Commonwealth Bank of Australia: Banking Scandal Analysis Report

This report provides a detailed analysis of the Australian banking scandal, specifically focusing on the Commonwealth Bank of Australia (CBA) and its financial planning division. The report examines various ethical breaches, including the unethical behavior of financial planners who placed clients' savings in high-risk investments, the bank's encouragement of a sales-driven culture with incentives, and the cover-up of financial planner misconduct. The analysis highlights the influence of individual factors like age, experience, and job designation, alongside the bank's sales-oriented environment, which led to conflicts of interest and misleading statements. The report also discusses the impact of the global financial crisis on ethical standards in financial planning and the roles of ethical leadership and organizational control. It explores the failures in ethical leadership and control procedures within CBA, and considers the effects of the FOFA reforms. The conclusion underscores the susceptibility of financial institutions to ethical challenges and the importance of ethical behavior within the financial sector. The report also includes case studies and comparisons to provide a comprehensive understanding of the scandal's implications.

Running head: AUSTRALIAN BANKING SCANDAL
AUSTRALIAN BANKING SCANDAL
Name of the Student
Name of the Organization
Author Note

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Ethics, Leadership and Decision Making: A Case Study on CBA
Advice for financial planning has become very much essential for assisting all the
Australians in meeting their objectives which are economic (Oates and Dias 2016). However, as
per the suggestion provided by evidence, there are many ethical risks which are related to the
financial advice’s provision and some other factors which can influence the ethical making of
decisions of the planners of the finances and officers of compliance in their particular roles
within the industry of bank.
It has been noticed that four largest banks within Australia control about 80% of the
financial planning industry of the nation and they are trying their best actively in dominating the
wealth sector which is private for contributing about billions to their profits (McDonald 2015). In
the year 2013, a story on the rogue planners of finance who are working for the Commonwealth
Bank of Australia has been first published by the Sydney Morning Herald. It has even provided
details about how CBA has entirely cover up this type of behaviour for several years until all the
blowers of whistle has come forward for exposing such kind of unethical behaviour as well as
misconduct. The SMH has been continuously publishing stories over last three years as more
and more information have come into the light.
In the case of Commonwealth Bank of Australia and the scandal of financial planning,
there are around three examples which shows some types of unethical behaviour which are
seen to be interconnected to each other. Firstly, it has been known that there is the individual
behaviour of the rogue planners of finance who has acted in an unethical way by placing the
savings of the elderly retires into products of investment which have a high risks contrary to all
instructions. There is a lack of disclosure as well as document’s falsifying. There is another
example of full fake documents by a financial planner of the Commonwealth Bank. Secondly,
there is another issue of the bank which fully encourages behaviour of professionalism which is
hugely unethical by offering incentives to the planners of finance mainly in the form of extra
amount of money or bonuses or rather commissions as well as trips of sales overseas for top
performing planners of finance who have been able to meet their targets of sales (Scherbina,
Afanasyeva and Lapina 2013). The bank has even fostered a culture based upon sales among
all the planners of finance and several planners recall for being encouraged actively for
generating excessive number of sales and even threatened with the dismissal if they cannot
meet their individual targets. Thirdly, there is another behaviour of the bank which totally cover
up the financial planner’s misconduct. The bank has already become aware of all the crimes

