Money Finance News CBA scandal: foreign regulators could weigh in with massive fines
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CBA scandal: foreign regulators could weigh in with massive fines

CBA fines.
The Commonwealth Bank didn't report suspicious cash deposits. Photo:AAP
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The Commonwealth Bank could face big penalties on top of estimates of $300-$500 million fines in Australia if international regulators are forced to act over its breaches of rules around money laundering and terrorism financing, experts say.

Foreign regulators have been far harder on banks than their Australian counterparts, levying billions of dollars in penalties in recent years.

The bank is to be investigated by regulator APRA in an unprecedented and wide-ranging review of its governance, culture and accountability structures as a result of its latest scandal.

But if the tentacles of its misdeed spread into foreign jurisdictions, then international regulators could get involved, leaving the bank open to potentially huge penalties.

“The US Federal Reserve and potentially the Securities and Exchange Commission could get involved if any transactions involved US dollars,” said independent economist Saul Eslake.

“Jurisdictions like Singapore, the UK, the EU could be involved or even China if it felt it was a sovereignty issue,” said Pat McConnell, honorary Fellow in Applied Finance at Macquarie University.

In recent years, major international finance scandals around the rigging of benchmark interests rates in UK, European, US and Japanese markets have led to massive fines totalling over $9 billion for some of the biggest names in international banking.

On these scandals “banking regulators have led the charge but they have also involved the US Department of Justice”, Mr McConnell said.

If the CBA scandal were to spill out into foreign markets the effects could be wide-ranging. As well as fines, “if the transactions involved US dollars, regulators could suspend or impose conditions on the use of CBA securities in the US market”, Mr Eslake said.

“That could make it hard to issue shares in the US or for investors to trade in Commonwealth Bank bonds.”

Brian Johnson, a banking analyst with CLSA, pointed to the danger of international repercussions for CBA in a note to investors issued this week.

“The problem is that many of these transactions identified by AUSTRAC saw funds remitted outside of Australia which could leave CBA vulnerable to fines in those domiciles where penalties for bank misbehaviour have been much bigger than in Australia,” he said.

“Furthermore, bank counter parties will likely be looking at CBA exposures in the light of these alleged AML [money laundering regulation] breaches.”

That, in lay persons terms, means that other banks may cut exposures to CBA because they think it has become a business risk or charge more to do business with it. That, in turn, would affect CBA’s profits.

“With CBA having facilitated the transfer of AML breached funds to Malaysia and Hong Kong, those country’s regulators will be reviewing CBA for potential AML fines,” Mr Johnson said.

“New Zealand regulators are believed to be reviewing CBA’s intelligent deposit machines.”

Way beyond a  ‘simple coding error’

Mr Johnson said that CBA’s misdeeds go “way beyond a ‘simple coding error'” as the bank had claimed.

“The narrative in the AUSTRAC full claim (against CBA) is far more salacious, with tales of laundering drug monies, transferring funds for terrorism, ignoring recurring concerns of branch staff regarding implausible cash deposits and ignoring directives from the Australian Federal Police,” Mr Johnson said.

“While CBA is likely to go through the motions of preparing a defence to AUSTRAC’s claims it’s likely CBA would seek an out of court settlement to avoid the prolonged adverse detailed reporting that would inevitably follow court proceedings.”

Mr Johnson said he believed CBA could face Australian penalties or settlements of $300 million to $500 million, plus the risk of offshore fines.

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