AUSTRAC files case against Commonwealth Bank for money laundering and terror financing

Dsicuss about the CBA Will Take Months To The Answer Money Laundering.

AUSTRAC, the financial intelligence agency of Australia, has filed a case against common wealth bank for facilitating money laundering activities and terror financing. The mentioned bank has been sued for breaking the law by not reporting suspicious transaction 54,000 times (Ryan 2017). The number of illegal transition happened was more than 53,000 and as a result, the fine imposed on the bank is more than 1 trillion dollars. According to the boards of directors of the Commonwealth bank, more than 54,000 law breaches were caused due to software error. It has been confirmed by the Australian Securities and Investments Commission (ASIC), that they will investigate on the above mentioned scandal (Mann 2017). According to the Chairwomen of Commonwealth National Bank, the bank detected the risk of intelligent deposit machines for being targeted by terrorists and money launders during the end of 2015. As a result, the overall revenue and consumer loyalty of the Common Wealth Bank are hampered. This scandal has also imposed a negative impact on the stakeholders of the bank.

The Chief Executive officer of Common Wealth Bank, Mr. Ian Narev is found to be unable to justify the reason behind this scandal. According to him, he had focused his attention on preparing the annual result announcement for the Common Wealth Bank (Ryan 2017). According to South Australian Senetor Nick Xenophon, Mr. Ian Narev has not taken the allegations seriously. Considering the fact that, the allegation of money laundering has imposed a highly negative impact on the CBA, is the CEO of the bank, Narev should have handled the situation more effectively. Since risk of being targeted by criminal elements was suspected by the end of 2015, being the leader of the organization, Narev should have started the investigation by then. Under his leadership, the board of CBA should have informed the investors as soon as they became aware of the money laundering activities. Instead of the mentioned action, Narev decided not to disclose their suspicion to the investors. As a result, a huge number of investors suffered due to the wrong leadership of Ian Narev.

According to the democratic leadership theory, a leader should be able to create an effective relationship with the employees and stakeholders and create a high percentage of trust (Odumeru and Ogbonna 2013). He should be transparent with all his actions and should take decisions only after conducting effective discussions with employees and stakeholders. It can be clearly understood that Ian Narev, has not followed the above mentioned theory which in turn, has given rise to the money laundering issue faced by the CBA. Being the CEO of the bank, the first step that should have been taken by Narev is to inform all the investors about the risk of money laundering so that they can save their money. Secondly, he should have taken strict legal steps in order to investigate the issue. The wrong leadership of Ian Narev has cost the bank a high amount of 1 trillion dollars. The HSBC bank has gone through a similar situation of money laundering where the company was fined 30 million dollars by the Mexico Government and had to invest 700 million dollars to pay the stakeholders who have suffered from losses due to money laundering (Bean 2012).

CBA accused of consumer fraud related to life insurance and financial planning

According to ABC’s 4 Corners and BusinessDay’s Adele, the CEO of Commonwealth Bank of Australia has found to be pressurizing the doctors to change their assessments so that the bank can avoid payout to the health insurance policyholders (Yeates 2016). The bank has also been accused of delaying payments to critically ill consumers and refusing to honor claim to former employees who were retired medically. One of the chief victims of the above mentioned scandal is James Kessel who got his 1.1 million dollars for trauma claimed refused by the Bank despite suffering from a major heart attack in 2014. The reason given by the bank behind rejecting his insurance claim is the absence of Troponin in his bloodstream (Fogarty 2016). However, according to cardiologists, the definition of heart attack of CommInsure, the life insurance sector of CBA, is outdated. In spite of knowing this fact, the bank unethically refused to the health insurance money holders (Ferguson 2018). Similarly, the claim for total and permanent disability of Helen Polydoropoulos, a former employee of the bank was rejected without any justified reason. Not only the two above mentioned individuals, several victims have lodged complained against this bank which has imposed a highly negative impact on the brand equity and consumer loyalty of CBA.

The inefficiency of the CEO of CBA, Ian Narev can be clearly understood from the above analysis of the scandal. Complaint of several unethical acts in order to avoid payment to the justified insurance policy holders is reported against him. For instance, in spite of being aware of the fact that the definition of heart attack is out of date and needed to be changed for the sake of consumers, he continued with the outdated definition (Ferguson 2018). This act of Narev, can be considered to be unethical since, in order to enhance the overall revenue of the Bank and to achieve short term goals, The CBA is losing reputation, brand equity and consumer loyalty under the leadership of Narev. This will definitely lower the banks yearly revenue in near future.

According to the theory of ethical leadership, a leader should be always maintaining ethics no matter what the extrinsic and intrinsic situation is.  Some of the qualities of an ethical leader include justice, respect for stakeholders, humanity, honesty along with encouraging his employees to follow his ideologies (Landis, Hill and Harvey 2014). From the above discussion, it can be clearly understood that Ian Narev has not followed the above mentioned ethical theory. Instead of continuing with the outdated definition of heart attack, he should have implemented the new definition so that the authentic users who were getting rejected can avail the insurance money. Similar incident was reported when Reserved Bank of India denied paying insurance claim to authentic insurance holders. Case was filed against RBI, and the bank had been fined a good amount of money.

Ian Narev’s leadership under scrutiny

Millions of consumers of Commonwealth Bank have suffered a huge loss of money due to the multi-million-dollar financial planning scandal of the bank. The reason behind this scandal is the act of the financial planners of the bank to put the money of the clients in high risk investments without their permission. According to Ian Narev, this scandal resulted due to poor advice of some of the advisors (Ferrier 2015). He declared to launch a program to compensate consumers who had lost their money. However, the exact money to be distributed among the consumers was not disclosed by him. However, no effective action was taken by the bank and moreover, the consumer protection for financial advice was removed. According to researchers, only 19 consumers out of 8000 have received compensation and even they have not received the amount of money they had lost and hence the 1^st compensation scheme of CBA remained unsuccessful (Wilkins 2015). Under the leadership of Ian Narev, a new compensation scheme was organized. However, none of the previous managers was changed and only 4610 consumers were registered with the new scheme. On the other hand, the banked declared that consumers must register their name with the bank themselves (Ma, Cand S 2018).

It can be clearly understood from the above discussion that the leadership of Ian Narev is inefficient. He had blamed the inefficiency of several financial planners for the reason behind financial planning failure. However, being the CEO of CBA, it is his responsibility to ensure the security of the money of CBA’s consumers (Johnston 2014). Besides that, the compensation programs organized by the bank were not at all effective and were unable to provide compassion to the majority of the consumers. Here the lack of leadership skill of Narev, can be evidenced clearly. Under his leadership, the bank should have declared the amount of money to be kept aside for compensation and the number of consumers listed for the program in order to maintain transparency of the system.

According to the authentic leadership theory, a leader must build legitimacy through honest relationship with the stakeholders. An authentic leader should be a person with a positive mindset (Wong and Laschinger  2013). However, it can be understood that the mentioned leader has not followed the authentic theory of leadership. Ian Narev should have scrutinized the plan of the financial planners before implementing them. Besides that, it was an unethical decision to invest money of the consumers on risky plans without seeking their permission. The largest bank in Germany, the Deutsche Bank had undergone similar financial meltdown issues in 2008. As a result, the company had not only lost its brand equity and consumer loyalty, it had to pay a fine of 14 billion dollars to the government management of Germany.

Reference list

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Fogarty, R. 2016. Who’s who in the Commonwealth Bank’s life insurance scandal?. [online] ABC News. Available at: https://www.abc.net.au/news/2016-03-07/comminsure-scandal-whos-who-four-corners/7226576 [Accessed 20 Mar. 2018].

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