Commonwealth Bank of Australia (CBA) Money Laundering Scandal

The Commonwealth Bank of Australia (CBA) has been accused of money laundering in aid of a terrorist group. This paper examines the CBA money laundering scandal as unethical behavior and analysis of the corporate that was affected by the scandal through the use of Schein’s model.

Commonwealth Bank of Australia (CBA) Money Laundering Scandal 1
COMMONWEALTH BANK OF AUSTRALIA (CBA) MONEY LAUNDERING SCANDAL
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Commonwealth Bank of Australia (CBA) Money Laundering Scandal 2
Commonwealth Bank of Australia (CBA) Money Laundering Scandal
Introduction
The financial and banking sector in Australia has been rocked by numerous scandals that
have affected the reputation of many financial institutions. The Australians are currently dealing
with the revelations that some of the nation’s most trustworthy, as well as reputable banks have
engaged in dishonesty, and money laundering, which are practices that are driven by possible
fraud along with greed. Though not on the degree of financial institutions scandals encountered
in America in the last few years, the proof has affected the commonly law-abiding, wealthy, as
well as well-regulated nations. Australians have been assured by business along with political
leaders that although their financial sector is concentrated among few large institutions, powerful
regulation besides comprehensible ethical principles could safeguard the people from
exploitation (Smyth, 2017, pp. 1). The recent bank to be involved in banking scandal is the
Commonwealth Bank of Australia (CBA) that has been accused of money laundering in aid of
the terrorist group that is considered an unethical behavior in the banking sector. The paper will
examine the CBA money laundering scandal as unethical behavior and analysis of the corporate
that was affected by the scandal through the use of Schein’s model. The second part will be using
ethical theories to explain the CBA scandal.
Part I
Commonwealth Bank of Australian Scandal
The scandal occurred where the bank was accused of violating money laundering and
counter-terrorism laws. The criminals used intelligent deposit machines to launder the profits of
sales of drug outside the nation and they opened Commercial Bank’s accounts with hundreds of

Commonwealth Bank of Australia (CBA) Money Laundering Scandal 3
forged identities. The scandal occurred between 2012 and 2015 and entailed inserting around 13,
000 majorly $50 notes into the deposit machines and the money was transferred to accounts in
Hong Kong. The bank was accused of over 50,000 breaches of the law through failing to
sufficiently monitor A$624.7 million of transactions on its network of intelligent deposit
machines (IDMs) over the last three years. The financial offense combating agency alleged that
the bank’s intelligence depots machines were utilized by drug dealers, as well as other criminal
elements to launder millions in of dollars. It is alleged that the bank botched to sufficiently
evaluate the risk that was posed by the expansion of the intelligence deposit machines that were
introduced in 2012 in addition to facilitated unspecified cash along with the cheque deposits to a
tune of A$20,000 in a single transaction. Thus, the IDMs count the cash plus immediately credit
the selected receiver of the money. Furthermore, the bank failed to report the unusual
transactions that amounted to over A$77 million or to scrutinize suspicious clients after it
became conscious of probable laundering activities. The bank failed to act through investigating
the suspicious activities of the customers that were fleecing away huge sums of money that
denied the stakeholders their interests (Burgess, 2017, pp. 1).
Furthermore, the CBA scandal occurred because the company failed to comply to risk
assessment requirements for its IDMs. The risk assessment is carried out periodic times to ensure
that suspicious activities in the IDMs does not occur that will result in the loss of huge amounts
of money that affects the company’s reputation. The scandal made the bank to announce the
retirement of Mr Narev, slash the remuneration for the bank managers and executives along with
the board members, as well as undertake reviews of its corporate culture along with procedures.
This was an effort to restore the reputation of the company because the executives and managers
failed to undertake the needed measures to stop the scandal from happening. In addition, the

