The plaintiffs in a shareholder class action against Commonwealth Bank have taken another stab at their statement of claim, after a judge struck down the part of their pleading alleging the bank’s systems for assessing money laundering and terrorism financing risk were deficient.
The Maurice Blackburn-led class filed a new statement of claim June 27 after Justice David Yates struck out a portion of the original statement of claim for “pleading deficiencies”.
In a May judgment, Judge Yates agreed with CBA that the paragraph at issue, which concerns one of the central allegations in the case and which the firm has already revised once, fell short in identifying what the alleged deficiencies were in the bank’s systems. CBA said the firm had pleaded a conclusion – the systems were deficient – rather than facts from which such a conclusion could be drawn.
In the new statement of claim, the plaintiffs allege CBA took too long to discover a configuration error that prevented threshold transaction reports from being issued for transactions of over 10,000 at its Intelligent Deposit Machines, a type of ATM machine.
The configuration error occurred around November 2012, but was not detected until August 2015, the new pleading alleges.
The new pleading also claims CBA failed to take steps to address the risk of its IDMs being used for money laundering or terrorism financing after it received a confidential brief from AUSTRAC on December 18, 2015 that warned of a “significant vulnerability” of IDMs being used for money laundering due to the ability to deposit cash anonymously and without daily cash deposit limits
Further, CBA’s systems for assessing IDM risk and imposing transaction limits on them didn’t comply with its own anti-money laundering and terrorism financing program, the statement of claim alleges. CBA did not begin introducing daily limits until approximately November 2017, despite the fact that in July 2015 it identified instances of money laundering of several million dollars through IDMs, and did not complete the process until approximately April 2018, the new pleading claims.
The new statement of claim also alleges CBA took too long to restore account level monitoring, which was impaired by a systems error that was discovered June 16, 2014. While CBA corrected the systems error by September 19, it wasn’t until October 12, 2015 that it made changes so that account level monitoring operated properly, the statement of claim alleges.
CBA’s system also failed by giving customers 30 days’ notice and continued use of their accounts after it decided to terminate their account due to suspicions of money laundering or terrorism financing.
“CBA’s review of transaction monitoring alerts, and review of concerns raised by CBA employees about suspicious transactions, operated too slowly (and in many cases not at all) to give timely suspicious matter reports to AUSTRAC, or to reduce or prevent money laundering or terrorism financing by restricting or terminating customers’ accounts, whereas CBA’s ML/TF Systems should have ensured that suspicious matter reports were generated and provided promptly”, the new statement of claim said.
Commonwealth has denied the allegations in the class action.
“As previously stated regarding this class action, CBA categorically denies all allegations of liability made against it. CBA takes its continuous disclosure obligations seriously and we will continue to vigorously defend the claim,” a spokesperson for CBA said.
Maurice Blackburn filed the shareholder class action in October 2017 on the heels of an AUSTRAC action accusing the bank of violating the anti-money laundering law on more than 50,000 occasions.
The class action alleges that between July 1, 2015 and August 3, 2017, CBA failed to disclose to the market material information in relation to its anti-money laundering and counter terrorism financing controls, including that it was potentially exposed to an enforcement action by AUSTRAC.
CBA is facing a second shareholder class action by boutique law firm Phi Finney McDonald, which filed the action behalf of four giant US pension funds, including the California State Teachers’ Retirement System, a fund worth $US224 billion.
CBA agreed in June to pay $700 million to settle claims by AUSTRAC regarding its anti-money laundering and counterterrorism finance controls.
CBA is represented by Herbert Smith Freehills. The class is represented by Maurice Blackburn.
The Maurice Blackburn-led class action is Zonia Holdings Pty Ltd v Commonwealth Bank of Australia.
The PFM-led class action is Philip Anthony Baron & Anor v Commonwealth Bank of Australia.
The AUSTRAC case is Australian Transaction Reports & Analysis v Commonwealth Bank of Australia.
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