BLO3405: Law of Financial Institutions and Securities Assignment

This report presents a comprehensive analysis of a law assignment focusing on financial institutions and securities. It begins with a case study on the Commercial Bank of Australia (CBA) and its involvement in a money laundering case, examining the role of the Australian Transaction Reports and Analysis Centre (AUSTRAC) and CBA's monitoring systems. The report explores the legal obligations of banks under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, highlighting failures in governance and statutory duties. Following this, the report analyzes a case study involving Lamba, Empire Bank, and Esther Guo, evaluating the legal obligations of the bank and its employees to customers, including the duty of confidentiality and disclosure. It examines the legal actions available to Lamba in case of breaches of these obligations, such as seeking recourse from the Financial Ombudsman Service or the courts, and potential remedies including damages and injunctions. The report concludes by summarizing the contractual relationship between banks and customers and the associated legal responsibilities.

ASSIGNMENT PART 2 1
LAW OF FINANCIAL INSTITUTIONS AND SECURITIES: ASSIGNMENT PART 2
by [Author(s) name(s)]:
BLO3405: Law of Financial Institutions and Securities
Marc Posthouwer
Victoria University
Victoria, Melbourne
(Date)

ASSIGNMENT PART 2 2
Table of Contents
An Analysis of the Commercial Bank of Australia Money Laundering Case...........................2
The Role of AUSTRAC.........................................................................................................2
CBA’s Monitoring Systems...................................................................................................4
Conclusion..................................................................................................................................4
Lamba versus Empire Bank & Esther Guo: A Case Study Analysis on the Bank-Customer
Relationship................................................................................................................................5
Legal Obligations Owed to Lamba........................................................................................5
Legal Actions Available to Lamba........................................................................................7
Conclusion..................................................................................................................................8
References..................................................................................................................................9

ASSIGNMENT PART 2 3
An Analysis of the Commercial Bank of Australia Money Laundering Case
The Commonwealth Bank of Australia (CBA) has recently found itself in legal trouble after
the Australian Transaction Reports and Analysis Centre (AUSTRAC) brought a case in court
against it over breach of anti-money laundering and financial terrorism laws (Knaus, 2017).
The Bank allegedly failed to take necessary action where suspicions arose that its Intelligent
Deposit Machines where being used as a vehicle by drug syndicates to launder money.
According to the Anti-Money Laundering and Consumer-Terrorism Financing Act 2006,
sections 41 and 43, reporting entities such as banks are required to make reports to the
AUSTRAC where they believe suspicious transactions are underway or where deposits
surpass set thresholds. AUSTRAC alleges that CBA breached these provisions my failing to
or delaying reports on suspicious matters even when they had been alerted of investigations
by police (White & Adhikari, 2017). Further, it is alleged that the bank failed to adequately
assess the risk of their systems against money laundering and financial terrorism thus making
them susceptible to misuse (Eyers, 2010). The following is an analysis of the issues arising in
the case study mentioned above with a focus on the role of AUSTRAC and the liability of
CBA with regard to its monitoring systems.
The Role of AUSTRAC
The AUSTRAC is a statutory authority which takes the role of “Australia’s anti-money
laundering and counter terrorism financing regulator and specialist financial intelligence unit”
(AUSTRAC, 2009). Its major role is to ensure and supervise the compliance of financial
service providers and other institutions that deal in financial services such as the gambling
industry, designated remittance service providers and bullion sellers, with the provisions of
the AMI/CTF Act 2006. By doing so, the body ensures transparency and promotes integrity
within the Australian financial industry. Its duties can be encompassed in two major roles; the
role of a regulator and the role of a financial intelligence unit.

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In its regulatory role, AUSTRAC is tasked with promoting the obligations of the AML/CTF
Act by educating and reaching out to relevant organisations to ensure they understand and
comply with the duties bestowed on them. In this role, AUSTRAC collects reports from the
aforementioned organisation with regard to their compliance commitment as well as
programs set in place and their effectiveness in preventing money laundering and finance
terrorism. It further monitors compliance by setting in place assessment programs and where
non-compliance is uncovered the body has enforcement powers to address it. The execution
of this role is evidenced in the aforementioned case study; AUSTRAC required reports of
suspicious matters from CBA as per the law. Further, it noted non-compliance and exercised
its enforcement powers to institute a suit against the bank. Additionally, in fulfilment of its
roles, it conducted an assessment of the CBA systems so as to uncover the failure in the
systems with regard to monitoring money laundering and financial terrorism activities.
Additionally, in its intelligence role, the organisation is tasked with collecting and analysing
financial intelligence which it gains through financial transaction reports. Reporting bodies
are required to make reports of their transactions to AUSTRAC, the body analyses this
information to determine compliance and highlight areas that require further action to prevent
money laundering and financial terrorism. These analyses aid it in determining reporting
bodies that have weak systems or have failed to comply with their statutory obligations in the
war against money laundering. It is through this role that the body was able to highlight the
alleged failures in CBA’s systems that led to the laundering of millions of dollars obtained
through drug trafficking.
CBA’s Monitoring Systems
As highlighted in the case study, CBA’s liability arises from their failure to report the
suspicious transactions as well as failure to report transactions that were above the set
threshold. According to the opinions provided as well as AUSTRAC’s allegations, the failure