Commonwealth Bank of Australia (CBA) Money Laundering Scandal 4
bank faced a class-action lawsuit from the shareholders because their interests were negatively
affected by the scandal (Mann, 2017, pp. 2). The money launderings scandal happened because
the CBA management of the company never put limits on the amount, which may be inserted.
The management failed to introduce daily limits that was necessary to disrupt money laundering
activity through the IDMs by syndicates entailed in the importation, as well as distribution of
drugs. The bank’s management was accused to manage the money laundering scandal where the
bank admitted many breaches of the Anti-Money Laundering and Counter-Terrorism Financing
(AML/CTF) concerning the failure to submit the suspicious matters reports (SMRs) that must
have recognized the criminals. Despite being informed by the law enforcement agencies of the
scandal, the CBA management never acted on this reports that resulted in the scandal. In the time
for which the bank admits that it monitoring plus (improved client due diligence) was deficient,
many million money worth of further illegal act was not unearthed (Eyers, 2017, pp. 1).
Schein’s Model
Schein (2010) in his model developed the element of organizational culture with more
details. Schein perceives the organizational culture along with leadership as “two sides of coin”.
Thus, he developed three core levels of the organizational culture so that one may have an
understanding: artefacts’; espoused values; in addition to assumptions. Thus, the assumptions
comprise mainly core values that are shared; however, imperceptible to the group members of
the team. In this instance, it takes many years to develop the hub values plus their survival is
expressed through penetrating as well as spreading the characteristics of these core values into
the espoused values along with the artefacts. These core values should be visible through
promoting value for the customers through safeguarding their interests through effective
leadership (Schein, 2010, pp. 21).

Commonwealth Bank of Australia (CBA) Money Laundering Scandal 5
Espoused values represent the philosophies, goals, as well as approaches of the
company. Thus, the espoused values too has unwritten values, but all members in the
organization comprehend and follow them self-consciously. The espoused values also comprise
the working environment and the leadership style (Schein, 2004, pp. 36). The working setting
mirrors the association in the company: how the senior management trusts the juniors; how much
the company is open to originality or it keeps avoiding risks; association amid workers; and how
conflicts are resolved. Contrarily, the leadership style mirrors the attitude in addition to power of
the leader in undertaking the goals of the company. The artefacts are the cultural factors that are
visible to the external players. These factors include organizational infrastructure, the flow of
information, and language in the organization’s communications (Hofstede, Hofsede & Minkov,
2010, pp. 27).
Thus, in applying Schein model in the case of Commonwealth Bank of Australia, it is
apparent that the leadership style within the organization failed to address the problem of money
laundering as seen through the espoused values level of the Schein model. The leadership
through its executives failed to arrest the money laundering syndicate because the never acted
upon the information they received from the intelligence agencies that warned the bank several
times. In the espoused values level, the leadership has the role of creating an environment that
will promote the interests of the organization. In addition, it can seen that the management failed
to put in place appropriate risk management strategies through risk assessment as it is
highlighted under the espoused values level of the model (Thompson, Strickland & Gamble,
2005). The management failed to undertake regular risk assessment towards detecting any
possible risk posed by its IDMs given that technology is vulnerable to manipulation. This was
evident in the case of CBA where criminals used the IDMs to undertake their terrorist acts and

