Money-Laundering Case Adds to Australian Banking Scandals

(Bloomberg) -- Australians looking for another reason to bash banks can now add more than 50,000 alleged breaches of money laundering and terrorism financing laws by the nation’s biggest lender.

The country’s financial crime agency on Thursday sued Commonwealth Bank of Australia, alleging the lender failed to report either on time or at all suspicious transactions through its network of automated cash deposit machines totaling more than A$624 million ($497 million). The bank said it will file a statement of defense in court.

The case intensifies the reputational crisis engulfing Australia’s banking industry. After a string of scandals, from giving poor advice to wealth-management customers to allegations the nation’s three other biggest banks manipulated a benchmark swap rate, the government has capitalized on public anger and imposed a A$6.2 billion tax on the lenders to help plug a budget deficit. The opposition Labor party has also pledged a wide-ranging inquiry into the financial industry if it wins power at the next election.

“This takes away a lot of consumer trust,” said Andrew Hughes, a lecturer in branding and marketing at Australian National University in Canberra. “It hurts consumer confidence in the entire system. It’s building a picture of a sector that needs more regulation, not less.”

Commonwealth Bank shares fell as much as 2.4 percent in early Sydney trading Friday, on track for the biggest decline in almost three months. The stock has fallen 0.5 percent this year.

The bank faces a maximum penalty of A$18 million per breach. Gaming company Tabcorp Holdings Ltd. in March agreed to pay A$45 million to settle 108 breaches of the legislation, the biggest civil corporate penalty in Australia.

Anonymous Deposits

The civil case against Commonwealth Bank relates to its automated cash deposit machines, which allowed anonymous deposits to recipients’ accounts, the financial crime agency, Austrac, said in documents lodged with the Federal Court. The cash deposit machines were used by drug rings to move the proceeds of crime, the agency said.

The automated machines were introduced in May 2012, and the amount of cash flowing through them grew exponentially, reaching A$1 billion per month by the middle of last year, the court documents say.

Austrac alleges the lender contravened money laundering and counter-terrorism financing laws more than 53,700 times, and didn’t monitor its customers to mitigate the risk even after being made aware by law enforcement agencies of suspected money laundering.

The bank’s “conduct in this matter has exposed the Australian community to serious and ongoing financial crime,” Austrac said in the court filing. “Delays in this case have resulted in lost intelligence and evidence, including CCTV footage, further money laundering and lost proceeds of crime.”

Bank’s Defense

Commonwealth Bank said it was committed to working with Austrac and other law enforcement agencies to fight money laundering and counter terrorism financing.

“We would never deliberately undertake action that enables any form of crime,” the lender said in a statement on its website. “To that end, we scan billions of dollars of transactions daily, and report 4 million transactions a year to Austrac.”

Austrac declined to comment on whether it’s investigating other lenders for similar alleged breaches.

Australia & New Zealand Banking Group Ltd. said in a statement it had “co-operated with Austrac’s review of ATMs and intelligent deposit machines” which found it complied with “all relevant anti-money laundering and counter-terrorism financing laws.”

Westpac Banking Corp. said it “constructively engages with Austrac and takes its obligations around these issues very seriously,” while National Australia Bank Ltd. said it takes its role in “protecting our customers from money laundering and terrorist financing extremely seriously.”

Different Magnitude

ANZ Bank, Westpac and National Australia Bank all reject allegations by the Australian Securities & Investments Commission that they manipulated the local equivalent of Libor. Those civil proceedings begin in October.

The money laundering case “is of a different order of magnitude to the other scandals besetting the industry, said Thomas Clarke, a corporate governance specialist at the University of Technology, Sydney. The allegations are “profoundly serious” and the so-called Royal Commission demanded by the Labor party “is required to examine the ongoing systemic weaknesses of the banks.”

The latest case against Commonwealth Bank represents a further setback for the industry, which has spent the past year trying to improve its public image by stressing support for new codes of conduct and remuneration policies.

Anna Bligh, chief executive officer of the Australian Bankers’ Association, recently estimated the industry has been subject to more than 20 reviews since the global financial crisis and that a further 17 inquiries, reviews or investigations have started in the past year.

The banks are four of the five biggest companies on the nation’s sharemarket and the case against Commonwealth Bank has raised concern among investors.

“Compliance with regulatory frameworks should be a given,’’ said Judith Fox, chief executive officer of the Australian Shareholders’ Association. Shareholders can rightly expect banks to respond to concerns raised by a regulator “in a timely fashion.”