Commonwealth Bank CEO confident internal warnings not 'wilfully ignored'

The Commonwealth Bank chief executive, Ian Narev, has said he was “reasonably confident” that early internal warnings around a money laundering scandal that has enveloped the bank were not “wilfully ignored”.

Narev also cited a “very constructive” relationship with law enforcement agencies, despite the bank facing a landmark lawsuit alleging systemic violations of money laundering laws that culminated in an Australian federal police raid.

He told journalists he accepted the scandal and the prospect of costly civil proceedings by Austrac had “overshadowed” the bank’s delivery of its eighth consecutive record annual cash profit of $9.88bn on Wednesday.

While noting the case had drawn “a very high degree of scrutiny that has not reflected well on the bank [or] me personally”, Narev declined to say whether he thought his job was at risk despite continued backing of the bank’s board.

He also declined to say whether sackings had taken place in senior ranks since problems with delayed or non-existent reporting of suspicious transactions, including by five customers allegedly earmarked by the bank as potential terrorists or terrorism funders.

Narev defended the bank’s lack of disclosure of the problems around criminals allegedly exploiting its “intelligent deposit machines” (IDMs) in 2015, saying the bank could not have known Austrac would seek costly penalties until the agency sued it last week.

Austrac alleges more than 53,700 breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act since 2012, each bringing a maximum fine of $18m.

An under pressure Narev, who has been stripped of multimillion-dollar bonuses over the scandal, was upbeat when earlier delivering a net cash profit result to analysts that bettered their expectations, rising 4.6% last financial year.

Narev hailed the bank’s performance as contributing “to the financial wellbeing of our customers, shareholders, our people and the Australian economy”.

The Australian Council of Trade Unions said it was an “eye-watering profit” that showcased the power of large corporations and banks’ role in rising inequality amid growing mortgage and credit card debt.

The consumer advocacy group Choice said it showed “real problems with competition in the banking sector” with the commonwealth’s consumer finance revenue of almost $2bn including “a motza from fees and interest on credit cards”.

When an analyst raised Austrac’s lawsuit with Narev, the bank boss declined to confirm its late reporting of suspect transactions included customers it assessed as a risk of possible involvement in terrorism or terrorism funding.

He also declined to confirm Austrac’s claim the alleged violations sprang partly from the bank’s policy of not reporting suspicious transactions if similar reports were made in the three months beforehand.

Narev said the bank had “made mistakes” but his understanding was the lawsuit did not allege bad intent, “there’s no ulterior motive, there’s no profit motive”.

“It’s a really important distinction,” he said. “Now, we’ve got to play our part in working with Austrac, we have a very constructive relationship with them and with the [Australian federal police] and others in doing everything we can to perform our role in helping them doing what they’re doing.”

The lawsuit alleges repeated delays by the bank in responding to requests for information from the Australian federal police, which in one case led to a raid on its premises to seize account documents relating to a $315m methamphetamine bust in Perth.

In some cases, the bank simply ignored alerts from law enforcement of “unlawful activity”, Austrac says.

“Is everything perfect? Absolutely not,” Narev told analysts. “But we’ll keep looking at policies and processes and see within the very significant amount of work we’re already doing if there’s still more that needs to be done, it’ll get done and no stone will be left unturned to look at that.”

Asked during a media briefing about the challenges of restoring the bank’s reputation in the face of allegations it had been “helping terrorists”, Narev said: “I have no evidence that we were assisting with any terrorist funding.

“The questions are very clearly related to a specific group of crime gangs.”

Narev said the full scale of most of the problems had been uncovered by the bank itself when it reported back in September 2015 to Austrac more than 50,000 unreported transactions over $10,000, which it must flag by law.

He said the first time the problems were raised at a senior level in the bank, including with him, was when Austrac flagged two unreported large transactions about a month earlier.

Correspondence with Austrac at that time did not come “anywhere near” the kind of market sensitive information that would require disclosure to the stock exchange and investors, Narev said.

Since then “we’ve got different people, we’ve immediately fixed software problems, we’ve done major investments in ‘know your customer’ facilities, we’ve done major technology upgrades”.

He conceded not everything was fixed.

Austrac alleges that, in one case in January, the bank picked up on $320,000 in cash deposits through IDMs made to a single account over five days but failed to give suspicious activity reports about large or structured deposits.

The agency alleges internal warnings included one in June 2015 to security managers by a Leichhardt branch staffer in Sydney, who said the lack of additional security measures around customers who were sending “millions and millions overseas” through IDMs was “crazy”.

The staffer bemoaned a lack of a “standard operating procedure” for a problem with suspicious cashflows through IDMs that had “been happening all over Sydney”.

Asked if an apparent lack of action on these alerts flew in the face of the bank’s vaunted program to foster a whistleblowing culture, Narev said branch staff raising alerts did “an outstanding job”.

However, “I’m reasonably confident we’re going to find that these things weren’t wilfully ignored,” he said.

Narev said the fact Austrac was suing the bank did not reflect a breakdown in talks between the two.

Civil proceedings were the only way the agency could secure a civil penalty against the bank and send a message to the sector, he said.

The ACTU president, Ged Kearney, said claims the Commonwealth Bank “turned a blind eye to money laundering” gave more reason for a royal commission into banking.

The bank’s “staggering” profit result came “at the same time as household incomes have gone backwards and people have not had a real pay rise in years”.

“Customers’ home loan and credit card arrears are rising, meaning CBA is making a profit on the debts of working people who are struggling to make ends meet.”

The Commonwealth Bank, with its intention to pocket future corporate tax cuts, was a “clear example of how our banking sector is contributing to the growing problem of inequality”, Kearney said.

Choice’s head of policy and campaigns, Erin Turner, said the bank’s credit card profits added “urgency” to a Productivity Commission recommendations on competition in Australia’s finance sector, due next year.