A licence to lend money does not give you a licence to break the law and leave others to foot the bill, no matter how big you are.
When the law is broken, you should be held to account and required to compensate the victims of your wrongdoing, no matter how big you are.
Since Maurice Blackburn announced its class action against the Commonwealth Bank of for its failure to disclose alleged breaches of national money laundering and terrorism financing laws, there has been some fatuous criticism levelled at those pursuing the case including: the bank’s failures to disclose its misconduct were not material and the class action involves shareholders suing themselves.
The argument about materiality stretches credulity.
Everything about this most recent scandal is material. It raises fundamental questions about CBA’s compliance with anti-money laundering and counter-terrorism financing laws and if it has blatantly disregarded its continuous disclosure obligations to shareholders.
In short, it goes to the heart of whether or not CBA has proper governance and risk systems.
A banking licence should be a guarantee of exemplary conduct. Instead, in CBA’s case, it appears to have been treated as a licence for bad behaviour.
Over a period of nearly three years, 778,370 accounts were allegedly not monitored by CBA for money laundering and CBA is accused of failing to lodge reports in 53,506 separate transactions of more than $10,000 with the regulator.
Significantly, many of the transactions in question are alleged to be attributable to money laundering syndicates and several of these are related to customers who CBA itself assessed as a potential risk of terrorism-related activities.
Adding insult to injury, it is now evident that CBA apparently knew of these breaches in the second-half of 2015 but chose not to disclose their existence to the ASX.
Shareholders, it seems, were deliberately left in the dark for nearly two years.
The contrary argument regarding materiality is that, because the price movement after the news of the Austrac proceedings was less than 10 per cent, it can’t have been material.
The argument is based on a fallacy. There is no requirement under the Corporations Act or the ASX Listing rules for a 10 per cent price movement for information to be regarded as material and therefore disclosed.
Rather the information has to be information that would influence investors to buy or sell shares.
It is axiomatic that finding out ‘s largest bank has apparently failed in its responsibilities to comply with anti-money laundering laws meets that test of materiality. Would anyone other than an apologist for bank misconduct say otherwise?
In any event, all the empirical evidence points to a material price movement: after the news, the decline in the CBA share price was in the top 1 per cent of price movements for CBA shares in the past five years.
Maurice Blackburn’s class action against CBA seeks to hold the bank to account for its sustained misconduct.
Shareholders who suffered losses will be compensated for the results of that misconduct. Some of those who had interests in CBA shares will no longer hold them, so the suggestion they are suing themselves is false.
Nor will any settlement necessarily be paid exclusively from CBA funds. In many instances, companies have insurance and that insurance meets some or all of the payments in shareholder class actions.
So the notion of a money-go-round is also false.
More importantly though, every CBA shareholder will benefit from the bank being properly held to account for its corporate governance failures.
The alternative is to leave Austrac to prosecute the money laundering breaches but ignore the only effective mechanism for holding CBA to account for the cavalier disregard it appears to have shown for its continuous disclosure obligations.
All that would do is send a signal to large corporations that they can ignore their continuous disclosure obligations with impunity. We have continuous disclosure laws for a reason. They promote the efficient allocation of capital by ensuring investment decision are made on the best available information.
No one should sensibly regard an attempt to enforce those laws and obtain compensation for those affected by flagrant breaches of them as a bad thing. The problem here is not the class action but the underlying corporate misbehaviour that caused the class action.
Andrew Watson is national head of class actions at Maurice Blackburn