Analysis of Commonwealth Bank's Money Laundering Scandal and Solutions

This report analyzes the Commonwealth Bank of Australia's (CBA) involvement in a money laundering scandal, where the bank faced a substantial fine due to suspicious transactions conducted through its ATMs. The report investigates the bank's failure to prevent these activities, which involved millions of dollars and the failure to report $77 million in illegal transactions. It explores the issue through the lenses of stakeholder theory, examining the bank's responsibilities to its various stakeholders including customers, the government, and the police, and bureaucratic theory, analyzing the impact of CBA's organizational structure on its ability to control these illegal activities. The report identifies accountability issues within the bank's management and recommends improvements in vigilance, leadership, and organizational structure to prevent future controversies, including enhanced customer due diligence and reporting mechanisms. The report emphasizes the importance of ethical conduct and adherence to regulatory requirements to maintain stakeholder trust and prevent the bank from indirectly supporting illegal activities.

Running head: ANTI MONEY LAUNDERERING AT BANK ATM
Commonwealth Bank of Australia and its Money Laundering Controversy
Name of the Student:
Name of the University:
Author Note:

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Executive Summary:
Commonwealth Bank Limited is one of Australia’s biggest bank having more than a thousand
branches and close to five thousand ATMs. The bank serves a huge consumer base both
commercial organizations and individual customers with several financial products like finance
and insurance and consumer banking. The paper draws its strength from a controversy in which
the bank found itself and had to pay a fine of $ one billion. The Australian Transaction Reports
and Analysis Centre(Austrac), Australia’s financial agency on several occasions pointed out
suspicious transactions worth millions using the ATMs of the bank. The bank did not report
illegal transactions worth $ 77million to the body and hinted an alleged involvement in those
activities. The paper studies this failure of the apex management of the bank to protect
stakeholders’ interest in the light of two organizational theories, the stakeholders and the
bureaucratic theory. The assignment ends with recommendations to the management of the bank
to control these controversial activities in the future.

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Table of Contents
Executive Summary:........................................................................................................................1
Introduction:....................................................................................................................................3
Issues and Analysis:.........................................................................................................................3
Reasons for Commonwealth Bank failing to control AML transactions:.......................................3
Commonwealth Bank’s failure to control money laundering explained on two theories:..............4
Stakeholder’s theory and its application in Commonwealth Bank’s failure:..............................4
Accountability of the managers and leaders of Commonwealth Bank:..........................................5
Theory of bureaucracy:................................................................................................................5
Accountability of the bureaucratic system of Commonwealth Bank:.........................................6
High level recommendations to the management of Commonwealth Bank:..................................6
Conclusion:......................................................................................................................................7
References:......................................................................................................................................9

3ANTI MONEY LAUNDERERING AT BANK ATM
Introduction:
The aim of the paper is to analyze and reflect how management, leadership and
stewardship practices influences performances of organizations, individuals and teams in the
light of two organizational theories. The paper considers Commonwealth Bank of Australia and
its questionable practices which failed to curd several money laundering activities conducted
through its ATMs as the background of its studies. The chosen organization for the study,
Commonwealth Bank is a multinational bank with its head office in Sydney, Australia. The bank
is listed on the Australian Securities Exchange and functions under the leadership of Ian Narev,
its CEO and managing director. It offers a wide range of financial products like consumer
banking, corporate banking, investment banking and global wealth management
services(Commbank.com.au. 2017).
The questionable practices of the Commonwealth Bank under discussion are the uses of
its ATMs by illegal syndicates to conduct money laundering and failure of the bank to control
such activities. The Australian Transactions Reports and Analysis Center(Austrac), Australia’s
money laundering supervising authority pointed out these transactions on several occasions but
the bank failed to take steps. The bank found itself under serious public scrutiny and the other
commercial banks distanced themselves from conducting business with it. The bank also found
itself under penalty of nearly $ one billion imposed on it by Austarc. The paper explains these
incidences in the light of two organizational theories, stakeholders’ theory and the bureaucratic
theory. The paper ends with high level recommendations made to the management of the bank to
avoid such controversies in the future.
Issues and Analysis:
Reasons for Commonwealth Bank failing to control AML transactions:
Commonwealth Bank failed to prevent the use of its ATMs for antimony laundering
(AML) activities and cited coding errors as the reason for it. Another reason cited by the
management of the bank for this questionable organisational and management practices was its
large size and complex transactions. The management also judged the money laundering and

