US to launch Sleaze Bank investigation?

From Domainfax:

The Commonwealth Bank of Australia’s apparent failure to properly monitor transactions for money laundering and possible terrorism funding makes action from American regulators inevitable say financial crime experts.

American lawyers have told Thomson Reuters that CBA was already responding to information requests from a number of US agencies with differing mandates and enforcement agendas and the announcement of a formal investigation, a precursor to enforcement action, is now only a matter of time.

Edward Wilson jnr, partner at Venable in Washington, DC, said American financial intelligence unit FinCEN would already be involved in the case through various agreements with Australia’s anti-money laundering (AML) regulator Austrac.

“FinCEN is already interested in this case. CBA has US branches and deals in US dollars. For both reasons, CBA will be required to comply with American AML laws,” Mr Wilson said.

…An Australian financial crime investigator, speaking on condition of anonymity, said the discovery process that is taking place at CBA was creating major headaches for the institution.

“The bank is in serious trouble because there are internal reports talking about these things from several years ago. That’s my understanding from talking with various people, a number of whom were former bank executives and managers,” he said.

…Stanley Foodman, founder of Foodman & Associates in Miami, said the seriousness of the allegations and the fact CommBank has a New York presence suggested FinCEN and other federal and New York state regulatory agencies would investigate.

“A request from another regulatory authority is a likely trigger for a US federal and New York state regulatory investigation,” Foodman said.

“Also, any US federal or New York state regulator reading the international press regarding this matter could initiate its own US-based investigation.”

The best course of action now for CBA would be to disclose everything to the US regulators, sources said.


CBA’s P/E premium to peers has contracted to its lowest level since 2010. However, we believe the stock remains over-valued and execution risks have increased,” they said.

“CBA has been Australia’s premium bank for 20 years: CBA has traded at an average P/E premium of ~11 per cent to the other three major banks over the past 20 years.”

The research said CBA’s shares had only been at a discount for to its peer group over four short periods in 1996-97,2001,2004 and 2009. Morgan Stanley attributed this to factors including a higher return profile, clear strategy and “superior execution.”

But Wiles tells investors CBA’s premium is now harder to justify and that Morgan Stanley’s earnings estimates to do not factor in potential penalties and or other implications from AUSTRAC’s court action against the bank.

AUSTRAC is alleging CBA failed to comply with money laundering and anti-terrrorism financing rules over a a number of years.

“The outlook for retail banking has become more challenging and the problems at ANZ and NAB have now been largely addressed,” the research said.

“In fact, we would argue that the majors’ strategies and outlook are more similar today than they have been at any time since 2003 before ANZ bought NBNZ (late 2003) and NAB suffered from its FX trading losses and a deterioration in UK profitability (2004).

“With this in mind, we note that CBA traded at an average premium of ~4 per cent from 2001 to 2003.

Via Gotti today comes entitlement:

As the Commonwealth Bank money laundering-terror funding affair worsens, suddenly it becomes apparent that the innocents, CBA shareholders, are looming as the major victims.

Already they have watched their CBA shares fall about 10 per cent since the Austrac announcement on August 3 of civil court action against the lender for alleged breaches of money-laundering and anti-terror financing laws. Shares in Australia’s second largest bank, Westpac, were almost steady over the same period.

Accordingly, on the basis of a comparison between CBA and Westpac shares, the market thinks that the combination of corporate damage and fines to CBA will be between $13 billion and $14 billion. That’s more than last year’s CBA $10 billion profit.

If, theoretically, the CBA fines and damages (not the impact on the business) total more than one year’s profit or $10 billion then CBA shareholders not only lose out via the share price fall but will be forced to inject a major chunk of the loss back into the company via lower dividend and/or share issues so as to restore the bank’s capital ratios.

In other words it’s the shareholders rather than the directors and managers who pay the fines and damages.

There is something wrong with a system where this happens.

No, there isn’t. While if it turns out that the directors have acted corruptly then they should be charged accordingly, and the bank claw back pay and bonuses. This is still obviously small beer compared to the overall damage to the firm.

That’s where shareholders have to pay which, frankly, they should. They all bid up CBA to a high premium on its superior earnings without asking why the earnings were there. CLSA’s Brian Johnston pout is beautifully:

“It is also becoming clear that the AUSTRAC AML allegations go well beyond a simple “coding” oversight on its fleet of Intelligent Deposit Machines, and seem to point to a culture where CBA’s management were willing to tolerate risk slippage/customer dissatisfaction in order to deliver cost efficiency and excess shareholder returns in a challenging growth environment.”

Risk and reward. CBA shareholders wanted higher returns, they took a risk to get them.

There are no innocents in the share market.


  1. GunnamattaMEMBER

    Caveat emptor

    This is just example #5327 of Gotti identifying that banks use

    small investors
    Superannuation funds

    As Human Shields for the activities of banks senior executives, real estate speculators, debt issuance beneficiaries.