Commonwealth Bank of Australia (CBA) Money Laundering Scandal 6
wiring finances to overseas countries to benefit their terrorist acts. In addition, under artifacts
level, the leadership failed to develop appropriate structures that could be used to provide
overview and develop frameworks to monitor its infrastructure, particularly the IDMs that were
vulnerable to manipulation. In addition, CBA was expected to promote the trust of the
customers through securing money in regard to artifacts level of Schein model, but this was not
case since the deposits were wired away and the customers suffered a lot (Kotler & Keller, 2006,
pp. 57).
Part II
The CBA ethics case in question is a sequence of allegations against the bank by ignoring
certain laws linked to the need for financial institutions to monitor their transactions to make sure
that criminals do not exploit their systems (in this case, IDMs)to launder ill-gotten gains. To
safeguard the bank from unethical practices like money laundering, banks are expected to
conduct a risk assessment by monitoring bank transactions and report suspicious transactions to
Australia’s Transaction Reports and Analysis Centre (AUSTRAC) placing holds on accounts if
essential, as well as further proceeding with due diligence (Heal, 2008, pp 47).
Utilitarianism/Utilitarian Theory
Utilitarianism is based on the principle of maximizing the happiness or pleasure of the
stakeholders and not based on what is right to do founded on the ideas defined whether it is right
or wrong to do so. The theory stipulates that an action by an individual or group should
maximize the happiness of the majority and not only benefits an individual or a few individuals.
Therefore, it is important to acknowledge all the stakeholders involved, as well as assess the way
their happiness was impacted by the scandal (Desjardins, 2014, pp. 41). The executives of CBA
and senior people in the compliance department were affected by the ethics case. These

Commonwealth Bank of Australia (CBA) Money Laundering Scandal 7
individuals could have avoided the scandal through welding their influence towards compliance.
Customers and workers of the bank were also affected by the scandal because they are impacted
by negative publicity regarding the unethical issue. Law enforcement was too impacted by the
money laundering scandal since if CBA filed suspicious transaction reports on the right time, the
officials could have acted accordingly. The criminal syndicates are stakeholders since they took
advantage and laundered the money. The appropriate theory in this case is the utilitarianism or
utilitarian theory (Hartman, 2008, pp. 254).
Thus, the happiness of the chief executive officer (CEO) along with other executives plus
the general counsel and compliance department was greatly lowered because of all the bad
publicity. The scandal affected the their reputation; hence, happiness because they failed to
prevent the scandal through putting in place effective compliance measures that was needed to
stop the money laundering syndicate, which lowered their happiness based on the utilitarian
theory. It was apparent from the case that the company’s CEO, Narev, made the decision to
resign from his position when he could have carried on with its duties as the CEO of the bank for
many years ahead if he had done the correct thing (Dawson, 2010, pp. 17). Additionally, the
happiness or pleasure of the regular clients and workers were declined since they are currently
less proud of the bank that had earlier trusted and believed that they interests are best
represented. The bank’s shareholders are not happy with the scandal because the CBA fines on
the scandal are approximated to be in the millions of dollars that would negatively impact the
bank’s financial condition and the scandal had already negatively impacted the stock price with
the bank’s stock value declining by around 14% since AUSTRAC released the accusations in
2015 (Eyers, 2017, pp. 1). In addition, the law enforcement is certainly, very unhappy since the
delay in filling suspicious transaction reports resulted in footage and evidence being lost that

Commonwealth Bank of Australia (CBA) Money Laundering Scandal 8
made the law enforcement a difficult assignment. The happiness of the public (Australians) were
also decreased by the scandal since the realizations is that the public was exposed to crime,
which would have been stopped through compliance. The “happiness” of other banks were
lowered since currently AUSTRAC would be approaching other banks suspiciously that is unfair
to those institutions who are working within the confined of the law (Stewart, 2017, pp. 1)).
Therefore, it seems that since the CBA money laundering case brought so much unhappiness to
everybody (except the criminal syndicates who had an easier task to launder money because of
the bank’s activities), a utilitarian could make a conclusion that the bank’s actions were
impermissible since it resulted to more unhappiness rather than happiness.
Conclusion
The case of CBA is a perfect example of failed leadership in developing the necessary
compliance structures to prevent the money laundering scandal. The bank executives and other
managers failed to undertake a risk management that could have provided them with insights
regarding the suspicious activities in their IDMs. Based on the utilitarian theory, it became clear
that the organization’s stakeholders became unhappy with the scandal because they happiness
were not maximized. The ban should now recollect itself and start mending the lost reputation
through inspiring confidence to its stakeholders through series of reforms.

Commonwealth Bank of Australia (CBA) Money Laundering Scandal 9
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