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terrorist financing as a ‘mistake’ and further added that it was aware about the implications of
those illegal activities on its stakeholders (Knaus 2017).
Commonwealth Bank’s failure to control money laundering explained on two theories:
Stakeholder’s theory and its application in Commonwealth Bank’s failure:
According to the stakeholders’ theory, organisations must operate and function
ethically and legally to benefit the stakeholders. The Commonwealth Bank is one of
Australia’s largest multinational banks, which caters to a large number of stakeholders(Antonelli,
D'Alessio and Cuomo 2017). The stakeholders of the Commonwealth Bank consists of
customers, employees, shareholders and investors, suppliers, industry associations, educational
institutions, governments, communities and nongovernmental organisations. The bank maintains
accounts on behalf of its customers and acts as an agent to them. The highly advanced structure
of the bank contributes towards making it an institution which should protect the interest and
trust of the stakeholders. The Australian Transaction Reports and Analysis Centre(Austrac), the
financial intelligence wing of Australia warned the Comonwealth Bank that its highly advanced
ATMs were being used by four illegal syndicates to facilitate drug importation and distribution
networks in Australia which was against Australian law(Austrac.gov.au 2017). The management
of the bank took little steps to control these money-laundering activities which involved
transactions amounting to S21 million in eleven accounts. The bank was even alarmed by the
Commonwealth about those suspicious activities.
These failure of Commonwealth Bank to control money-laundering points out to serious
management issues within the bank and its accountability towards stakeholders. An analysis of
the above discussion shows that the bank failed to act on the directions of Austrac, the
government of Australia’s anti-money laundering department. It failed to respond to the warning
of the police and took neglible steps to curb these activities. Moreover, it did not report
suspicious transactions worth $ 77 million. An analysis of these failure shows that the bank has
breached the trust of the government, one of its key stakeholders, which makes laws and policies
for it to function(ABC News 2017). It also breached trust of the police and its customers to
conduct business with it. This failure implies that the bank has failed to protect the money of the

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customers and breached their trust. It also implies that the bank is not technologically strong
enough to prevent illegal syndicates from using its ATMs to finance illegal activities. This
implies that indirectly the bank was supporting illegal activities. It can be inferred from the
above discussion that the bank was incapable of protecting the interest of the stakeholders like
the government and the customers.
Accountability of the managers and leaders of Commonwealth Bank:
The apex management of Commonwealth Bank exhibited insufficient accountability
towards the grave activity of money laundering to finance illegal drug imports using the ATMs
of the bank. Firstly when Austrac detected unreported suspicious transactions of $ 77 million
involving its ATMs, the apex management failed to take steps to mitigate the risk(McIntosh
2016). The apex management failed to take steps to stop usual transactions in some its accounts
and allowed those transactions. The management even breached the codes of banking ethics by
not reporting those transactions to Austrac under the Anti-Money Laundering and Counter-
Terrorism Financing Act 2006(Austrac.gov.au 2017). This shows that the management of
Commonwealth Bank exhibited insufficient accountability to the key stakeholders of the bank
like the government.
Theory of bureaucracy:
The theory of bureaucracy by Max Weber states that a bureaucracy is characterised
by hierarchical organisation, formal lines of authority, rigid division of labour and all
decision making restricted by regulations. Commonwealth Bank of Australia is one of
Australia’s largest multinational commercial banks functioning under stringent bureaucratic
control. This strict bureaucratic structure takes all the business a decision including the ones
involves legal and ethical implications. An analysis of the factors leading to the failure of the
bank to curd illegal ATM transactions can be attributed to the long bureaucratic structure. It can
be pointed out that when Austarc identified multiple doubtful transactions involving large
amounts the money, the apex management took little steps to control these transaction(Andreski
2013). This clearly points out to the slackness and inefficiency of the bureaucratic control of the
bank to curb illegal actions. An analysis of the controversial money laundering activities shows
that the management only attributed the transactions to the complex structure of the bank. This

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implies that the tall and complex structure of the bank was used by the management to avoid its
corporate responsibilities towards the stakeholders like government and the legal framework of
Australia(Petrou and Thanos 2014). It should have functioned more ethically and morally
towards dealing with the fraud at its ATMs to protect the interests of the stakeholders.
The failure of the bank to take actions to control money laundering and suspicious
transactions using its network has some serious implications concerning its complex bureaucratic
structure. The bank did not take steps when Austrac pointed out multiple suspicious transactions
worth millions. This implies that the bureaucratic management of the bank was incapable of
responding to the directives issued by apex bodies like Austrac.. Secondly, it implies that the
syndicate involved in money laundering may have someone of the apex management involved.
This might have prevented the apex management from taking actions against the syndicate and
blocking the accounts through which doubtful transactions were being conducted. The above
discussion shows that the bureaucratic structure of the bank was indirectly responsible for money
laundering transactions( Nölke et al. 2015). The bank employees and the management should
have taken action to deal with the fraud. It can also be pointed out that the slack attitude of the
apex management clearly showed lack of stewardship in the operations of the senior managers.
Accountability of the bureaucratic system of Commonwealth Bank:
The bureaucratic apex management did not accept its accountability towards the money
laundering activities and cited its complex structure as the reason for its inability to curd the
transactions. This analysis shows that the bureaucratic apex management was trying to shrug its
responsibility towards the transactions taking place through its accounts and ATMs. This action
of the apex management implies that the bank was not able to follow the directives of the
government and the police to stop money laundering activities. This analysis showed the lack of
accountability of the bank towards stakeholders’ interest and its inability to conduct business
ethically(Fox 2015).