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which are seen to be entirely involved with the planner of finance. He has been even suspended
for a month in the year 2008 (Pérez and Rodríguez del Bosque 2014). After his suspension for a
period of one month, he has been then promoted as a senior planner of finance. The person
who has been given with the responsibility of a whistle blower for the CBA, has then reported
about that while the team of compliance at the bank has given recommendations that the
person who has been held responsible for the misconduct will be sacked for his misconduct.
The team of compliance has even warned evidently for backing off by the management of the
bank on a senior level.
The second dilemma which is related to ethics is considered as the most central one and
also the one which is the main driver behind the behaviour of the planners of finance
individually. This has resulted in a follow through effect on the Commonwealth Bank of
Australia. On the other hand, the bank has tried a lot in lowering or minimising the damage
which has been seen in the reputation of the bank by trying to cover up the issues.
The impact of the crisis of global finance upon the industry of financial planning mostly
highlighted all the problems related to morality for lack of ethics and social behaviour of
responsibility. The particular focus is mostly upon the financial divisions of planning involving the
planners of finance and by the method all the planners are given compensation as well as
rewards for meeting their particular targets of sales (Caminschi and Heaney 2014). There are
basically two kinds of planners of finance. First one involves all the people related to sales
especially seen to be working in the banks who are disguised as advisors very deliberately and
also have interest conflicts which are permanent. Such planners of finance mostly hold for about
eighty percent of the entire industry. Secondly, there are some advisors who are genuinely
independent who tries a lot in providing help to all the retirees and the savers. Despite the
bank’s protestation, the main fact lies upon the majority of the financial planners of Australia.
The majority of the Australia’s planners of finance are provided with the employment by the
banks for distributing their products of management of wealth and not for providing actual
advice.
As per some researches, it has been observed that three things influences the cognitive
reasoning of ethics of any individual. They includes age, experience and the designation in the
profession. All these three factors can have a huge impact upon the capability of the planners of
finance in exercising judgment in the ethical dilemma’s resolution and also in acting in an ethical
manner. In the case of CBA, it has been observed that it is a combination of all these three

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factors and the culture environment of the sales which the bank has implemented for measuring
the activity and the performance of all the individual planners.
All the planners of finance are seen to be running regularly running into conflicts in
between several interests of the clients as well as the products of finance. This offers them to
earn most of the commissions for themselves. Financial planners are seen to be put into such a
position where several conducts of ethics are associated with the several statements which may
be misleading their individual performance as well the risks related to all the products of finance
which are recommended. In the case of CBA, there is a question which has been raised about
the approach to the financial advice which is commoditised and has been utilised by some of
the advisors and the failure which has been ongoing for appropriately matching all the products
of finance to all the requirements, circumstances as well as the aims of the clients.
As compared to some other professions, the practice of the advisors which are
professional is highly influenced by the respective corporation for which they work. There are a
number of factors which are contextual and they empirically shows a huge influence upon the
ethical behaviour as well as the ethical making of decisions within the organizations (Naheem
2016). It also influences the role which is played by the individual maker of decision within the
enterprise. It even has a huge influence upon the remuneration, climate of ethics, culture of
ethics as well as upon the presence of leadership which is ethical. There may be some cases
which may lead to several conflicts of interest which cannot be resolved. There is a huge
connection between the sources of compensation based upon commission as well as behaviour
which is unethical. It also shows several issues of total disclosure with several customers, with
the failure of CBA in totally disclosing all the benefits as well as the conflicts of the financial
planner’s interest. Even the culture of ethics around the planning division of the finance of the
bank is also highly questionable. The ethical culture comprises of all the culture displays which
can be observed like systems of control of behaviour which are both formal as well as informal.
Some the systems which are formal also involves policies like codes of ethics and several
structures of authority. On the other hand, the climate of ethics is mostly defined as a perception
which is shared about what type of behaviour is considered as right and what kind of behaviour
the enterprise expects from all the workers. There is a chance that the climate of ethics which is
focused internally may get influenced by several external factors. In the case of CBA, a huge
impact has been seen upon the climate of ethics within the bank especially within the planning
part of finances. Leadership related to ethics is defined by clear demonstration of proper
conduct by several models of role within the corporations through several personal actions as