ASSIGNMENT PART 2 5
stems from lack of proper monitoring systems. According to the law, banks are required to
have money laundering control officer to regularly assess potential risks in their systems
(Sathye, 2017). However, the allegations purport that CBA failed to conduct a proper risk
assessment of their Intelligent Deposit Machines which were ear marked as the vehicle for
laundering activities. The machines allow for a deposit of up to twenty thousand dollars at a
go; as per the Act, deposits above the threshold of ten thousand dollars should be reported to
AUSTRAC. The body alleges that there is a significant number of instances where the bank
either failed to make a report of delayed in the same. In essence, these allegations highlight a
failure in internal governance as the systems put in place were not administered accordingly.
Conclusion
In conclusion, CBA appears to have breached the provisions of the AML/CTF Act 2006 by
failing to act on suspicious transactions and report transactions in excess of the threshold to
AUSTRAC as required. Their failure highlights a failure in governance as well as breach of
statutory duty as discussed above.

ASSIGNMENT PART 2 6
Lamba versus Empire Bank & Esther Guo: A Case Study Analysis on the Bank-Customer
Relationship
Lamba contracted Empire Bank Ltd for their financial services, that is, savings and credit
card facilities. Having filled the necessary forms he was instructed that he would receive his
cards and other documents via mail. While at the bank he decided to make inquires with
regard to available investment options for an inheritance he had recently received from his
father; he was directed to Esther Guo, the financial planner who promised to send
recommendations via mail. A week later, Lamba was able to collect his cards via mail,
however the post did not include any related documents or the recommendations from Esther
as promised. Esther Guo however called him stating that she has passed on all his details to
an acquaintance at Australian Managed Investment Ltd (AML) which specialises in
investments in high risk gold mining projects; what she failed to disclose however was that
she would get a commission for her referral to AML. The following discussion purposes to
highlight the legal duties owed by the bank and Esther to Lamba as a customer as well as the
recourse available to Lamba if Esther or the bank breached these duties.
Legal Obligations Owed to Lamba
The relationship between banks or bankers and their customers is a contractual relationship
governed by principles of common law, equity and statutory provisions such as those
encompassed in consumer protection laws (Wentworth, 2012). As such, as a contractual
relationship, both parties are obligated to perform certain duties; the emphasis of this
discourse will be the obligations of the bank to the customer.
Firstly, banks are tasked with the duty of confidentiality or secrecy with regard to customer
information; this is a common law duty that has been observed for decades in the industry
(Chaikin, 2011). In Tournier v National Provisional and Union Bank of England [1924] 1
KB 461, the English Court of Appeal observed that bankers are tasked with the implied

ASSIGNMENT PART 2 7
obligation not to share customer information with third parties without the customer’s
consent. In Australia, the application of this duty is limited to the extent that it promotes
misleading or deceptive conduct contrary to the provisions of Australian Consumer Law
(2010) (Tyree, 2005). In essence, in as far as reasonably applicable, Empire Bank Ltd as well
as its employees is tasked with maintaining secrecy with regard to Lamba’s information;
forwarding the information to AML amounts to a breach of this duty as the act was not in
exercise of any other obligations that may limit the duty of secrecy.
Secondly, banks and their agents are tasked with the duty to disclose; that is, where failure to
disclose may lead to misleading or deceptive conduct. The concept of silence as an obligation
was illustrated by Black CJ in Demagogue Pty Limited v Ramensky [1992] 39 FCR 31 at 32.
Where a bank deliberately fails to disclose information, it could be held liable for breach of
duty where the plaintiff or claimant can prove that withholding said information amounted to
conduct that was deceptive or misleading under the provisions of the Australian Consumer
Law (2010). In Miller & Associates Insurance Broking Pty Ltd v MMW Australia Finance
Ltd (2010) it was held that silence in a commercial setting could amount to misleading or
deceptive conduct where circumstances avail an obligation to disclose. Therefore, although
parties in commercial agreements cannot rely on section 18 of the Australian Consumer Law
to shift their obligation to conduct due diligence (Geer, 2013), where circumstances arise that
bestow the duty to disclose, bankers can be held liable for breach. In the case study provided,
Lamba had the duty to conduct due diligence with regard to the transactions undertaken with
the bank in order to protect his interests. However, the engagement with AML by Esther
creates an obligation to disclose, Esther was entitled to disclose to Lamba that she would
benefit personally from the transaction. Her conduct was misleading and deceptive as she
acted on her own interests and not those of Lamba or the bank.

