Commonwealth Bank chairman Catherine Livingstone has been berated by a parliamentary committee for "extraordinary incompetence" in signing off on hefty executive bonuses even though her board knew of AUSTRAC's concerns about the bank's reporting of large ATM deposits.
Ms Livingstone, the former Telstra chair and one of Australia's most experienced boardroom performers, was on the back foot as she insisted the board had fulfilled its continuous disclosure obligations.
She defended her approval of the remuneration report in 2016, arguing "there was a great deal of detail in the AUSTRAC allegations [filed in August] of which we were not fully aware".
"We complied with our continuous disclosure obligations."
David Coleman, chair of the House Economics Committee, questioned Ms Livingstone's decision to sign off on the bank's 2016 remuneration report. Andrew Meares
But describing the allegations by AUSTRAC, which monitors foreign money transfers, as "extraordinarily serious", the chairman of the House of Representatives economics committee, Liberal MP David Coleman, tore into the chairman for not disclosing them earlier. He was concerned about bonuses signed off by Ms Livingstone, who joined the CBA board in March 2016 and became chairman in January, assessing the risk performance as being above target even though the board was aware of the failures in 2015 to file the "threshold transaction reports" could trigger more than a billion dollars of fines.
"It is very, very hard to see at a bare minimum that is not extraordinarily incompetent," Mr Coleman said. "It must be that the board has manifestly failed in relation to its remuneration report". "You can understand why a sensible or reasonable member of the public might not have fulsome confidence of the board."
Ms Livingstone admitted the lawsuit had been a tough issue to work through but indicated it had the board's close attention.
"This is very challenging and I would speak for board colleagues [in saying] it's a crucial issue and we are all taking it with the gravity that it deserves," he said.
The Australian Securities and Investments Commission is examining a possible action against the CBA board for non-disclosure and a shareholder class action alleging continuous disclosure breaches has also been launched, which lawyers say could be the biggest case of its kind.
Catherine Livingstone and Ian Narev from the Commonwealth Bank were quizzed on Friday afternoon. Andrew Meares
National Australian Bank CEO Andrew Thorburn, who appeared before the committee earlier on Friday, also faced questions on anti-money laundering. He said NAB takes it "extremely seriously" and had decided to insert a big buffer, implementing a $5000 limit on deposits in its machines, compared with CBA's $20,000 limit.
CBA's network of intelligent deposit machines at the heart of the debacle accept 200 notes – or $20,000 if $100 notes are deposited. But CBA chief executive Ian Narev, appearing alongside Ms Livingstone, said often small business customers want to bank 100 $5 notes. He said the 200-note limit was attractive to many legitimate small businesses using lots of cash.
Mr Narev also came in for a blistering serve from Mr Coleman for being incompetent enough to create "an environment where multiple criminal syndicates could flourish".
He was also skewered for the bank's repeated failures to find anyone within the bank accountable for its scandals over the last six years, including the recent failure of its automated reporting system or its alleged policy of not reporting certain examples of suspicious activity to AUSTRAC.
Mr Narev said regardless of decisions to oppose parts of the AUSTRAC claim in court, CBA would also be reforming "policies and processes". He suggested one area of improvement was the level of interaction between the bank's teams dealing with Australian Federal Police and AUSTRAC, suggesting a lack of communication.
Mr Narev and Ms Livingstone said numerous times during the intense questioning on Friday that they were not able to give detailed answers due to the Federal Court defence, which is scheduled to be filed in December.
But some of Mr Narev's answers pointed to potential aspects of the defence. He suggested the failure to file the 53,000 threshold transaction reports could be due to a "single root cause", which may limit the penalty.
He also argued that CBA would welcome discussions with AUSTRAC about whether having higher limits on the machines might actually make it easier to monitor suspicious transactions as lower limits made it easier to structure deposits well below the reporting thresholds.
Labor committee member Matt Thistlethwaite raised concerns that the case could be settled, meaning Australians would be none the wiser about who was irresponsible. But Mr Narev said any settlement of matters under AML laws are subject to the court and would not be used by CBA to avoid scrutiny. "We believe openness and transparency are critical parts of [restoring] trust," he said.
Ms Livingstone said that in dealing with the claim, "transparency is our key guiding light".
CBA's share price, which has fallen 6per cent since the AUSTRAC allegations became known, was also highlighted, with Mr Coleman describing the fall as "one of the biggest examples of shareholder value destruction Australia has ever seen".
Mr Narev said it is always concerning to see the share price down, noting shareholders had received $4 billion in dividends in the most recent period. "We would hope many of those losses over the short term would be recuperated over the long term," he said.
Ms Livingstone said she had decided to announce that Mr Narev would be departing the bank by the end of June because she didn't feel like she could "stand in front of investors and not be transparent", and it was not a reflection of any lack of confidence the board has in Mr Narev. She said a new CEO may bring different perspectives but there would be no major changes in strategy.This article was first published by http://www.afr.comAuthors: James Frost : James Eyers