CBA Commonwealth Bank ATMs

AUSTRAC says the penalty sends a strong message to banks 

The Commonwealth Bank will pay the largest fine in Australian corporate history after agreeing to fork out $700 million to settle the money-laundering and terrorism-funding case brought by AUSTRAC.

CBA (ASX: CBA) has admitted to 53,700 breaches of anti-money laundering and counter-terrorism funding laws, ending a scandal that forced Ian Narev to step down as the bank's chief executive.

The civil penalty dwarfs the $43 million Tabcorp (ASX: TAH) paid last year over breaches of the same law and far exceeds the $375 million CBA had set aside to cover the issue when it announced its first-half results in February.

However, it fell short of the most dramatic analyst predictions of more than $1 billion and was greeted positively by investors who could finally put their uncertainty over the issue to rest. When first announced in August last year, the bank faced a maximum penalty of $18 million for each of the contraventions. 

AUSTRAC chief executive Nicole Rose said the penalty sent a strong message to banks - already under pressure following scandals that led to the current royal commission - that serious breaches would not be tolerated.

"As we have seen in this case, criminals will exploit poor business practices to launder the proceeds of their crimes," Rose said in a statement. "This has real impacts on the everyday lives of Australians and puts the community at risk by increasing opportunities for terrorists to support attacks here and overseas and enabling organised crime groups to peddle drugs to our families and friends."

New CBA chief executive Matt Comyn said the bank had not deliberately breached the law by failing to provide the regulator with timely notification of potentially suspicious transactions but admitted that the bank's risk procedures and due diligence were not up to scratch.

CBA price chart image

Price Chart 04/06/2018 05:36 PM (20 min delay) (Source:

CBA shares rose as much as 2.4 per cent in the first 15 minutes trade on Monday, briefly breaking through $70.00. At 12:30 (AEST) CBA shares were up 1.4 per cent at $69.74.

A day before the scandal broke on August 4, last year, CBA shares closed the day at $83.97. Two shareholder class actions are still afoot surrounding the bank's lack of disclosure about AUSTRAC's investigation.

CBA will record a $700 million provision in its results for the year to June 30, which will be announced on August 8. Comyn, who was promoted to replace Narev in April, said CBA had spent more than $400 million on anti-money laundering compliance measures.

The agreement, which also includes CBA paying $2.5 million in legal fees, is subject to Federal Court approval.

Fair Value Estimate remains unchanged

Despite the seriousness of the AUSTRAC allegations and fines, Morningstar analysts doubts they will significantly affect future profits.

"The financial impact of the provision is immaterial to our total valuation the bank or to the $123 billion market capitalisation," Morningstar equities analyst David Ellis says.

"Longer term, the high-quality franchise, strong market positions and reinvigorated senior management will support CBA's earnings and dividend sustainability."

At the current share price of $70.63, the stock remains undervalued against the fair estimate of $83.00, trading 16 per cent below the valuation.

Article updated 5/06/18 at 4:55PM

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Emma Rapaport is a reporter with Morningstar, based in Sydney.

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