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well as relationships which are interpersonal as the conduct’s promotion to all the workers with
the help of a communication which will be two way and making of decisions. In the case of CBA,
it has been assumed that all models of role or all the leaders of the company are not at all
aware of all the rogue planners of finance until and unless all the blowers of whistle have come
into the light. It is just after the scandal has been exposed that the CEO of the bank has come
forward for announcing a program which will be far-reaching of remediation for victims. The
heart of the problem faced by the bank in the CBA scandal of financial planning lies upon lack of
ethical leadership for all the managers belonging to the middle level as well as due to the lack of
appropriate control of the procedures within the organization which are there in the position for
protecting all the customers.
While considering the business ethics of the organizational control, the health of the
framework of the enterprise as well as the capability of the organization in outperforming the
competition of it are concerned (Correspondent 2013). Therefore, it has been observed that all
those organizations involve ethics into the organization’s fibre, it will definitely gain a huge
competitive advantage. All the frameworks as well as structures are needed to be put in places
for obtaining some of the control of organizations of behaviours which are unethical. Enterprises
cannot always rely only upon all the government regulations for ensuring that all the
organizations are totally free from all kinds of behaviours which are not ethical as per the
professional code of conduct.
It has also been noticed that there are a number of issues in the Commonwealth Bank of
Australia which are ongoing. Most of the issues are seen to be related to the scheme of
compensation for victims. Instead of getting several senate warning of inquiry, the bank is still
running its personal scheme of compensation. The credibility of the bank over this matter is so
much compromised that it must not be involved directly in the arrangements in the nearer future
for clearly investigating the misconduct which has been occurring as well as in reviewing the
process of compensation.
After the coverage upon the CBA scandal of financial planning by the media in the year
2013, the government has introduced the reforms of FOFA for closely aligning the financial
planner’s interest in giving advices related to the financial product. This is really a very good
outcome for all the customers. But, disclosure is still considered as an issue.
It can be concluded after reviewing the case of CBA and the issues related to financial
planning, it is very much clear that all the institutions belonging to the sector of finance like

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banks, offers several planning services of finance which are very much susceptible to several
challenges which are ethical (Williams and Conley 2015). The behaviours of individuals which
are ethical are employed as planners of finance and are greatly influenced by the individual
beliefs of ethics as well as morals. Overall it is said that only CBA has faced such issue in the
country. The introduction of FOFA has helped in the improvement of the industry financial
planning. The industry of both banking as well as finance must not rely upon the regulation for
bringing behaviour which are unethical under control, but must consider personal culture as well
as focus on the decision making ethically in the organizations (Pearson 2017).
Commonwealth Bank of Australia Money Laundering Case
Money laundering is considered as a very serious crime in several countries.
Continuation of the involvement of bank in such an activity raises a number of questions
regarding the severity of all the punishment banks receive and only if the criminal activity’s
reward is much greater than the punishment risk.
The Commonwealth Bank of Australia was established in the year 1911 and had its
operations begun in the year 1912. By the month of July in the year 1996, CBA had been
entirely privatised. As for now, the bank is considered as an international company having
around more than fifty one thousand employees. The AUSTRAC is the intelligent agency of the
Australian finances in charge of the regulation of the anti-money laundering as well as financing
related to counter-terrorism. Upholding for the fairness of the financial system of the country as
well as providing help in administering justice by using expertise on the combating laundering of
money as well as terrorism financing forms the main goal or aim of AUSTRAC (Schmulow and
O’Hara 2018). It has several reports of business which are mostly used by the experts for
analysing the data and in compiling reports of financial intelligence. Such reports are shared
subsequently with some other agencies of the government for helping in countering several
crimes in financing.
The Commonwealth Bank of Australia first introduced the IDMs or the Intelligent Deposit
Machines for their customers in the year 2012. These are a particular type of advanced
Automated Teller Machine which are capable of eliminating the requirement for a bank teller of
human in performing tasks like transferring of huge amount of money or depositing money. As
per AUSTRAC is concerned, the IDMs of CBA allows all the customers to deposit 200 notes in a
single transaction anonymously which can way up to a total of A$20,000 per transaction and
quickly transfer money to some other account. The policies within the bank do not limit the

