Commonwealth Bank Breach Investigation

This assignment examines the Commonwealth Bank money laundering scandal, focusing on ASIC's investigation into the bank's actions. It analyzes the directors' responsibilities under corporate law, including their duty to disclose potential liabilities and act diligently. The assignment argues that the directors' failure to comply with these duties could lead to legal consequences under Section 180(1) of the Corporation Act 2001, making them liable for civil penalties.

Running head: CORPORATE LEGAL ISSUES
Corporate Legal Issues
Name of the Student
Name of the University
Author Note

1CORPORATE LEGAL ISSUES
Table of Contents
Part 1:........................................................................................................................................2
Issues recognized that are related to crown:.....................................................................2
Role of ASIC related to the issue:.......................................................................................3
Remedies for relevant issues:..............................................................................................4
Bibliography:............................................................................................................................6
Part 2:........................................................................................................................................7
Bibliography:..........................................................................................................................11

2CORPORATE LEGAL ISSUES
Part 1:
Issues recognized that are related to crown:
All the directors and officers of a company have a duty to direct their operations
towards the profit of the organization and also towards its best interest. The Corporation Act
2001 (Cth) (The Act) governs the operations of the directors that are related to an
Organization along with other common law provisions. Several provisions exist that have
been laid down in the legislation towards governing the actions of the directors. Statutory
duties of the directors set out by the CA are mentioned under the section 180-184 of the Act.
According to the provisions that are laid down by section 180(1) of the said Act, the directors
are bound to discharge their responsibilities and duties towards the organization with due
skills and attentiveness1. The activities of the directors related to the provisions of section
180(1) of the Act are evaluated based on objective rather than subjective. Thus, an imaginary
person having an aptitude of a director is positioned o the director. Moreover, the actions of
the director are analyzed based on the actions that the imaginary director would have taken in
same position. It had been ruled by the court in the case of AISC v Cassimatis2 that any
director under any reasonable circumstances in any situation will not violate a legal provision
and therefore such an act cannot be sanctioned by the shareholders.
It has been produced in an article that Crown Resorts Ltd has sent agents to China for
the purpose to recruit gamblers. Gambling is banned in China and hence it is treated as a
penal offence3. Previously, these agents used to go to mainland china and hired gamblers to
come and play in the resorts of Australia. The Chinese officials arrested the employees of the
1 Corporation Act 2001 (Cth) at section 180(1).
2 (No 8) [2016] FCA 1023.
3 '“Big Gambling”: The Rise Of The Global Industry-State Gambling Complex' (Taylor &
Francis, 2018) <http://www.tandfonline.com/doi/full/10.3109/16066359.2014.929118>
accessed 4 January 2018.

3CORPORATE LEGAL ISSUES
Crown resort. In addition to this, the share value of the organization has witnessed a steer
drop of 14%. The investors and shareholders of the company planned to take rigid action
against the directors. From these factors it can be assumed that the directors of Crown have
not complied with the provisions o section 180(1) of the Act. Therefore, it can be said that
due to a reasonable director it would not undertake illegal actions in relation to the company
and these activities are not with the observation of due ability and diligence.
Role of ASIC related to the issue:
Australian Security and Investment Commission (AISC) are a corporate supervisor
and governor of organizations that operates within Australia and are registered with the
Australian Securities Exchange (ASX). The ASIC monitors financial services, integrated
corporate actions and consumer and market credits within the Australian territory. The
indicator focuses to make scope for the market in order to enhance economic growth and
fund the economy. The monitor determinates to ensure financial well being within the
Australian community4. The regulator along with the efficient functioning of market
promotes the trust and confidence of the investors and consumers. The commission strives for
orders like suspension from management and financial penalties from the management
towards the ones who are found guilty of non-compliance with corporate legal framework.
The article provides that the Chinese officials due to the illegal activities committed by them
in China have arrested a few employees of Crown5. Hence, it is the duty and role of the
indicator to conduct an investigation related to the situation. Later it was classified that
Crown was registered with ASK and hence ASIC had to conduct an investigation in relation
to the accusations. The ASIC had to take actions in order to secure and protect the
4 Our role | ASIC - Australian Securities and Investments Commission. (2018). Asic.gov.au.
Retrieved 3 January 2018, from http://asic.gov.au/about-asic/what-we-do/our-role/
5 'Home, James, And Don’T Spare The Horses: The Inevitability Of A Second Sydney
Casino'
(Taylor&Francis,2018)<http://www.tandfonline.com/doi/abs/10.1080/07293682.2017.13193
94> accessed 4 January 2018.

