotions (webmd.com, 2018). As a positive emotion plays their role in the development of good practices, negative emotions lead the issue of unethical practices (Barsky, 2011). People at their individual level were not responsible and therefore the bank has never assessed the risk. The group head of anti-money laundering had not taken any reasonable steps to send the suspicious matter report (SMR) to Austrac (Evans and Yeates, 2018). Group Level Behind every breach of corporate governance or ethics, in addition to individuals, some groups are there. In every organization, some factors are there that provokes the individuals and groups to commit fraud and to get involved in similar kind of activities. Moving forward to the chosen organization i.e. commonwealth bank of Australia, this is to be stated that a variety of reasons were there behind this scandal. Organizational Culture Firstly, thisis to be mention that the lead factor was competition. The behavior of an organization is way much affected by the level of competition that an organization faces. Today’s world is a world of competition and CBA was also facing the same. Wstpac, National Bank of Australia and other financial institutions were there in the competition with CBA. This was one of the lead reason that the company has set aside it is ethical policies and became involved in fraudulent money laundering activities. It became the culture of the organization to
Annotated Bibliography 5 always ignore the policies and plans of the company. The statement can be supported by the fact that even after the existence of several ethical policies, company been alleged for several breaches. Group processes are also a part of organizational culture. In the CBA, most of the groups of the bank, whether the management or employees were involved in the processes that were lead to make the financial position of the company better irrespective of the facts of good corporate governance (Ellman and Christou, 2010). Directors, as well as the financial officers of the bank, were aware of the true condition of the bank and they were aware with the breach of the same, yet the waited for the penalty notices from the sides of authority. It was the organizational culture in CBA to ignore the laws and to pay the penalties. Organizational Level On the website of the company, under the head of culture, the bank has stated that the same is accountable and responsible (commbank.com.au, 2018). Nevertheless, this would not be wrong to be stated that the bank only developed policies on papers and never implemented the same in practical. The money laundering scandal is not the only scandal of the bank, but in addition to this, the bank alleged for breaches of corporate governance many times. Directors were not so serious about ethics and therefore the other people from management did take the same casually. It became organizational behavior to always ignore the issues reported by the authorities and to pay the fines and penalties. The lead focus of the organization was on profit making. It is very common that ethics and profits making activities are very typical to go in one way together and this was the reason of such scandal as the bank chosen profit building over the practice of ethics.
Annotated Bibliography 6 The other factor was the risk management policy of the company. The bank has developed several risk management policy that reflected under annual reports of the bank as well as on the website of the same. However, there was no proper system to ensure the implication of these policies. Directors of the company were engaged in the development of other business and never took the warning letters of Austrac seriously. Control System of the organization was also in a failure. The bank was being alleged for the breach of corporate governance repeatedly, yet the company has not made any control policies to prevent such cases. Control system is a method by which the targeted activities are focused to be prevented. In the case of CBA, the management has not developed any control system at the organizational level. Post Failure Responses The money laundering scandal was a great failure of corporate governance and was a terrible ethical breached. As discussed under the aforesaid discussion that many failures were there in the working system of the bank. The subjective scandal resulted in a heavy penalty to the bank and this is the reason that after this case, the bank has made certain changes in the plans, policies, and working of the company. In addition to the penalty, the bank also faced a terrible downfall in the market price of shares and class actions (Farrer, 2018). When the case was going on, the bank has cut down the bonuses of it is executives and started an overhaul at the level of the board. Mr. Ian Narev, CEO of the company apologized to the stakeholders and also stepped down from his post at the end of the financial year (Bbc.com, 2017).
