In February, the Commonwealth Bank of Australia's chief executive Ian Narev and his most senior lieutenants hosted the bank's annual business media dinner.
But rather than using the usual head office boardroom, it chose to allow us into its Technology Lab – a bit like an IT theme park where we could play with all the gadgetry that backs the bank's boast of being at the industry's cutting edge.
None of the assembled could have imagined that during the same month, the CBA had contacted the NSW police with the belief that two of its most senior IT executives were involved in bribery and fraud.
These men, who would have been responsible for much of the innovation on show that night, allegedly amassed at least $US1.5 million in kickbacks in return for awarding CBA technology contracts to a US cloud services company, widely believed to be ServiceMesh.
Both executives were sacked by the bank and one, Keith Hunter, who was charged on Tuesday, worked with the bank until as recently as December. He was effectively second-in-command to the head of IT – one of the most important and high-profile jobs in the bank.
The other man, Jon Waldron, Commonwealth Bank's former general manager of IT engineering, was also a senior CBA executive.
Hunter was picked up as he was about to leave the country. His alleged partner has already left and is being pursued by the police in conjunction with the US Federal Bureau of Investigation.
It is a bizarre tale that allegedly involved, among other things, the men setting up Commonwealth Bank accounts to stash the money. However, it is believed that this money, which has now been frozen, is only part of the proceeds of the alleged fraud and that the men had other accounts around the globe.
The bank was alerted after the two received payments from a not-for-profit in the US, which the police allege is a shell company set up to launder money from a US-based IT company that is a major supplier of technology services to CBA.
The US tech company was a 2009 Silicon Valley start-up – small and insignificant by most standards. It got $US15 million in venture funding in 2011 but the main prize was clearly the CBA contract to overhaul and integrate the cloud technology. It was a service that the CBA would say saved it $100 million and was an integral part of the billions the bank was spending on technology investment.
But why a company the size of the CBA would use such a small company for such vital technology infrastructure is strange.
The former high-profile head of CBA information technology, Michael Harte, initially described ServiceMesh as "an early stage company [that] required investment, were flexible around architecture".
While the architecture was "proprietary to ServiceMesh", Harte said CBA had contributed to its design, testing and deployment.
Clearly the importance of the CBA contract to this minnow can't be underestimated. By 2013 ServiceMesh – undoubtedly thanks in large part to the CBA – was bought out by a larger US technology group CSC for an estimated $US350 million.
The larger question that will be asked around this latest banking scandal is the culture of this industry that seems to attract more than its fair share of poor behaviour.
The CBA, Macquarie and more recently the National Australia Bank have become embroiled in behavioural issues around financial advice given to clients and the CBA in particular has been held to account for its tardiness in rectifying the situation.
Only last month, the industry's regulator, the Australian Prudential Regulation Authority, put the banks on notice that it was concerned about the wake from the financial planning scandal at National Australia Bank. Last week, APRA chairman Wayne Byres said the regulator was adopting a "focused and more intensive" approach on culture, including how remuneration might be driving bad behaviour.
That said, much of the financial advice division's mistreatment of customers was going on at a level well below the upper echelons of management. This doesn't serve as an excuse nor does it explain why it was not dealt with properly once discovered by the most senior management.
But the IT executives under the spotlight for alleged kickbacks were at the upper end of the management ladder. It is entirely plausible that either could have made presentations to the board at various times during the bank's major IT transformation.
"From my experience in criminal matters, these two individuals are probably the most senior executives that have [allegedly] been caught out for this particular offence," said the commander of the fraud and cybercrime squad, Detective Superintendent Arthur Katsogiannis.
"These two were on very substantive remunerations and had large financial delegation within the bank."
Author: Elizabeth Knight
Source: Sydney Morning Herald