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transaction’s amount per day for any customer. This automatically means that any particular
person can put about millions of dollars with the help of one the IDMs of the bank anonymously
in one day. It has been found that I the year 2016, within the month of May and June, over
about A$1 billion gone through the IDMs of the bank (Smith, Clarke and Rogers 2017).
However, under the FTR Act, all the dealers of cash in the country, involving all the banks, must
have reported all the transactions of cash of about A$10,000 or more to the AUSTRAC and
some other transactions which may have been viewed as to be suspicious (Lockhart 2014). All
the dealers of cash are needed for authenticating the signatory’s identity of each and every
account as well as prevent any type of accounts which have been opened under a pseudonym.
In the year 2015, two individuals are arrested by the police for laundering of money. Police have
been able to found over A$3 million in the receipts of banking in their homes where many of
them were printed by IDMs of the bank CBA (Tomasic 2018). The men are found to have used
about one hundred and one account of CBA for laundering nearly around A$1.8million in about
two hundred and fifty five transactions. Most of such transactions are mainly utilised with a
special technique known as structured deposits where they have been able to make a deposit
under A$10,000 for avoiding such a transaction to be reported to the government of Australia.
Those two men are arrested who have a huge relation to the scandal of money laundering in
CBA.
After arresting those two people, the police have then contacted with the bank for
obtaining several information about such transactions which are made by those two individuals
at their particular bank (DeMartino and McCloskey 2016). As per several pleadings, the bank
has approached all the requests which are made by the authorities which appeared at times to
be laziness. Apart from this particular case of the laundering of money, there are also other four
syndicates of criminal as well which have been seen to be using CBA for laundering money and
commit such criminal activities.
In the year 2018, the bank has been fined with a record breaking amount of about
A$700million for the violation if the laws of CTF by the AUSTRAC (McIlroy 2018). The bank has
also been fined with an extra amount of around A$2.5million for covering the fees which are
legal needed for all the hearings of the court. Apart from the fine, the bank is also needed to
take several additional steps for preventing such events in the nearer future so that this kinds of
events do not occur again (Stenfors 2017). The bank must keep only a minimum amount money
in the capital of reserve until and unless it is capable of proving to all the officials of government
that it has both governance as well as control for avoiding as well as preventing violations in the

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future (Cranston 2018). In the year 2017, the financial amendment act of both AML or Anti-
Money Laundering and CTF or Counter Terrorism Financing aims at improving the
government’s ability of Australia in preventing several crimes related to finances by the
expansion of the power of the CEO of AUSTRAC by incrementing the regulation of currencies
which are digital (Tanzer, Commissioner and Tanzer 2016).
As per the codes of professional ethics are concerned, it is to be understood that what
the bank did wrong and it will be considered as wrong (Hughes and Hughes 2013). The action
of the bank has been facilitating laundering of money for syndicating drugs which has caused a
lot of harm to several people and also to the country’s national security. By enabling such an
illegal activity in going on through the banking system of it has allowed several criminals in
moving drugs as several firearms both through as well as within the country (Buckley 2015). It
can be clearly seen that the increment in the availability of drugs as well as the firearms are
made very much easier. This has resulted in an increment in the opportunity of several effects
which are very much harmful. The bank has been sharing blame partially for those who are
harmed.
The act of causing harm to a number of individuals is considered totally to be unethical
unequivocally in both the religious as well as secular systems of morality ( Huan 2016). There is
also a missing responsibility of the bank towards all its customers as per the code of
professional conduct which is an essential component to any kind of profession for maintain
standards for all the individuals within that kind of profession for adhering. It is capable of
bringing both trust as well as responsibility to all the individuals which the particular profession
mostly serves (Monga 2017). Causing no harm is described in the first principle of the natural
law in the theology of morality. The management of the bank has the fiduciary responsibility
towards all the clients as well as the shareholders in acting their best interest. But it has not
done that when then bank totally fails in submitting the SMRs as well as the TTRs (Weber and
Feltmate 2016). A TTR or a Threshold Transaction Report is basically a report which is needed
to be submitted to the AUSTRAC by all the dealers of cash within a time interval of 10 days
when a transaction of cash of about A$10,000 has been made by the customer. AUSTRAC
mainly uses TTRs for monitoring any kind of behaviour which will be suspicious and it also
prevents any kinds of crimes. The bank has been admitted to not have been providing TTRs to
the AUSTRAC on time. The bank has even blamed the problem on a single error which is
related to a system and also claimed that it has not been done intentionally (Wishart and
Wardrop 2018). This type of behaviour shows a huge lack in the professional conduct of the

