Australian bank directors risk criminal money laundering investigation

• Australia has the toughest criminal money laundering laws in the world with penalties ranging up to 25 years imprisonment
• To date, no bank director has been made to account and rendered criminally liable for failure to prevent a bank from being used to launder money. 
• Aiding and abetting the laundering of money or conspiracy to launder money with a mental element of reckless or negligence is an offence open for consideration against directors, managers and employees in relation to the CBA issue

CBA is facing three actions regarding the money laundering scandal it has become embroiled in.  Action by the Australian Transaction Reports and Analysis Centre (AUSTRAC), the Australian anti-money laundering (AML) regulator and financial intelligence unit, for alleged violations of Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF) Act.  A parallel inquiry by the Australian Prudential Regulatory Authority into culture at the bank.  And a class action by shareholders who claim to have lost value when the bank did not disclose to the market it was being investigated by AUSTRAC. These actions are in addition to the recently announced investigation by the Australian Securities and Investments Commission into alleged unconscionable conduct and market manipulation in relation to the bank's alleged involvement in setting the bank bill swap reference rate, which is used to price loans.

But these actions should not be the only inquiries or action pursued by authorities or third parties.  At the heart of the issue, is what did the directors and managers of the bank know or should have known about what the bank was doing or not doing to prevent alleged money laundering from occurring. And what action did they take or didn’t take to prevent the money laundering.  

Australia has the toughest criminal money laundering laws in the world with penalties ranging up to 25 years imprisonment.  A person and a body corporate can be convicted of money laundering, where it deals in money or property that is proceeds of crime or used to commit crime.  And the person has either full knowledge of the illegal origin of the funds, or if they have been reckless or negligent. Following the High Court decision in the Ansari case, conspiracy to launder money can be grounded where the parties involved have been reckless in their dealing with money or property that is the proceeds of crime or used in crime. The Ansari case involved two brothers who ran a money remittance business in Sydney. The High Court rejected their argument and upheld the conviction, therefore, establishing a law in Australia the offence of conspiracy to launder money, where a person has been reckless (like turning a blind eye).

In relation to the issues confronting CBA, were they caused by an inappropriate culture within the bank or did someone or some people in authority decide to take no action in relation to the alleged money laundering?  If the latter, then it is a significantly serious issue particularly when authorities advised CBA of what was occurring. Alleged failure to lodge over 53,000 threshold reports and many unknown suspicious matter reports involving significant sums of money and failing to monitor customer accounts allegedly used to launder money, are very clear indicators that people in authority in CBA were reckless or at least negligent in their duty.  

CBA directors and managers cannot be charged with money laundering as they were not personally involved in the alleged laundering.  However, if they made agreements where they were reckless or negligent in how the bank dealt with the money, then they should be investigated for conspiracy to launder money or for aiding and abetting the laundering of money. That would involve a criminal investigation being undertaken by the AFP into any director or directors or managers who had responsibility for implementing, managing or overseeing the AML/CTF plan and responses by the bank to the money laundering.  To establish conspiracy involving any director or manager, at least one party to the agreement must commit an overt act.  That act, and apparently many of them, was committed by the bank.  To bind CBA itself in the conspiracy then at least one person must have the authority to act and represent the bank.  And in relation to a company that is usually a director. 

It is important that the Australian public and the investment community generally know what really happened inside CBA.  We need to know who knew what and when and why Australia’s largest bank has found itself in this position.  And those in senior management positions should be made personally accountable for their actions or lack of action.  The Australian public is tired of company directors avoiding personal liability, and walking away without penalty, while their company bears the brunt of any public action which is ultimately paid for by shareholders.

A criminal investigation into the directors and managers involved in CBAs handling of the money laundering issues would set a precedent and put other banks and financial institutions on notice that they can be held liable where they have been negligent or reckless.  Australian police with assistance from AUSTRAC, have criminally pursued small operators in the Australian financial sector for alleged money laundering and it is time that directors and managers of larger organisations were made to account. The Australian Federal Police, which has responsibility to investigate money laundering, must investigate CBA management to establish if any of them are criminally liable either alone or jointly with the bank in the laundering of illegal money. 

Chris Douglas is owner, financial crime consultant and trainer at Malkara Consulting. The views expressed herein are strictly of the author.