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High level recommendations to the management of Commonwealth Bank:
The above discussion on the basis of the stakeholders and bureaucratic theories bring to
light certain facts which form the basis of recommendations to the apex management. First,
Austrac has reported the money laundering activities on several accounts of Commonwealth
Bank on several occasions. Secondly, the bureaucratic management of the bank did not report
several unusual transactions and in fact allowed them to continue. Thirdly, the bank has breached
the interest and trust of the stakeholders like the government of Australia, Austrac and the
customers. Thirdly it tried to avoid its responsibilities towards controlling illegal transactions
through its ATMs citing its complex structure which is not acceptable. The following high level
recommendations can be made to the management of Commonwealth Bank in the light of these
facts:
1. The bank should be more accountable towards the transactions taking place through its
ATMs and maintain strict vigilance of the movements of money in its accounts. It must
change its leadership and organisational structure and make it more flat. This change is
recommended to take quick decisions and actions to control illegal activities like money
laundering. It is important to bring about this change in leadership because it will allow
the bank to report such illegal transactions to Austrac and avoid legal actions by the body.
2. The bank should maintain Know Your Customers of all the account holders and maintain
a strict vigil on their accounts. This will help the management to locate any suspicious
transaction and prevent illegal syndicates from routing their capital using the accounts of
the bank. This will also help the bank to report suspicious transaction to the police and
the government.
3. The management of the bank should be reshuffled to detect unethical officials. This
change would allow the bank to operate more responsibly and prevent itself from
supporting illegal activities like money laundering indirectly. This will result in creating a
stronger and accountable image of the bank among the stakeholders. This would
strengthen the bank’s goodwill and help it to attract more investment from the market.
This will in turn strengthen the bank’s competitive advantage and generate more profits.

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Conclusion:
It can be concluded in the light of the above discussion that banks should be more
responsible towards their operations. They should maintain strict vigilance over the transactions
taking place in the accounts under their custody, both through the ATMs and over the counters.
They should immediately report suspicious transactions of unusual transactions to the police and
Austrac. This way they can play active role in controlling money laundering and terrorist
financing operations. This in turn will make them more accountable to the stakeholders and help
them in gaining their support. It will also help them in generating more business and gain
competitive advantage in the market. This will allow them to answer questions regarding their
stakeholder accountability more successfully. They would able to answer probes by apex
organisations like Austrac and gain more business facilities.

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References:
ABC News. (2017). CBA in damage control over anti-money laundering allegations. [online]
Available at: http://www.abc.net.au/news/2017-08-04/cba-in-damage-control-over-anti-money-
laundering-allegations/8773704 [Accessed 17 Sep. 2017].
Andreski, S. ed., 2013. Max Weber on capitalism, bureaucracy and religion(Vol. 4). Routledge.
Antonelli, V., D'Alessio, R. and Cuomo, F., 2017. Beyond Stakeholders Theory: Financial
reporting and voluntary disclosure in Italian SME according to a System dynamics point of
view. Economia Aziendale Online, 7(4), pp.285-304.
Austrac.gov.au. (2017). AML/CTF Act | Australian Transaction Reports and Analysis Centre
(AUSTRAC). [online] Available at: http://www.austrac.gov.au/businesses/legislation/amlctf-act
[Accessed 17 Sep. 2017].
Commbank.com.au. (2017). Personal banking including accounts, credit cards and home loans -
CommBank. [online] Available at: https://www.commbank.com.au/ [Accessed 17 Sep. 2017].
Fox, J.A., 2015. Social accountability: what does the evidence really say?. World
Development, 72, pp.346-361.
Knaus, C. (2017). Commonwealth Bank accused of money laundering and terrorism-financing
breaches. [online] the Guardian. Available at:
https://www.theguardian.com/australia-news/2017/aug/03/commonwealth-bank-accused-of-
money-laundering-and-terrorism-financing-breaches [Accessed 17 Sep. 2017].
Kramarz, T. and Park, S., 2016. Accountability in Global Environmental Governance: A
Meaningful Tool for Action
McIntosh, D., 2016. The Costs of Anti-Money Laundering Enforcements to Noncompliant
Banks. Journal of Finance, 4(1), pp.01-14.
Mei, D. and Zhou, L., 2015. Anti-Money Laundering Game between Banking Institutions and
Employees in the Progressing CNY Internationalization. Modern Economy, 6(04), p.490.
Nölke, A., ten Brink, T., Claar, S. and May, C., 2015. Domestic structures, foreign economic
policies and global economic order: Implications from the rise of large emerging
economies. European Journal of International Relations, 21(3), pp.538-567.

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Petrou, A.P. and Thanos, I.C., 2014. The “grabbing hand” or the “helping hand” view of
corruption: Evidence from bank foreign market entries. Journal of World Business, 49(3),
pp.444-454.