ASSIGNMENT PART 2 8
Further, a consumer is generally guaranteed that services offered, according to the Australian
Consumer Law 2010, are to be provided with reasonable care and skill and within a
reasonable time frame (ACCC, 2017); Lamba was to receive all documents and cards
promised via mail within a few days. He however received them a week later, this may be
considered a minor inconvenience as there was no time set for delivery; further delay could
however amount to a breach of duty. It is important to note that Esther was acting as an agent
of the Bank and in as far as Lamba is concerned her actions reflect the actions of the bank.
Legal Actions Available to Lamba
Having established the legal obligations owed to Lamba as a customer and the subsequent
breach of these obligations, the following are the legal actions available to Lamba as recourse
with regard to the existing contract. In Australia, consumers in the financial services industry
can seek recourse from the Financial Ombudsman Service or the Credit Investments
Ombudsman. The two bodies handle disputes arising between consumers and their financial
service providers where they are concerned about a breach of law, industry code or practice
or a failure to meet standards or good practice that amounts to unfair treatment (Credit
Investments Ombudsman, 2017).
Where a consumer is dissatisfied with the determination of these bodies, they can proceed to
court for further recourse which may be by way of damages or prayers to rescind the contract.
The main remedies available for breach of the duties above include damages and injunctions
(Dechent, 2009). Lamba can apply for an injuction to stop AML from further use of his
personal information to create an investment contract. Further, he can rely on the remedy of
rescission under contract law to terminate the contract with the bank if he is of the view that
the contract cannot proceed due to the magnitude of the breach. He can further sue for
damages with regard to inconvenience caused by the conduct of Empire bank and Esther.

ASSIGNMENT PART 2 9
Conclusion
In conclusion, the relationship created between Lamba and the bank is a contractual one. The
contract bestows certain obligations on both Lamba and the bank and in extension the banks
employees who act as its agents herein. The legal obligations arising are stipulated in statute
as well as under common law. They include the duty to secrecy or confidentiality, the duty to
disclose in order to avoid misleading or deceptive conduct, and a reasonable duty of care in
upholding its obligations. The discussion above has succeeded in ascertaining breach by the
Esther as an agent of Empire Bank Ltd. She disclosed Lamba’s personal information to a
third party AML without his knowledge or consent. Further she referred him to the
investment entity without mentioning that she had vested interest in the transaction. Lamba
can seek legal recourse against Esther and Empire Bank by way of rescission as well as
damages. He can apply to court to have the contract rescinded on the grounds of misleading
or deceptive conduct as well as the breach of confidentiality and request damages for loses
suffered.

ASSIGNMENT PART 2 10
References
ACCC, 2017. Consumers' rights and obligations. [Online]
Available at: https://www.accc.gov.au/business/treating-customers-fairly/consumers-rights-
obligations#consumer-guarantees-applying-to-services
[Accessed 3 October 2017].
AUSTRAC, 2009. AUSTRAC Annual Report 2008-09, s.l.: AUSTRAC.
Chaikin, D., 2011. Adapting the Qualifications to the Bankker's Common Law Duty of
Confidentiality to Fight Transnational Crime. Sydney Law Review, Volume 33, pp. 265-294.
Credit Investments Ombudsman, 2017. Complaint Resolution. [Online]
Available at: https://www.cio.org.au/complaint-resolution/complaint-faqs.html
[Accessed 3 October 2017].
Dechent, S., 2009. Liability for Misleading or Deceptive Conduct in the Banking Industry.
The Finance Industry, Volume 11, pp. 27-33.
Eyers, J., 2010. AUSTRAC allegations are jaw-dropping. The Australian Financial Review, 4
August, p. 13.
Frost, J., 2017. CBA faces laundering rap. The Australian Financial Review, 8 August, p. 11.
Geer, T., 2013. Misleading and deceptive conduct: be wary of the silences-limited protection
for commercial parties under the ACL. [Online]
Available at: https://www.lexology.com/library/detail.aspx?g=030271ee-5e44-4c26-bc32-
3eca7ca9abae
[Accessed 3 October 2017].
Knaus, C., 2017. Commonwealth Bank accussed of Money Laundering and Terrorism-
Financing Breaches. [Online]
Available at: https://www.theguardian.com/australia-news/2017/aug/03/commonwealth-

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bank-accused-of-money-laundering-and-terrorism-financing-breaches
[Accessed 2 October 2017].
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) HCA
31.
Sathye, M., 2017. CBA scandal raises questions of governance and regulatory failurer. The
Australian, 7 August.
Tournier v National Provisional and Union Bank of England (1924) 1 KB 461.
Tyree, A. L., 2005. Implied Consent. [Online]
Available at: http://www2.austlii.edu.au/~alan/bankers-references.html
[Accessed 3 October 2017].
Tyree, A. L., 2005. Section 52 and the Banker's Duty of Confidentiality. [Online]
Available at: http://www2.austlii.edu.au/~alan/secret.html
[Accessed 3 October 2017].
Tyree, A. L., 2014. Banking Law in Australia. 8th ed. s.l.:Lexis Nexis Butterworths.
Wentworth, E., 2012. Essential Banking Law and Practice, s.l.: Banking and Financial
Services Ombudsman Ltd.
White, A. & Adhikari, S., 2017. Bank Faces Massive Fines Over Allegations: CBA 'failed on
money laundering'. The Australian, 4 August, p. 19.