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Commonwealth Bank executives escape AUSTRAC blowback
Australian Financial ReviewSep 18 2017 11:00 PM
James Frost
Senior executives responsible for risk and security at Commonwealth Bank escaped suffering any consequences for the AUSTRAC reporting failures, despite being in charge of the functions as the bank rolled out its now infamous intelligent deposit machines.
Veteran Commonwealth Bank security expert John Geurts retired from the bank last year while long time executive general manager for risk Gary Dingley moved on from the bank following a restructure at the same time. The Australian Financial Review understands that both reject assertions they were disciplined or otherwise punished for the errors that led to claims the bank delayed or failed to report 53,000 suspicious transactions.
While the failure of the reporting systems would ultimately lead to the departure of the CEO, expose the bank to a class action from shareholders and prompt the banking regulator to launch a special inquiry into the bank, the breaches did not lead to any actions being taken against the executive general managers for risk and security.
A perceived lack of accountability at the bank was among the triggers that prompted the Australian Prudential Regulatory Authority to launch a special inquiry into the governance, culture and accountability frameworks at Commonwealth Bank.
Mr Geurts was executive general manager of security at the bank from September 2000 to May 2015. In 2015 he moved to Hong Kong where he was made executive general manager of governance and security International Financial Services from May 2015 to October 2016. Mr Geurts retired from the bank late in 2016 and took a five-month sabbatical.
Mr Dingley, executive general manager of risk from 2008 to November 2016, left the bank following a restructure of the risk division by chief risk officer David Cohen. Mr Dingley was subsequently made a partner at global advisory firm KPMG in March 2017. Mr Dingley claims he was one of the first CBA executives to approach the appropriate CBA executives and then AUSTRAC about the intelligent deposit machines.
Commonwealth Bank has declined to comment on the circumstances of the pair's departure.
Commonwealth Bank's group security division is responsible for monitoring, detecting and protecting employees and customers from threats and disruptions. The bank's risk management division is responsible for ensuring the bank has the appropriate strategies and frameworks in place to assess, manage and report on risks.
When CBA CEO Ian Narev was asked who ultimately bore responsibility for the machines that have exposed the bank to a fine of up to $960 billion he said there was a matrix of responsibilities and reporting lines for the intelligent deposit machines at the heart of the AUSTRAC claims.
Commonwealth Bank was made aware that its reporting mechanisms were failing in the second half of 2014. AUSTRAC claims the bank did not conduct a proper assessment of the machines, including a money laundering or terrorism financing risk assessment, before deploying close to one thousand of the machines.
Pay packets of the bank's entire leadership team were revealed to have been reduced by between $1 million and $3 million in the bank's annual report. CBA chairman Catherine Livingstone said that executives and board members had "collective responsibility for the reputation of the bank".
The bank also took the unusual step of reducing the long-term incentives of former key management personal including former chief risk officer Alden Toevs and former chief financial officer David Craig by between 40 per cent and 70 per cent.
In a statement to the ASX on August 9 the chairman said the bank had made significant progress in strengthening its reporting policies and process including "changing senior leadership in the key roles overseeing financial crimes compliance, compliance more broadly, and operational risk".
The bank's failure to act on this matter was the last straw for the banking regulator and sparked an inquiry into the bank's governance, culture and accountability frameworks as announced by the prudential regulator on August 28.
The regulator has since announced the appointment of former APRA chairman John Laker, former ACCC chairman Graeme Samuel and RBA board member Jillian Broadbent as panel members for the specially convened inquiry.