CRITICAL REVIEW: COMMONWEALTH BANK OF AUSTRALIA MONEY LAUNDERING CASE REVIEW

Introduction

The Commonwealth Bank of Australia also referred to as the CommBank was established in the year 1911 under the Commonwealth Bank Act. At the beginning of 2012, the Bank endorsed the Intelligent Deposit Machines that represented smarter ATMs. The Commonwealth Bank Intelligent Machines enabled individual customers and small business owners to automatically make deposits and withdrawals without queuing in banks. The rollout of IDM in May 2012 facilitated a huge anonymous transfer of cash and cheque deposits for up to A $20,000 since numerous transactions could automatically be made in a day (DeRoma, 2018). It was not long before individuals affiliated with the bank, and outside criminals began taking advantage of the Intelligent Deposit Machines to make illegal money transfers. Soon, reports emerged that gang cartels linked to the bank and the bank officials of the Commonwealth Bank of Australia were taking advantage of the IDMs to make illegal transfers and facilitate illegal financial activities like money-laundering.

Institution Role in the Royal Banking Commission Report

It is crucial to note that the Australian Royal Commission sets forth specific observations that are characteristic of the Australian banking systems. In one of its observation, it notes that all banks are driven by financial gain and the entity’s pursuit of sales and profits. It notes that the provision of services to consumers is often relegated to the second position since banks and insurance agencies are primarily driven by capital gains (Deitz & Buttle, 2007). By all standards, the recommendations set forth by the Royal Commission Report seek to actively protect consumers, borrowers, and any persons affiliated with the banks, insurance, and any other financial institutions. This means that the Commonwealth Bank of Australian is fully bound by the policies, regulations, and procedures outlined in the Commission Report.

The Royal Commission Report played an instrumental role in overseeing illegal conduct by financial service providers. The Royal Commission has identified a series of cases where consumers were charged for services they did not receive (Chalmers and Worthington, 2019). The most scandalous of the cases involved the banks charging these fees to individuals when they are dead. The Royal Commission Report has outlined that the aforementioned scandals will cost banks, insurance agencies, and wealth managers an approximately $830 million in compensations. It is crucial to note that the recommendations put forth in the Royal Commission Report provide a basis to examine criminal and illegal behavior by banks, and how emerging systems like automation and digitization are impairing service delivery and opening doors to fraudulent activities like money-laundering. This analysis notes that criminals took advantage of the Intelligent Deposit Machines to siphon resources from the government, conduct illegal money transfers, and engage in drug trade within Australian borders (Australia, & Macdonald, 2017). The next step of this review examines the Commonwealth Bank Money Laundering scandal under the lens of the Marketing Systems Theory.

Role within a Marketing System

The Marketing Systems Theory was first postulated by Roger Layton. It is argued that the marketing systems are multi-leveled, dynamic, and path-dependent systems that are embedded in a social matrix, and which interact with knowledge-based and institutional environments. The marketing systems theory was born from the fact that specialization was slowly and increasingly take root inside human civilization, and the economies of diversity and scale were coming into play. At the heart of the marketing systems theory is the idea that firms and institutions must operate in accordance with the changing needs and preferences of consumers. This paper will examine how the social matrix theory applies to the outlined case study.

The existing body of scholarship notes that the action of the CBA to facilitate money-laundering by individuals and drug groups diffused the national security and opened the Australian banks to fraud and illicit money flows. The Commonwealth Bank of Australia enabled criminals to transfer and wire huge amounts of cash through its systems, and this proliferated the movement and flow of firearms in the nation (Imobersteg, 2019). On May 21st, 2015, the New South Wales Police arrested two suspected namely Salman Khan and Arslan Shaffi for money laundering. The law enforcement identified A $3 million in bank receipts inside Khan and Shaffi house, and many of these receipts were printed by the Commonwealth Bank of Australia IDM machines. Under the social matrix theory, the existing intelligence shows that most illegal transactions that occurred inside the Commonwealth Bank of Australia occurred through a technique known as the ‘structured deposits’ where criminals would just deposit amounts less than A $10,000 to avoid the transactions being reported to the Australian government.

The social matrix theory is a model to examine the behavior of the bank as indifferent from the interest of individual consumers and the country in general. The existing evidence shows that after the suspects were arrested and reported to the Commonwealth Bank of Australia, the bank approached the matter with apathy. Apart from Khan and Shaffi, investigations established other criminal syndicates that had laundered money through the CBA. The marketing systems theory notes that marketing is a changing functionality and technology that is pinned on the welfare and wellbeing of consumers and individuals in general. A closer analysis of the CBA behavior showed that it failed to protect customers and stakeholders in general. First, permitting illicit money transfers through the IBM machines undermined national security; it potentially led to fraudulent activities on other bankers due to account compromise.

Recommendations to Prevent Money-Laundering

This critical review identifies that a critical recommendation for the Commonwealth Bank of Australia is to adhere and conform to the AML regulations and protocols. The Anti-Money Laundering provisions and policies are watertight frameworks and operational controls that enable banks and financial institutions to identify and avert any potential financial risks. The AML compliance program is engineered and architected to prevent potential crimes and combat any forms of financial crimes (Deitz & Buttle, 2007).

This critical review identifies the need for the implementation of the risk-based approach in banking. The risk-based approach is considered as the most important element of an effective anti-money laundering compliance program. The risk-based approach states that consumers and countries face different risk levels; which means that institutions, agencies, and firms must institute security controls and measures specific to consumer risks. The Commonwealth Bank of Australia may consider changing its functionality and government to adopt a more risk-based approach in solving and mitigating any forms of money laundering.

The final recommendation is to improve the approach in marketing systems which means that the Commonwealth Bank of Australia must redefine its approach to marketing and include 'security' as a key attribute of its marketing slogan. The fact that digitization is shaping the financial services landscape implies that banks and insurance companies must embed security at the lifecycle of service delivery (Deitz & Buttle, 2007). This review notes that a consumer-oriented marketing slogan and approach should be fully endorsed as the Commonwealth Bank of Australia's eyes towards digitization, and as it prepares to deal with illicit money flows through money laundering.

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