Commonwealth Bank of Australia Money Laundering Case

This case study discusses the money laundering case of Commonwealth Bank of Australia, including the parties involved and how the case was handled. It highlights the risks and consequences of money laundering in the financial sector.

Table of Contents
CASE STUDY: Commonwealth Bank of Australia Money Laundering Case............................................3
INTRODUCTION:....................................................................................................................................3
CASE DESCRIPTION:...........................................................................................................................3
CASE ANALYSIS-.................................................................................................................................4
ANALYSIS-..........................................................................................................................................7
REFERENCE-...........................................................................................................................................8

CASE STUDY: Commonwealth Bank of Australia Money Laundering
Case
INTRODUCTION:
In most nations, money laundering is a severe felony. Continued participation of the financial
institution in this exercise raises issues about the magnitude of receiving penalty by banks and
whether the illegal action's payoff is higher than the penalty danger.
CASE DESCRIPTION:
In this case study we will discuss about the money laundering case of Commonwealth Bank of
Australia, other involved parties and how this case was dealt with.
Parties at Fault:
a. Commonwealth Bank of Australia- The Commonwealth Bank of Australia (CBA or
CommBank) was founded by the Commonwealth Bank Act in 1911 and shortly after activities
started in 1912. CBA was completely owned by the people before the privatization measures
started in April 1991. CBA was fully privatized by July 1996. Currently, CBA is a global
corporation with over 51,000 staff and 16.6 million clients in 11 nations, including the U.S.,
New Zealand, UK, Japan, and China. The institution had an overall revenue of almost 45

billion Australian dollars (A$) in 2017 with a net gain of A$ 9.88 billion (1 AUD equivalent to
$0.74). By measuring both enterprise value and total assets, CBA's total assets of A$ 976
billion in 2017 make it the biggest Australian business. (En.wikipedia.org, 2019)
b. AUSTRAC- the Australian Transaction Reports and Analysis Center (AUSTRAC) is the
Australian fiscal Intelligence service responsible for controlling funding for counter-money
laundering and curbing militancy (AML / CTF). The objective of AUSTRAC is to maintain the
transparency of the Australian economy and to assist manage accountability through its
skills in tackling money laundering and funding crime. Australian companies are needed to
submit financial transaction records and suspect information to AUSTRAC. Once AUSTRAC
has the company records that specialists utilize to evaluate the information and organize
reports on pecuniary information. The data are then circulated with other government
entities to assist combat financial fraud. (En.wikipedia.org, 2019)
One of the offenders using Australia's teller machines from the Commonwealth Bank to
embezzle the country's illegal drugs proceeds was Yuen Hong Fung. (Australian Financial
Review, 2019) Having opened CBA accounts with tens of false names, in June 2015, Mr
Fung–now in prison–made the utilization of '' Smart Payment Devices'' of the bank to pay
over $650,000 on the same day. This included the insertion into the devices of about 13,000
mostly $50 notes. Cash was produced from meth sales. It was transmitted to Hong Kong
accounts, as per the initial 583-page claim declaration submitted by AUSTRAC last August,
detailing Fung's actions along with similar organized felony organizations who also switched
to CBA to relocate their unlawful money.
As AUSTRAC and CBA recognized while announcing the resolution for situation as staggering
$700 million maximum fine was imposed on that day, "unlawful unions depend on
laundering unions to buy and sell their drugs" in addition to the cartels of illegal transfer of
cash were definitely drawn en route for the IDMs of CBA. When they were implemented by
the bank in May 2012, the first month of money savings amounted to $868,825. By end of
May that year, when CBA had set up 805 IDMs, money payments that passed across them
that month reached about $1.7 billion. The felons preferred the IDMs since, unlike earlier
ATMs, cash was immediately tallied into them and the sum of that money was
instantaneously credited to a CBA account. Funds for transfer, including global transfer,
were accessible instantly. The criminal gangs also enjoyed CBA as the financial institution
didn't have placed boundaries on the quantity that might be entered. This was till CBA
launched regular machine restrictions in that year (at the time of applying a $20,000 ceiling
on money transfers done to private CBA books using a CBA authorised card) and next year
(when adding a $10,000 ceiling on money transfers to CBA private and company books) that
AUSTRAC decided that the financial institution had "adequate danger-based checks to
minimize and handle" money laundering. "If CBA had previously implemented daily
restrictions, it would have interrupted money laundering exercise by cartels engaged in the
importing and dispersal of drugs, such as meth, through IDMs," the accepted facts
declaration said. "When daily constraints were not implemented, many million bucks of
laundering happened through CBA IDMs and some of the people engaged in the criminal
organizations laundering through IDMs were sued and sentenced of criminal activity." This
was noted by an observing supervisor at the Leichhardt Supermarket department of CBA, in