4CORPORATE LEGAL ISSUES
shareholders and investors of the Crown. They also had to make an investigation as the
organization had subjected the employees who were arrested to significant risks.
Remedies for relevant issues:
The ASIC has the power to take various actions against the organization and its
directors where it has been studied and established based on the investigation that they have
not complied with the provisions of the Act. It was subjected to the investors, stakeholders
and creditors of the organizations to significant rises. The duties of the directors are
mentioned under Section 180-183 of the CA and it has been violated in a civil penalty
provision. On the contrary, the provisions entailed in Section 184 of the Act have been
breached which resulted in criminal liability under the provisions of Section 6.1 of the
criminal code. Therefore, the directors were held criminally liable for their activities that they
have hastily violated the duties imposed on them in relation to the organization. Section
1317E of the Act required the civil penalty provisions. According to this section, the directors
can be subjected to financial penalties and they might also be barred from managing a
company for a certain period of time. The maximum amount of penalty that can be imposed
on the directors of an organization as an individual is $200,000. The major period for which
the directors can be blocked from managing a corporation is five years as mentioned under
the provisions of Section 206c of the Act6. Therefore, the directors can rely on section 180(2)
or 1317G as a defense related to the allegation. According to Section 1317G, the court has the
power to forgive the directors for the breach of duty made by them7. However, the ASIC
obtained a monetary penalty of $100,000 as well as barring the period of two years in relation
to the Australian Securities and Investments Commission [ASIC] v Lindberg8.
6 Corporation Act 2001 (Cth) at section 206C.
7 Corporation Act 2001 (Cth) at section 1317E.
8 2012] VSC 332.

5CORPORATE LEGAL ISSUES
Bibliography:
'“Big Gambling”: The Rise Of The Global Industry-State Gambling Complex' (Taylor &
Francis, 2018) <http://www.tandfonline.com/doi/full/10.3109/16066359.2014.929118>
accessed 4 January 2018.
ASIC v Cassimatis (No 8) [2016] FCA 1023.
Australian Securities & Investments Commission [ASIC] v Lindberg [2012] VSC 332.
Corporation Act 2001 (Cth).
'Home, James, And Don’T Spare The Horses: The Inevitability Of A Second Sydney Casino'
(
Taylor&Francis,2018)<http://www.tandfonline.com/doi/abs/10.1080/07293682.2017.131939
4> accessed 4 January 2018.
Our role | ASIC - Australian Securities and Investments Commission. (2018). Asic.gov.au.
Retrieved 3 January 2018, from http://asic.gov.au/about-asic/what-we-do/our-role/.

6CORPORATE LEGAL ISSUES
Part 2:
Multiple cases have been launched against the Commonwealth Bank by the
AUSTRAC regarding the violation of anti money laundering and he laws of counter
terrorism9. It was alleged by AUSTRAC that the bank was involved in the transfer of illegal
money thereby benefiting several terrorist groups and criminal gangs. Allegation was brought
against the Commonwealth Bank by AUSTRAC regarding the fact that the bank was
involved in the violation of the provisions of the legal statutes that has been mentioned above
on more than 53,000 instances. Proceedings were brought against the bank according to the
provisions of civil penalty by AUSTRAC as established by the Corporation Act 2001, in the
federal court of justice in Australia in regard to “serious and systemic non-compliance.”
The Australian community as a result of the actions of the Commonwealth bank has
been subjected to major and ongoing financial crime however such allegation was brought
down by the AUSTRAC during filing the case. In this case the bank failed to take reasonable
steps and did not take any action in relation to the amount of A$77 million worth of
suspicious transactions however this was the specific issue as brought down by the ASTRAC
before the court. The Court is at the authority to impose a penalty of A$18 million maximum
regarding the 53000 breaches made by the Commonwealth bank10. In this context, several
allegations were brought by the AUSTRAC against the bank in the present scenario where it
is apparent that the use of Intelligent Deposit Machines were used for the purpose of money
laundering activities however necessary steps in order to address the consequences of such
9 Knaus, C. (2018). Commonwealth Bank accused of money laundering and terrorism-
financing breaches. The Guardian.Retrieved 3January 2018, from
https://www.theguardian.com/australia-news/2017/aug/03/commonwealth-bank-accused-of-
money-laundering-and-terrorism-financing-breaches.
10 CBA will take months to answer money laundering allegations. (2018). ABC News.
Retrieved 3 January 2018, fromhttp://www.abc.net.au/news/2017-09-04/commonwealth-
bank-will-take-months-to-respond-to-austrac/8869706.

