CBA Money Laundering Scandal: Ethical Analysis and Implications

This case study examines the Commonwealth Bank of Australia (CBA) money laundering scandal, where the bank faced accusations of failing to report over 50,000 instances of breaches related to anti-money laundering and terrorism financing laws. The analysis delves into the ethical failures of the CBA, including the impact on stakeholders such as investors and customers, and the breaches of the Banking Code. The study applies ethical principles like utilitarianism and Kohlberg's stages of moral development to evaluate the actions of the bank's executives and the cultural issues within the organization. It also explores the consequences of these actions, including fines, reputational damage, and the need for cultural and structural changes within the bank. The case study also discusses the implications of the scandal on the banking industry and the need for stricter adherence to ethical standards and regulatory compliance.

Running head: CBA MONEY LAUNDERING SCANDAL
CBA MONEY LAUNDERING SCANDAL
NAME OF THE STUDENT
NAME OF THE UNIVERSITY
AUTHORS NOTE

1CBA Money Laundering Scandal
Table of Contents
Answer to the question 1.................................................................................................................2
Answer to the Question 2................................................................................................................3
Answer to the Question 3................................................................................................................4
Answer to the Question 4................................................................................................................5
Answer to the Question 5................................................................................................................6
Answer to the Question 6................................................................................................................6
References........................................................................................................................................8

2CBA Money Laundering Scandal
Answer to the question 1
The case revolves around the money laundering and terrorism funding scandal, the
commonwealth bank has come to the limelight. It has been accused by the Austrac, the
government’s financial transaction regulator, that the CBA has allegedly hidden the cases related
to the breach of the laws of Anti-Money laundering and Terrorism Funding Act, which has
however, failed to report around more than 50000 instances and reports of breach where there
has been noted the failure of the banks automated generated reporting systems. The problem
arises when the CBA has recognized all of these breaches under the single breach and however
this interpretation has led to the entire spin of the penalties, since the penalties for each breach is
amounting to $18 million and therefore with the amount of breaches, there is actually a matter of
billions of dollars. Around 500 Intelligent Deposit Machines have missed to record the 50000
deposits and 778370 accounts that have been effected between 2012 and 2016. (ABC News,
2020)
All these happened due to weaker control of the CBA and therefore it also enables the
customers to fake ids and even enabled many crime syndicate to launder money and transfer
their funds overseas. It has also been noted that there has been six cash transactions by five
customers that happened where the customer were related and linked to the terrorists and
terrorists funding, which means that a single customer has done the transaction twice, which is
pretty frightening. (ABC News, 2020)
There has been a notice that has been sent by the Australian Federal Police on May 18,
2015, where they have asked for the information related to the 16 suspicious accounts, however
it has been revealed from the reports that no further actions has been taken in this regard.

3CBA Money Laundering Scandal
However, the bank has already tainted their reputation in the market which will get exposed soon
and the CBA is trying to defend it (Business 2018).
The Stakeholders those are impacted from the case are the investors, who knows nothing
about the case and that the shares of the banks are going to fall. There has been 778370 accounts
that has been effected between the years 2012 and 2016. Moreover the security of the bank all
together is effected since the launderers of money are also has links in the terrorism activities and
therefore it is frightening and a threat to every part and functions and every stakeholder of the
banks and the country as a whole.
Answer to the Question 2
As per the utilitarian principle of ethics it can be predicted that the director and the CEO
of the company required to take decisions that will be for the betterment of the greatest number
of the people at large. Therefore their decisions should also has the traces of deontological and
virtue ethics, since the actions of not properly monitoring the IDM machine has led to the
misinterpretation of the reports of financial transaction in huge amount and therefore the CFO of
the company should now think about how to retain the reputation of the company and required to
take steps like proper monitoring of the IDM machines and that proper security and scrutiny
happens and also if the case be, the effected accounts of the customers should get compensated
and the suspicious accounts are needed to be brought down in the notice and may require
suspension and the fines should be paid so that the case gets cleared . In this ways, there are
chances that the reputation of the bank can be restored from failing miserably. Therefore its
important for the director and the CEO to go ahead with the following measures.

4CBA Money Laundering Scandal
The actions has been taken as per keeping in mind the ethical decisions and however, it
has to be noted that the following actions that has been directed by the CFO will be the only
hope to survive this critical situation, they have to pay the immediate fine so as to to avoid the
case to be stretched forward, as it will ultimately lead to the tainting of the company’s name
further. The breach has been in great amount and it included breachment of two important laws
the Anti-Money laundering, Terrorism Funding Act, which has a very huge impact not only just
to the employees or the customers of the bank, rather it has its effect spread internationally and
also posses a huge threat to the country specific. Therefore it is not just a breach, rather its like
providing support to the criminals who are involved in laundering and terrorism activities and
therefore, strict actions should be taken from the bank side as well to proper scrutinize and
provide a security check on each transactions and its customers. Machines required to be in
proper maintenance and reporting also required to be transparent.
Answer to the Question 3
The theory of Kohlberg includes the three stages which is the pre-conventional,
conventional and post-conventional. As per the pre-conventional stage a person’s actions stays
dependent upon the other person command. Therefore, if we linked this with the case then it has
been noted that the CFO and the CEO’s action has been dependent upon the direction of the
director of the company and therefore even after knowing that they are in the wrong path and are
not ethically correct, still they continue to carry forward as it was going forward.
In the conventional stage it has been seen that the person prefer to give more interest to
their own selfish wishes rather than thinking whether they are morally correct or not, they in fact
also give importance to the numbers and the acceptance of the society, where overall everyone

