Class Action Against Commonwealth Bank Of Australia For Breaching Anti-Money Laundering And Terrorism Finance Laws
Responsibility of Corporate Governance
Following the dramatic drop in share prices of Commonwealth Bank of Australia a massive class action has been launched against the bank with the serious accusations against the company that it had breached anti-money laundering law and terrorism finance law. According to the statement filed by law firm Maurice Blackburn and IMF Bentham, a litigation funder, the Board of directors of Commonwealth Bank of Australia, here in after to be simply referred as CBA, knew about the potential breach of anti-money laundering and terrorism finance laws that the company committed in the second half of 2015 (Berger et al. 2016). Further the statement claimed that the Board collided to conceal the information from the shareholders of CBA for subsequent period of two years after the breaches. According to the report of the Australian Transaction Reports and Analysis Centre (AUSTRAC) CBA has failed to comply with the different branches of law for a massive 54000 occasions within period from November, 2012 to September, 2015 (McIlroy 2017). According to the report the bank has entered into cash transactions of $10000 and above have failed to report these transactions to AUSTRAC within the time for assessment. Hence, as soon as the AUSTRAC launched action against CBA the share prices of the bank dropped significantly. The shareholders of CBA as a result of sudden drop in the share prices have lost significant amount of their investments. This has happened mainly due to the failure of the company to inform to AUSTRAC about the cash transactions worth $10000 and more that were transacted through the intelligent deposit schemes of the bank. The class action was brought on behalf of the shareholders of CBA who brought shares of the bank between July, 2015 and August 03, 2017.
The rules, regulations, processes and the mechanisms used within a corporate entity with the objective of balancing the interests of both the entity and its stakeholders can be defined as corporate governance. Thus, corporate governance is mainly about how an organization is directed towards achieving the objectives of different stakeholders and balancing the conflicting interests of these stakeholders (Agrawal and Cooper 2017). It is the responsibility of the Board of directors in case of a company and other equivalent authority in case of any other organization, to ensure that the operations of the respective organizations are in alignment with the rules and regulations of corporate governance.
Negative Impacts of Money Laundering on Financial System
In case of CBA, the responsibility to run the operations of the bank were fully and completely on the shoulders of the Board of directors of the company along with the senior executives of the management of the company. It is the responsibility of the board to ensure that the activities and operations of bank are in alignment with the rules and regulations of corporate governance. The Board and the senior management of the bank are also responsible if the acts and operations of the bank contravened any other laws and regulations such as anti-money laundering and terrorism finance laws (Tricker and Tricker 2015).
In this case the intelligent deposit machines of the bank, i.e. CBA, have been used to transact cash transactions. According to the report of AUSTRAC the bank had transacted cash transactions worth $10000 or more without reporting it to the AUSTRAC for assessment purpose. Thus, the bank has violated the anti-money laundering and terrorism finance laws. As already mentioned that it is the responsibility of the management and the Board of Directors in case of a corporate entity to oversee the operations activities performed by the entity in its day to day business to achieve its objectives. Thus, in case of CBA, the Board of Directors of the bank and the senior management has failed to perform their duties and fulfil their responsibilities towards the bank and its stakeholders which include the shareholders, Government and society at large (Dimopoulos and Wagner 2016). Accordingly, it is the failure of Board and the senior management of the bank that they have failed to prohibit the cash transactions. In-fact I addition to that the Board and the management have also failed to report the cash transactions in excess of $10000 to the AUSTRAC on or before the due date for assessment. Thus, the Board of Directors of CBA and the senior management of the bank should be held responsible for the incident.
Money laundering is the process of concealment of origination of illegally obtained money with the ominous objective of legitimize the illegally obtained money by transferring such money using foreign banks and other means. The criminal organizations need to launder the illegally earned money through different channels to effectively use such money for criminal activities including terrorism and other such despotic acts; money laundering is the process which helps the criminal organizations to achieve their inauspicious and ominous objectives (Cooper 2014).
As clear from the above definition of money laundering that the objective of money laundering is to legitimize the illegally earned money to make effective use of these money for criminal and other ominous activities. The financial system in a country is affected adversely due to the process of money laundering. The following negative impacts of money laundering are generally observed on the financial system of a country:
The expansion of black economy of black economy in the country affects the demand and supply rules adversely:
The money laundering helps in accumulation of unaccounted income as the criminal organizations use illegal means to earn money which are transferred via the foreign banks to be used for criminal purposes. As a result the proportion of black economy in a country increases significantly (Armstrong et al. 2015).
The government revenue is adversely effected:
The unaccounted income due to money laundering influence the revenue of the government negatively as the tax revenue is significantly lower due to illegally earned money and its subsequent transfer due to money laundering (Yasser et al. 2015). The Government collects tax on the income of individuals and organizations however, by using illegal and unfair means the incomes are suppressed by the criminal organizations to pay low amount of taxes on their deflated income.
Weakened financial system:
As the money laundering process accumulates and contributes to the expansion of unaccounted and black economy in the country the overall financial system of the country is adversely influenced and significantly weakened as a result of this (Mei and Zhou 2015).
Other channels that facilitate money laundering without using the current financial system:
The criminal organizations and individual money launderers can use other channels without going through the current financial system to launder money. These channels include the following:
- Use of off shore bank accounts.
- Invest in tax heaven nations.
- Invest in acquisition of foreign assets.
- Direct crediting of foreign bank accounts.
- Use of cash transactions and keeping unaccounted cash in hand at large quantum (Khrawish 2014).
References:
Agrawal, A. and Cooper, T., 2017. Corporate governance consequences of accounting scandals: Evidence from top management, CFO and auditor turnover. Quarterly Journal of Finance, 7(01), p.1650014.
Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D. and Larcker, D.F., 2015. Corporate governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), pp.1-17.
Berger, A.N., Imbierowicz, B. and Rauch, C., 2016. The roles of corporate governance in bank failures during the recent financial crisis. Journal of Money, Credit and Banking, 48(4), pp.729-770.
Cooper, K.A., 2014. A critical examination of the anti-money laundering legislative framework for the prevention of terrorist finance with particular reference to the regulation of alternative remittance systems in the UK (Doctoral dissertation, University of Leeds).
Dimopoulos, T. and Wagner, H.F., 2016. Corporate Governance and CEO Turnover Decisions.
Khrawish, H.A., 2014. The Impact of Anti-Money Laundering on Investment Funding: Evidence from Jordanian Financial Institutions. International Journal of Economics and Finance, 6(3), p.227.
McIlroy, J., 2017. Re-nationalise the commonwealth bank. Green Left Weekly, (1149), p.11.
Mei, D. and Zhou, L., 2015. Anti-Money Laundering Game between Banking Institutions and Employees in the Progressing CNY Internationalization. Modern Economy, 6(04), p.490.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
Yasser, Q.R., Entebang, H.A. and Mansor, S.A., 2015. Corporate governance and firm performance in Pakistan: The case of Karachi Stock Exchange (KSE)-30.