the western suburbs of Sydney, who eventually notified the financial institution to Fung,
who was observed by the ATMs shovelling huge amounts of cash. It was Fung's 12th trip to
that location; he would continue to use other parts of the CBA to transfer at least another
half a million bucks before the Australian National police's final detention in August of that
year. In the filing papers released on Monday, CBA acknowledged a number of infringements
of the Anti-Money Laundering and Counter-Terrorism Funding Act (AML / CTF) related to the
inability to send "Dubious Matter Accounts" – that must have recognized offenders such as
Fung. He deposited fewer than $10,000 every moment to prevent the automated accounts
that need to be sent over to AUSTRAC for transfers of over that sum – although, as the
situation also disclosed, most of these "maximum pay check stubs" also collapsed over the
period due to a process mistake. CBA confessed not to apply SMRs to the criminal
organization of which Fung was a part on many instances inside the prescribed timeline (3
days). AUSTRAC stated that it had used fraudulent documents and that the bank had
obtained data from police departments to that event, with Fung along with the partner
mentioned in couple of mail alerts from the AFP to CBA. Laundering has developed a
controversy that has enveloped that company and shed light on the national financial
sector's behaviour and its connections to worldwide drug trafficking.
CASE ANALYSIS-
This was not the very first moment that CBA did not react on the institution's shady
behaviour information hint-offs. CBA did not send SMRs on 69 cases between August 2012
and June 2017 in the necessary moment in regards to potential money laundering after the
bank got police applications for account data in connection with a federal investigation.
And it did not correctly report SMRs on 40 cases in regards to cases of suspect online activity
"indicating potential money laundering or implementing operations in order to avoid TTR
demands." "CBA has botched to disclose huge amount of money of potential laundering
operation via prompt arrangement of SMRs. At the time for which CBA acknowledges about
surveillance and [improved client risk assessment] have been inadequate, huge amount of
further illegal deed have not been identified. AUSTRAC believes as important additional
unnoticed laundering through CBA has occurred.
"AUSTRAC and the federal authorities were refused the information to which they are
permitted under the Act concerning several million bucks of criminal acts mainly related to
the import and dispersal of drugs; interrupt this illegal behaviour and convict it. Also, CBA
was unsuccessful in deciding if to precede company with some clients or not. It would offer
offenders 30 days notice until the suspension of accounts and in twenty instances AUSTRAC
said money laundering persisted throughout this probation period, with no improved
surveillance in place to guarantee that it was identified and quickly resolved. Even when CBA
recognized wrongdoing, it sometimes stared at the strict legal issue of whether or not to
disclose an SMR, instead of the fundamental issue of whether improved proper research
steps were needed. "This made more money laundering easier," observed AUSTRAC. From
the view of AUSTRAC–and now recognized in the resolution by CBA–the IDMs ' technical

