The recently revealed scandal emphasizes again just how the major banks don’t understand and accept the responsibilities of their privileged position in our society.
It’s yet another incident for the Commonwealth Bank, this time relating to AUSTRAC’s legal action over alleged money laundering by the bank for drug runners and organized crime.
The banks’ licence is a privilege: they are protected by government, and backed up by taxpayers funds – your money. It is said, and accepted, given their significance in our economy and society, that they are ‘Too Big to Fail’.
In recent decades they have embraced the idea that they should be ‘financial services conglomerates’, not just offering traditional commercial banking services but also extending their activities to investment banking, funds management, financial planning, insurance, and so on.
However, each of these activities is really quite different, involving different risks, cultures, and practices. Although banks acknowledge certain community service obligations, they are basically run to maximize profits, to the benefit of shareholders and management.
It has almost become an obscenity just how profitable our banks have become, by world standards, and how they boast about this profitability. Even this week, after the AUSTRAC revelations, the CBA announced another record profit of almost $10 billion – unfortunate timing, to say the least!
There is also, justifiably, a significant community focus on the salaries and bonuses of senior bank executives and the board, which seem excessive to most. Many of these were linked to commissions for cross-selling across the various bank activities, and to movements in the bank’s share price.
So far, the CBA response to the AUSTRAC allegations has been mostly denial, although the board has frozen management bonuses, I guess until the detail is settled and the case resolved. This has left us all with the suspicion that such activities were indeed quite profitable.
This is a massive failure of governance, with a clear responsibility extending from the board down through line management. “A fish rots from the head,” as they say.
It seems almost inconceivable that the bank didn’t know. They had introduced a new ATM that seemed to be getting considerable use. Wouldn’t you have thought that they would have stress-tested this technology, having algorithms in place to track unusual transactions, especially given their legal requirements to report such transactions to AUSTRAC?
Some 53,700 cases of suspected money laundering have been identified in the AUSTRAC legal action, and that may not be the full extent of it. Wouldn’t you have thought somebody in the bank would have noticed something was wrong, as large cash deposits were being made via the ATM, to be soon transferred elsewhere, often overseas. In my banking experience, I find it very difficult to accept that it was unknown and, after all, their legal responsibility is simply to report it to AUSTRAC for investigation. Why wouldn’t this have been done?
This new evidence of yet another CBA mismanagement/scandal has again led to calls for a Banking Royal Commission. Such a Commission is unnecessary, likely to take many years and cost many millions, only to produce a set of recommendations that may lead to little corrective action. The AUSTRAC legal action represents an immediate response.
However, surely the banks are starting to sense the community’s dissatisfaction with their abuse of privilege, and to move decisively to clean up their act.