CBA risks global scrutiny over weak monitoring

Commonwealth Bank of Australia confirmed yesterday that its internal reporting had flagged shortcomings in its monitoring of offshore transactions as early as February, well before it was accused of facilitating illicit transfers.The revelation shows Australia’s biggest bank knew it had major deficiencies in its anti-money laundering and terror financing protocols before regulators first informed it in July of suspected criminal activity on thousands of accounts.In an unprecedented scandal that has shaken Australia’s banking sector, CBA is facing potentially billion of dollars in fines after it was sued by financial crime fighting agency AUSTRAC last month for alleged money-laundering breaches.Investors are now worried that the A$130bn ($103.17bn) lender, which posted its eighth straight record cash profit on August 9, could come under the scrutiny of foreign regulators for possible breaches across its global platforms. “There are some legitimate concerns if overseas regulators get involved, other jurisdictions get involved,” said Rohan Walsh, a portfolio manager at Karara Capital which owns CBA shares.“The penalties could be quite significant on a worst-case type of outcome.” The revelations have also renewed criticism of the government for resisting calls for a powerful judicial inquiry into Australia’s banking system, following a series of scandals including insurance fraud and interest rate rigging. “There’s only so long they can go without it,” said Omkar Joshi of Regal Funds Management, which owns CBA shares. CBA shares closed 0.42% lower yesterday to A$75.48, while the broader market was up 0.17%.The stock is down 10% since AUSTRAC filed its suit on August 3, wiping roughly A$14bn off the company’s market capitalisation.The AUSTRAC case has triggered a landslide of bad news for CBA, with two other Australian regulators subsequently launching investigations and a major law firm threatening to file a class action on behalf of shareholders.A key concern for regulators and shareholders alike is how much CBA executives knew of the suspicious transactions – more than 50,000 of them according to the AUSTRAC civil case – and whether they met their disclosure obligations. CBA says it will defend itself in the AUSTRAC lawsuit and has blamed a software error for most of the alleged breaches.It has also cancelled bonuses for top executives and launched a global search for a replacement for embattled CEO Ian Narev, who announced he would step down in the wake of the scandal.