complexity should have aroused suspicions much sooner within different areas of the
institution.
The assertion indicates a system within CBA where improvements in technology and
creativity trumped a thorough, controlled adherence evaluation and lawful hazards for the
client. The danger of money laundering and terrorist funding from the IDMs "was high and
evident at all appropriate moments because money could be transferred confidentially at
numerous places at any moment and transmitted instantly, either internally or abroad,
without any limitation being implemented," the resolution report says. It relates to a
"misunderstanding" about the legal demands of the account surveillance department of the
bank, but notes that a "big and well-resourced organization" such as CBA "must know its
responsibilities under the AML / CTF Act, particularly in situations when the bank was
interacting with law enforcement personnel from severe drug trafficking groups who
provided comprehensive data to the bank. While the IDMs gained traction with drug dealers,
the devices attracted terror suspects as well. Of the 53,306 infringements of failing to file
threshold transaction reports (TTRs) on schedule – to which CBA agreed following debating
in the times following the complaint was lodged that August that a mere encryption mistake
means that they should be regarded as a single infringement – AUSTRAC stated that 1656 of
them linked to cash laundering unions being researched or charged by AFP, while six
connected to funding terrorist activities. AUSTRAC stated that CBA had failed to bring a
prompt halt to one of the accounts on which it had developed terrorist funding doubts,
during which time the client tried more transfers.
Treasurer Scott Morrison and AUSTRAC CEO Nicole Rose stressed the threat to national
security from the violations at a news conference after the arrangement was confirmed on
next morning. "Violations can jeopardize Australian safety," said Mr Morrison. "Financial
institutions should be pioneers in securing that their facilities are not impaired by
lawbreakers trying to launder cash or fund acts of terrorism." The very first port of call
should be enterprise to defend the society and global economy from illegal behaviour, and
offenders can be anticipated to "take advantage of bad company procedures to launder the
profits of their offences," said Ms. Rose. "This has a true impact on Australians ' daily life and
puts the society at danger by enhancing possibilities for militants to promote assaults here
and abroad and allowing organized crime organizations to sell crack to our families and
loved ones," she said.
The resolution paper also offers some details on the encryption fault problem. It said that
each of the lost 53,506 TTRs was a money transfer that was recognized utilizing payment tag
5000–a third, fresh procedure code implemented to resolve a fresh incorrect address that
began appearing in Netbank in November 2012 when clients made payments using IDMs.
When the IDMs were initially introduced, just couple of transaction numbers–5022 and
4013–and the TTR were produced by those digits which were checked by the scheme.
(Sevenpillarsinstitute.org, 2019) But once it was implemented to solve the faulty bug, it
seems that the TTR transmission scheme was not modified to look for the fresh 5000 tag.
The 38-page declaration of data and submissions concluded upon, which was submitted for
authorization to the Federal Court, gives a straightforward summary of what CBA's
responsibilities are, where it faltered, the social mechanisms for such mistakes, and what the

institution is doing to ensure that they do not occur again. One of the explicit texts from the
submission agreement–also referred to in the Australian Prudential Regulation Authority's
corporate governance investigation caused by this court case–is that CBA had a system that
did not react to statutory recommendations. For instance – contrary to proposals that the
Trial court's intervention kind of blinded CBA. AUSTRAC itself advised CBA and other
financial institutions in a private "methodology brief" in December 2015. It titled both the
absence of regular payment boundaries and the capacity to confidentially transfer money as
a "important weakness." This came after CBA had performed poorly a correct threat
analysis before, or in the ensuing years, the IDMs were initiated, resulting in a further 14
infringement claims. But the alert was not responded by CBA. “No fresh and suitable threat-
based measures have been implemented to minimize and handle the elevated[ money
laundering / terrorist funding] hazards of IDMs and even after multiple instructions and
when trading volumes have increased, the evaluation has still not been carried out, even
after AUSTRAC has described it as a' important weakness.” Like the careful Leichhardt bank
manager, CBA's lifestyle also saw it struggle to react to its own employees as they waved
danger signs. CBA, for instance, presented some SMRs to AUSTRAC in 2014, indicating fears
that money laundering was taking place through its IDMs. But at the moment, it did not
perform a risk analysis or implement risk-based checks to handle those hazards. Likewise, via
its own counterintelligence around July 2015, CBA obtained proof that felon unions were
trafficking several million dollars through its IDMs. It even involved the exercise with the
AFP, NSW, and Western Australian police severe organized crime facilities. But nevertheless,
their threat analysis did not follow their own AML processes and no fresh or suitable
threat measures were implemented in reaction. The AUSTRAC agreement is evident that this
is no justification for lawful ill-compliance just because CBA is large and complicated. CBA
functions more than 16 million transfers a day and its payment processing surveillance group
examined approximately 234,000 warnings in a time span from the beginning of January
2012 to the end of December 2017, submitted more than 44,000 SMRs and tried to leave
more than 4,800 clients. But AUSTRAC said "CBA is a big and well-resourced organization
which should comprehend its AML / CTF Act commitments." It noted that this is mere tip of
the event in situations where it was negotiating with law enforcement agents from the
severe criminal organizations units who provided thorough information to the bank. The
declaration of accepted facts and submissions also lays out a comprehensive job program
underway to solve stuff, such as fresh financing, fresh practices, and improved threat
analysis and methods. These include innovation initiatives and more detailed monitoring of
automatic accounting; superior interaction among retail and "business facilities" portion of
the bank to share data when schemes are altered; extensive modifications in procedures for
TTRs, SMRs and client risk assessment; and better governance of the AML team, more AML
employees as well as improved personnel reporting procedures.
ANALYSIS-
CBA failed to carry out proper assessment of laundering of money and terror funding threats
of its IDMs before the period of October, 2017. It was unable to introduce proper measures
to minimize and manage risks to its IDMs. It failed to give many threshold transaction data to