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organization. It is the duty or rather the responsibility of the bank to have provided the Threshold
Transaction Report on appropriate time to AUSTRAC. Such a missing professional conduct has
resulted in such a severe problem. Even the bank has not given proper justification to the
problem which shows that they do not possess several skills as well as knowledge which a
professional must have for such specific situation (Blue 2016). The bank must have the potential
in conducting it in such a manner which will be perfect for interpreting the situation properly.
Such a situation is simply a result of an unethical practices of business. It is very essential for
the bank to have maintained standards for all the individuals within the bank (Wei 2015). The
bank must be much more accountable, responsible as well as trust so that such kinds of
problems are not faced in the nearer future.
On the other hand, SMR or Suspicious Matter Report is particularly a report which is to
be submitted to the AUSTRAC by the bank, if any entity believes that it can have information
which can be utilised for investigating an account or some other crimes like evasion of tax,
laundering of money or terrorism in financing (Han, Park and Jeong 2013). A SMR must be
reported within a time interval of three days after the suspicion has been detected form any kind
of accounts which has arose. In case of terrorism in financing, the report must be provided
within a time interval of 24hours. In this case also a huge lack in the professional conduct has
been noticed (Wishart, Wardrop and McMahon 2018). The bank has purposely admitted for not
providing SMR on proper time, even though several officials of the enforcement of law have
been asked several times for accounting details of all the customers for the investigation of
crimes related to the organization (Boon 2014). This shows that by ignoring such type of
responsibilities, the bank has totally ignored all the fiduciary responsibilities of it.
As per punishment is concerned, not a single one from the bank has been jailed or even
put for a trial. The bank has been only fined for about A$700 million and another A$2.5 million
for both the fees as well as the hearings of the court. It has also been noticed that the bank has
to receive A$200 million for both compliance as well as costs from the royal commission of both
the banking as well as the financial services (Carnegie and O’Connell 2014). The fine of the
bank has been ranked as the fourth biggest fine in the whole world for the CTF and the AML
law’s violation (Bell and Hindmoor 2015). The punishment which has been handed to the bank,
seems to be like committing crimes related to finances as well as enabling syndicates of
criminals as well as terrorists for laundering millions of huge dollars which seems to be relatively
very much light. The bank already knows that it will be heavily punished if caught (Driscoll et al.
2018). Executives within big banks are to be held accountable and to the similar standard as

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those who are seen to be utilising their particular services in assisting them for committing
several major crimes. But this does not mean at all that each and every executive of the banks
will receive large sentences of jail. Instead, there must be several investigations as well as trials
related to several criminals for those who are involved and have huge knowledge of the
particular situation which they are not capable of getting out for the government compliance
(Gentilin 2016). By taking this additional step to the bankers which are prosecuted criminally
instead of just fining the bank. This will cause all the executives to become much more vigilant
of checking what is actually going on within the bank.
The bank must be capable of adhering standards of communication which are
confidential and increase the professional skills of all the employees within the bank which are
needed for any kind of specific situation. The bank must perform conduction in a manner which
will be appropriately correct for the situation. Lastly, the bank must maintain ethical practices of
business as well as engage in the development professionally.

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