  2. “While if it turns out that the directors have acted corruptly then they should be charged accordingly”
    So if they just acted negligently, or in their own interests, that’s OK?
    I know you don’t really mean to do so BUT what you are arguing here that CEO’s Directors et al should be able to rip the system as long as they don’t actually commit a crime that can be clearly identified. Thus all the gains are theirs to keep while the shareholders get a whupping.
    THAT has to change. Contracts should be a two way street. If you lose shareholder money not only do you not get your outrageous bonus to go with your already outrageous salary but you forfeit your savings perhaps even the harbourside mansion!!!
    Nothing is going to change unless that is the reality.

    NB The environment for this has been created by the negative RAT interest rate, Capital free for all, in operation since 1983 and the economic idiocy embedded into the economy even by that time.

    • They should all be fired by the shareholders flawse, that’s how it works…
      Its your money, why should you give them millions and millions in bonuses year after year and then cry you were fooled?

  3. Please god, let it be so.

    We so sorely need someone who is OUTSIDE the captured Australian financial/regulatory/government system to shine a light on this.

    • I, for one, think this no time for capitulation and token gestures. Ian was already on his way out, succession planning moved up. No biggie.
      This board are clearly gutless populists – they should be fighting for every single scrap of paper. Why? Because legal process. Everything is fine….

      • Apart from “no biggie” and “everything’s fine” I lean towards this.

        53000 transactions reported late due to a coding error, 1600 of these allegedly suspect. AUSTRAC aware for a couple of years, eventually plays hard ball. Am keen to learn of the “trigger” for AUSTRAC taking civil action given AUSTRACs knowledge CBA was delayed in meeting compliance and AUSTRAC acknowledging CBA “worked with them” to rectify the problem.

      • mig – bang on. Blind Freddy could see that CBA are run by people who are generally good blokes (including the shielas who are also good blokes) that are also mums and dads and probably still have mums and dads and they’re all just trying to get ahead.

        This is the land of the good old larrikin, so surely we all forgive the good blokes of CBA, who’d probably be great on the beers as well, for ignoring the losers who try to say “you probably shouldn’t do this”. This is Australia!!! We have a duty to ignore that loser, whether he works for CBA or some bullshit government department, because there’s no way that loser is a good bloke! No one who stands in your way when trying to get ahead can ever be considered a good bloke.

        Simone – my guess is that AUSTRAC got a bit sore about not being invited for beers with the good blokes (since AUSTRAC aren’t good blokes) and decided to dob. The losers didn’t know that they should simply let CBA keep doing their thing and just put “yeah nah probably all good, they are better blokes than us” on the file!

    • If they were serious perhaps they could stop funding them in the wholesale debt markets? That’d send a real message.

  4. Just what some of us have been saying for years, once tar Australian money laundering machine gets linked to terrorism investigations will follow and the Australian gubbermint will have no choice but to act, sorting they should have done years ago! Could it lead to the housing black swan?

    • Except our gubbermint finds it much more convenient (or at least allows them to keep taking political donations) for other countries to do the governing.
      Chinese Gov to stop rampant hoovering up of our housing stock.
      US to enforce anti money laundering.

  5. How can we be a proper banana republic without money laundering activities. Thank you CBA for ensuring our hollowed out economy can continue to cater to the criminal classes (actual criminals, not just the pollies).

  6. The CBA’s about to discover that, unlike the sham regulators they are used to, you can’t bullshit the SEC.

    • Yep, the enforcement they took against senior American bank executives and the jail time those guys did after the GFC was a wonder to behold.

      • That’s a fair point. But I didn’t say there would be justice. I just said there would be consequences. The shareholders will pay and I’d expect some more heads will roll. That’s an improvement on what we have with the Aussie sham regulators, but of course it’s not justice.

      • HSBC can already attest to the lettuce-like nature of American enforcement wrt money laundering for terrorists, but I think a key different here is that CBA is a lot smaller than HSBC, and American regulators don’t fail to regulate just because they’re captured–I think some really do want to regulate but are constantly up against higher powers. That is, the chance to absolutely smash one of these misbehaving banks is probably not one they’re going to want to pass up or water down.

        CBA might just be big enough that the regulators finally get a head, and small enough that they can actually take it.

        They should be worried. You never wanna be the guy that gets made an example of.

  7. This may be black budggie of the housing apocalypse.
    Although I bet Ian wont mind as he sips Martinis form his super yacht whilst the leaving others to clean up “after the party”.

    • Good point … if I were Ian, I would want out ASAP. Ok … maybe he is thinking of cushy board positions, but that is never going to happen now his personal brand is trashed. Get on that super yacht now and go into the sunset … be in a safe space away from the CBA train wreck

  8. Looking forward to the entire board of directors being extradited and jailed in America. Guarantee that our immigration and justice Minister will block all extradition requests. They only let poor people get extradited to face charges overseas.

  9. Why would an outside body want to collapse the property bubble – they would have more to lose as all of this is exposed?