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Annotated Bibliography 7 The lead reason behind the scandal was the inappropriate and limitless use of ATM machines. To prevent the further issues of a similar kind, the bank has put a cap of deposit amount as $20000 per day, which as further revised as $10000 per day (Yeates, 2018). This limit is applicable irrespective of the number of the transaction per day. In addition to this, the bank is more aware to comply with the provisions of applicable laws and also focusing on the implication of corporate governance policies. These changes are expected to achieve the goals of good corporate governance practices. In addition to this, the bank has made these changes with the goals to prevent fraudulent activities with the organization. In order to check the effectiveness of such steps taken by the bank, this can be stated that some cases have reported in the current year in which bank again breached the provisions of corporate governance. This would not be wrongful to say that CBA has not taken any lesson from the past incidents (Pash, 2018). The bank is repeating the same mistake. As discussed above, that on every level there was some failure hence the bank was required to share the lesson of past incident across the organization. The plans developed after the scandals could prove beneficial for all the stakeholders of the company and for the company itself if used effectively. Certain recommendations can be provided to the bank in the area of making those changes effective. Firstly, the bank should develop detailed plans and policies for the indoor management of the company and also develop a proper procedure to ensure the implementation of the same as bank always get fail in this step. Further, the bank should focus on the behavioral aspect on it is management and other officers and should do all the activities that the same can do to develop a good corporate governance environment. At last, the bank should also develop a focus on the leadership style of group leaders and should make changes if required as leadership theory affect the working style and ethical theory of many others,
Annotated Bibliography 8 Conclusion CBA committed a significant breach of money laundering laws and faced many issues. Many reasons were there behind this breach including individual behavior and organizational culture. Bank has amended it is policies after the breach but the same has not proven effective. The bank is required to review the whole issue again and focus on the implications of ethical policies in real life. References Ags.gov.au. (2018)AGS helped AUSTRAC on largest civil penalty in Australian corporate history.[online]Availablefrom: https://www.ags.gov.au/publications/news/AGS_AUSTRAC_largest_%20civil_penalty_in_ %20Aust_history_6Jun18.html[Accessed on29/10/2018] AustrlianGovernment.(2018)AUSTRACandCBAagree$700mpenalty http://www.austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty[Accessed on29/10/2018] Barsky, A., 2011. Investigating the effects of moral disengagement and participation on unethical work behavior.Journal of business ethics,104(1), p.59. Bbc.com. (2017) Commonwealth Bank head to retire amid money laundering claims.[online] Available from:https://www.bbc.com/news/business-40920218[Accessed on29/10/2018]
Annotated Bibliography 9 commbank.com.au.(2018).Corporategovernance.[online]Availablefrom: https://www.commbank.com.au/about-us/shareholders/corporate-profile/corporate- governance.html[Accessed on29/10/2018] Danckert, S. (2016) CBA accused of bullying as regulator APRA asked to prosecute bank staff. [online] Available from:https://www.smh.com.au/business/banking-and-finance/cba-accused-of- bullying-as-regulator-apra-asked-to-prosecute-bank-staff-20160506-goo0ww.html[Accessed on 29/10/2018] Doran, M., and Janda, M. (2018).Commonwealth Bank to pay $700m fine for anti-money laundering,terrorfinancinglawbreaches.[online]Availablefrom: https://www.abc.net.au/news/2018-06-04/commonwealth-bank-pay-$700-million-fine-money- laundering-breach/9831064[Accessed on29/10/2018] Duran, P. (2018)Commonwealth Bank blames 'coding error' for alleged money-laundering breaches.[online]Availablefrom:https://www.reuters.com/article/us-australia-cba- moneylaundering/commonwealth-bank-blames-coding-error-for-alleged-money-laundering- breaches-idUSKBN1AM0TM[Accessed on29/10/2018] Ellman, M. and Pezanis-Christou, P., 2010. Organizational structure, communication, and group ethics.American Economic Review,100(5), pp.2478-91. Evans, M., and Yeates, C. (2018).Eleven already jailed over CBA money laundering syndicates. [online] Available from:https://www.smh.com.au/business/banking-and-finance/eleven-already- jailed-over-cba-money-laundering-syndicates-20170804-gxps8l.html[Accessed on29/10/2018]
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