7CORPORATE LEGAL ISSUES
activities has not been taken by the bank. The use of Intelligent Deposit Machines as
provided by the bank were utilized by four money laundering syndicates and out of them
three were associated with the distribution of drug and import network. However it was
observed that in order to keep suspicion at bay the syndicates from the very beginning was
involved in small amount of transactions and deposited about $21 Million across 11 accounts
of commonwealth banks11. However after further allegation by AUSTRAC the bank did not
pay heed to the matter in scenario even after being warned by the Federal Police in Australia.
In this regard, it is noteworthy to mention that the AUSTRAC has other roles to perform
other than the roles played by the ASIC.
The ASIC or the Australian Investment and Security Commission is an independent
body of the government of Australia whose purpose is to regulate companies and securities.
The Australian Investment and Security Commission are at the duty to keep records of the
company matters. The ASIC can be termed as the regulator of various organizations within
Australia and is registered with the Australian Securities Exchange (ASX), the AUSTRAC on
the other hand regulates different financial organizations in Australia. The regulation of
financial services and consumer credit in Australia is controlled by the ASIC. In order to
enhance economic growth in the market, the ASIC aims to fund economy in order to make
scope for market operations. In order to ensure financial security within Australia, the role of
ASIC as a regulator has proved to be beneficial. The ASIC since time immemorial is
involved with the promotion of investor’s and customer’s trust and confidence. The
commission from the very beginning made efforts in order to provide orders on financial
penalties and suspension from the corporate management towards those who has not
complied with the legal framework of the corporate. In the given scenario, the role of ASIC is
11 CBA faces 'very large' shareholder action on money laundering. (2018). ABC News.
Retrieved 3 January 2018, from http://www.abc.net.au/news/2017-08-23/commonwealth-
bank-faces-shareholder-class-action/8833860.

8CORPORATE LEGAL ISSUES
to analyze the operation of the organization as well as the duties of the directors discharged
during operations.
The chairman of ASIC, Greg Medcraft stated that investigation will be done regarding
the matter that whether the bank authorities acted according to the legal provisions and not
notifying the investors regarding the suspicious behavior. In the present case, ASIC has to
analyze the compliances of Commonwealth bank with the obligations of licensing which is to
act diligently, honestly and efficiently and requires to report with potential liabilities12. As
noted by the Chairman, that it is not mandatory on the part of organizations like
Commonwealth bank to inform the ASIC regarding the breach of anti-money laundering laws
and counter terrorism laws. The directors of the organization are at the duty to bring
professional attitude while discharging their functions for ensuring effecting working of the
management system.
Thus in the given case study it is the primary role of ASIC to investigate into the
matter in depth by analyzing the actions of the directors regarding the matter of
Commonwealth bank. If it comes to the knowledge of the ASIC that after proper
investigation the corporate directors have not complied with their statutory duties in making
disclosure about the risks involved in such matter to the investors, then in such cases the
directors would be liable for the breach of the provisions of Section 180(1) of the Corporation
Act, 200113. In this regard, the directors failed to comply with the disclosure of legal duties
and failed to take reasonable care by not acting with diligence in context of their operations
12 Taking Other People's Money: Development And The Political Economy Of Asian Casinos'
(
Taylor&Francis,2018)<http://www.tandfonline.com/doi/abs/10.1080/09512748.2014.995127
> accessed 4 January 2018.
13 Planning News - Planning In The News (Business Collection) - Informit'
(
Search.informit.com.au,2018)<https://search.informit.com.au/fullText;dn=658413116605352
;res=IELBUS> accessed 4 January 2018.

9CORPORATE LEGAL ISSUES
which any reasonable director would have done in the present case study. In case of breach of
corporate laws, the ASIC has the authority to bring distinct proceedings against the bank. The
ASIC in such cases would be successful in establishing breach of Section 180 (1) of the
Corporation Act, 2001 done by the directors of the bank and would be able to acquire a
separate order regarding the provisions of civil penalty14.
14 ABC News. (2018). ASIC to investigate CBA over money-laundering scandal. [online]
Available at :http://www.abc.net.au/news/2017-08-11/asic-to-investigate-cba/8796542
[Accessed 4 Jan. 2018].

10CORPORATE LEGAL ISSUES
Bibliography:
'ASIC To Investigate CBA Over Money-Laundering Scandal' (ABC News, 2018)
<http://www.abc.net.au/news/2017-08-11/asic-to-investigate-cba/8796542> accessed 6
January 2018.
CBA faces 'very large' shareholder action on money laundering. (2018). ABC News.
Retrieved 3 January 2018, from http://www.abc.net.au/news/2017-08-23/commonwealth-
bank-faces-shareholder-class-action/8833860.
CBA will take months to answer money laundering allegations. (2018). ABC News.
Retrieved 3 January 2018, from http://www.abc.net.au/news/2017-09-04/commonwealth-
bank-will-take-months-to-respond-to-austrac/8869706.
Knaus, C. (2018). Commonwealth Bank accused of money laundering and terrorism-
financing breaches. the Guardian. Retrieved 3 January 2018, from
https://www.theguardian.com/australia-news/2017/aug/03/commonwealth-bank-accused-of-
money-laundering-and-terrorism-financing-breaches.
Planning News - Planning In The News (Business Collection) - Informit'
(
Search.informit.com.au,2018)<https://search.informit.com.au/fullText;dn=658413116605352
;res=IELBUS> accessed 4 January 2018.
'Taking Other People's Money: Development And The Political Economy Of Asian Casinos'
(
Taylor&Francis,2018)<http://www.tandfonline.com/doi/abs/10.1080/09512748.2014.995127
> accessed 4 January 2018.