Commonwealth Bank of Australia (CBA) today announced it has entered into an agreement with AUSTRAC, the Australian Government’s financial intelligence agency, to resolve the civil proceedings commenced by AUSTRAC in the Federal Court of Australia on 3 August 2017.

The agreement follows Court-ordered mediation between CBA and AUSTRAC and remains subject to Court approval.  As part of the agreement:

• CBA will pay a civil penalty of $700 million together with AUSTRAC’s legal costs of $2.5 million.
• CBA has admitted further contraventions of Australia’s Anti-Money Laundering and Counter-Terrorism (AML/CTF) Act, beyond those already admitted, including contraventions in risk procedures, reporting, monitoring and customer due-diligence.
• AUSTRAC’s civil proceedings are otherwise dismissed.

CBA Chief Executive Officer Matt Comyn said: “This agreement, while it still needs to be approved by the Federal Court, brings certainty to one of the most significant issues we have faced.

“While not deliberate, we fully appreciate the seriousness of the mistakes we made. Our agreement today is a clear acknowledgement of our failures and is an important step towards moving the bank forward. On behalf of Commonwealth Bank, I apologise to the community for letting them down.

“Banks have a critical role to play in combating financial crime and protecting the integrity of the financial system. In reaching this position, we have also agreed with AUSTRAC that we will work closely together based on an open and constructive approach.

“We are committed to build on the significant changes made in recent years as part of a comprehensive program to improve operational risk management and compliance at the bank. To date we have spent over $400 million on systems, processes and people relating to AML/CTF compliance and will continue to prioritise investment in this area.

“We have changed senior leadership in the key roles overseeing financial crimes compliance supported by significant resources and clear accountabilities.

“We have started implementing our response to the recommendations provided to us by our prudential regulator, APRA, to ensure our governance, culture and accountability frameworks and practices meet the high standards expected of us.

“I am also very focused on ensuring we have clear lines of accountability across our entire business. This includes an approach to risk management that recognises the importance of non-financial risks, including an escalation framework that ensures key operational and compliance issues such as these are identified, escalated and resolved in a timely manner.   

“These changes are part of a large and concerted effort to become a better, stronger bank - one that earns the trust of our customers, staff, regulators and shareholders.  Today is another very important step forward, and continuing to make the changes we need in an open, transparent and timely way is my absolute priority as CBA’s new chief executive,” Mr Comyn said.

CBA provided for an estimated penalty of $375 million in the half year ending 31 December 2017 at which time the bank noted the proceedings were complex and ongoing, and the ultimate penalty determined by the Court may be higher or lower than the amount provided for.  CBA will recognise a $700 million provision in its financial statements for the full year ending 30 June 2018 which will be announced on 8 August.

Background

The settlement with AUSTRAC includes a Statement of Agreed Facts and Admissions. A copy of the Statement is attached to this announcement and is available on CBA’s website. In summary, as part of the agreement CBA has admitted to:

• Late filing of 53,506 Threshold Transaction Reports for cash deposits through Intelligent Deposit Machines (IDMs).
• Inadequate adherence to risk assessment requirements for IDMs on 14 occasions.
• Transaction monitoring did not operate as intended in respect of a number of accounts between October 2012 and October 2015.
• 149 Suspicious Matter Reports were filed late or were not filed as required.
• Ongoing customer due-diligence requirements were breached in respect of 80 customers.

We appreciate the key role we play in supporting law enforcement to fight financial crime.  Our contribution includes:

• During the period of the claim, we submitted more than 44,000 Suspicious Matter Reports, including 264 SMRs in relation to the syndicates and individuals referred to in AUSTRAC’s claim.
• We submitted more than 19 million reports to AUSTRAC (including SMRs, TTRs and international fund transfer instructions) during the period covered by the AUSTRAC claim up to the end of 2017.  We submitted over 4 million of these reports to AUSTRAC in 2017 alone.
• We responded to approximately 20,000 law enforcement requests for assistance in 2017.

CBA has made significant progress in strengthening its policies, processes and systems relating to its obligations under the AML/CTF Act through our Program of Action. This is a continuing process of improvement and has already included:

• Boosting AML/CTF capability and reporting by hiring additional financial crime operations, compliance and risk professionals with more than 300 professionals dedicated to financial crimes operations, compliance and risk across the group.
• Strengthening Know Your Customer processes with the establishment in 2016 of a specialist hub providing consistent and high-quality on-boarding of customers, at a cost of more than $85 million.
• Launching an upgraded financial crime technology platform used to monitor accounts and transactions for suspicious activity.
• Adding new controls such as using enhanced digital electronic customer verification processes to supplement face-to-face identification to reduce the risk of document fraud.
• Introducing an account based daily limit of $10,000 for cash deposits using IDMs, the first Australian bank to do so.

The Statement of Agreed Facts and Admissions can be read here.