AUSTRAC in stipulated time for cash transfers and utilization of its IDMs. For a time span of 3
years, it did not meet the demands of AML/CTF models related to surveying transactions. It
did not report doubtful matters on time which included multimillion dollar transactions. It
was fined 700 million dollars (ABC News, 2019). As a result, CBA has changed its overview on
money laundering cases for future. CBA is dedicated to fulfilling its legislative responsibilities
to recognize, mitigate and manage the threat of money laundering and terrorist financing. It
seeks to safeguard its clients, staff and the society from ML / TF operations and recognizes
that in this respect it plays a key role.
CBA continues to spend substantially in its enforcement scheme for AML / CTF. Latest
initiatives have included redesigning and improving its AML / CTF technique, redesigning its
AML / CTF policies and documenting processes, engaging in further staffing and improving
employee training. The managing director of AUSTRAC, Nicole Rose, said the contract sent
the economic sector a powerful signal. "As we have seen in this situation, criminals are going
to abuse bad company procedures to embezzle the profits of their offenses," said Rose. "This
has a true effects on Australians ' daily life and puts the society at danger by enhancing
possibilities for militants to promote assaults here and abroad and allowing organized crime
organizations to sell drugs to our families and friends. Proper prevention is being taken to
avoid such uncalled for hazards in future. Banks around the world should take deep interest
in this case as this is a growing menace irrespective of anyone’s geographic location. This
case led to entire reshuffle of the management of Commonwealth Bank of Australia but
taking steps and curbing it at its initial stage would have been more beneficial. It not only
destroyed their reputation but entire nation was shaken up. Political interference was also
observed to manage the situation.
CONCLUSION-
Major bank managers must be held responsible to the same level as those who use their
services to help them undertake significant offences. This does not imply that each of these
financial institutions ' C-suite executives should receive significant prison terms, but there
should be criminal prosecutions and proceedings for those engaged and knowledge of the
scenario they cannot get out of for "abiding" with the state. Taking this additional step to
criminalize bankers instead of just penalizing the business would, particularly affect the
decision makers and make them more cautious from next time. CBA's intervention to
facilitate money laundering for substance cartels has harmed both individuals and Australia's
homeland security. By enabling this unlawful activity to continue through CBA's banking
system, criminals were able to transfer drugs and weapons across the nation. Obviously, the
enhanced accessibility of drugs and weapons made it simpler and the chance to get both of
them increased, leading to probable damaging consequences. CBA holds at least partial
liability for any resulting harm. In secular and religious moral systems, the act of bringing
damage to people is unambiguously immoral. "Do no damage" in Catholic theology is the
first rule of religious doctrine. This concept is a fundamental value in Hindu morals and a
cause why religious people do not eat animal products as it involves slaughter. The concept

of "do no damage" is also essential in conventional obligation-based philosophy. Under this
wide guideline, standards like, don't murder, don't confiscate and don't sin. This was an
important lesson for not only Australian authorities but also the entire world. Every step
must be taken to avoid it in the future.

REFERENCE-
ABC News. (2019). CBA to pay record $700m fine over money laundering breaches.
[online] Available at: https://www.abc.net.au/news/2018-06-04/commonwealth-
bank-pay-$700-million-fine-money-laundering-breach/9831064 [Accessed 7 Jun.
2019].
Australian Financial Review. (2019). CBA money laundering scandal: how it
happened. [online] Available at: https://www.afr.com/business/banking-and-
finance/commonwealth-bank-safe-haven-for-criminal-activity-20170804-gxp54g
[Accessed 7 Jun. 2019].
En.wikipedia.org. (2019). Australian Transaction Reports and Analysis Centre.
[online] Available at:
https://en.wikipedia.org/wiki/Australian_Transaction_Reports_and_Analysis_Centre
[Accessed 7 Jun. 2019].
En.wikipedia.org. (2019). Commonwealth Bank. [online] Available at:
https://en.wikipedia.org/wiki/Commonwealth_Bank [Accessed 7 Jun. 2019].
Sevenpillarsinstitute.org. (2019). [online] Available at:
https://sevenpillarsinstitute.org/commonwealth-bank-of-australia-money-
laundering-case/ [Accessed 7 Jun. 2019].