5CBA Money Laundering Scandal
will accept them to be correct. As per the study it has been noted and also agreed by the CEO
that they have become complacent and have given in to their greed and considered finances over
the benefits of their customers and other aspect.
In the post-conventional stage as per the Kohlberg’s theory it has been seen that the
person tends to be more morally specific and realize and understand that whether something is
morally right or not and also they notice that if there are certain laws, however they don’t agree
to some of the practices of that law and think that they are not correct. They might be right or
wrong in their own way; however they are not right when it comes to the compliance with the
law. As per the study it has been seen that the CEO has finally realized that the company has
done wrong and admitted that their decisions have led to the downfall of the company and that
they need to realize their shortcomings and overcome them after taking all the corrective
measures.
Answer to the Question 4
When it has been said by the CEO of the CBA that the bank’s management system
needed to be changed but it was very difficult to do so. With respect to this it was witnessed that
the Commonwealth Bank culture has been governed by greed, which led to the failure of one of
the largest bank and therefore, led to the suffering of all the executives and loss of trust from the
customers. The CEO have agreed that the bank was too slow to understand the problems and
therefore they faced issues to solve the underlying issues in order to make it better before it
effected everyone. However since it was driven more by the finances rather than being ethically
and morally right and customer driven, it was difficult to change the culture of the bank. Due to
which there have been huge impact on every person related to the CBA and it also leads to the

6CBA Money Laundering Scandal
termination of the employees and also effected the remuneration of the employees with the value
of $100 million. (KYC-Chain, 2020)
The newly established CEO however, confessed that there is an utter requirement in the
change of the culture of the bank, where the areas of operation and risk management are the two
key areas where there should be an utter change. The bank will introduce the structure where
more preferences are given to the customer and not just blindly follow ways for the personal
greed. The structure of the pay has been changed to reduce the financial measure (IN, 2020).
They have also referred to the APRA for the prudential inquiry and the recommendations from it
will play a role in the understanding of their shortcomings and however much work should be
done in that direction , in order to gain back the trust of their customers. Identifying of the
underlying issues and further getting is solved is also the main concern (Wood 2017).
Answer to the Question 5
CBA has agreed to pay the fine of $700 million, which is the highest in the history of
penalties and they have agreed it without challenging the court because they have understood
that they have breached two most important laws which can have potential level of danger to
money laundering and terrorist financing which led to the harm of the people and also to the
national security of Australia. . (Business Insider Australia, 2020)
As the fine has ranged from $18 million and therefore with more than 53000 breach the
amount of the penalties would literally have been in trillion and therefore the amount $700
million is however, a justified one. Though it is seem to be the highest penalty in the history of
the Australian penalties.

7CBA Money Laundering Scandal
Answer to the Question 6
As per the section 12 of the banking code has been breached where the CBA has failed to
protect the customer’s account as they have failed to follow good practices for the safe and
secure accounting operations. This section specifies about the protecting the account of the
customer, where the CBA has failed to do so. There has been so many anonymous transaction
that went without any kind of reporting .This has led to the loss of faith from the employees
(Google Books 2020).
The other banking code that has been breached was section 2 which states the key
commitments of the bank. Here in this case they have raised from the market the amount of
$5million and they have specified a warning that among all the risks there is a risk where they
have to risk their reputations in case if they breached the things which also include the anti-
laundering obligations; however they have already breached that obligations and that too in a
large scale. This was a diversion from their main commitment (Sy 2019). Apart from that they
have failed to give importance for the security and welfare of the customer and the government
and have given more preferences over the money and this is how they have failed miserably.

8CBA Money Laundering Scandal
References
ABC News. (2020). CBA executives hit with $100 million pay cut in wake of bank scandals.
[online] Available at: https://www.abc.net.au/news/2018-08-08/cba-executive-pay-hit-with-
damaged-reputation/10090128 [Accessed 14 Jan. 2020].
Australian Financial Review. (2020). Money laundering scandal: what CBA admitted to, and
why it happened. [online] Available at:
https://www.afr.com/companies/financial-services/money-laundering-scandal-what-cba-
admitted-to-and-why-it-happened-20180604-h10xm3 [Accessed 14 Jan. 2020].
Business Insider Australia. (2020). Why changing culture at the Commonwealth Bank is the new
CEO's top priority. [online] Available at: https://www.businessinsider.com.au/why-changing-
culture-at-the-commonwealth-bank-is-the-new-ceos-top-priority-2018-1 [Accessed 14 Jan.
2020].
Business, M., 2018. CBA.
Google Books. (2020). Personal Current Account Banking Services in Northern Ireland Market
Investigation. [online] Available at: https://books.google.co.in/books?
id=TCCR_GaCX0UC&pg=PA228&dq=current+Banking+Code&hl=en&sa=X&ved=0ahUKEw
j52uHEhoPnAhVEJHIKHcT4CYUQ6AEIKDAA#v=onepage&q=current%20Banking
%20Code&f=false [Accessed 14 Jan. 2020].
IN. (2020). Australian financial chiefs lash poor banking culture amid fresh CBA scandal.
[online] Available at: https://in.reuters.com/article/australia-cba-moneylaundering/australian-

9CBA Money Laundering Scandal
financial-chiefs-lash-poor-banking-culture-amid-fresh-cba-scandal-idINKBN1AR0GV
[Accessed 14 Jan. 2020].
KYC-Chain. (2020). Commonwealth Bank - The Million Dollar Money Laundering Scandal
You've Never Hear Of - KYC-Chain. [online] Available at:
https://kyc-chain.com/commonwealth-bank-the-million-dollar-money-laundering-scandal-youve-
never-hear-of/ [Accessed 14 Jan. 2020].
Sy, W.N., 2019. The Farce of Fake Regulation: Royal Commission Exposed Australia. Available
at SSRN 3375629.
Wood, G., 2017. Reflections on business ethics through 1992-2017. European Business
Review, 29(6), pp.628-641.