Commonwealth Bank of Australia

Date founded: 1911

Industry: Banking

Corporate headquarters: Sydney, Australia

Type: Private

The Commonwealth Bank of Australia is a multinational banking and financial services company headquartered in Sydney, Australia. It operates branches and other businesses in Australia, New Zealand, Fiji, Asia, North America and the United Kingdom under the Commonwealth Bank brand as well as Bankwest, Colonial First State Investments Limited, Commonwealth Securities Limited, and Commonwealth Insurance. It is the largest bank in the southern hemisphere and the largest company listed on the Australian Securities Exchange.

Commonwealth Bank was originally government owned and operated, and served both as a commercial bank and as Australia's central bank. Its central banking functions have since been spun out as the Reserve Bank of Australia, and the remaining business was privatised.

History

Commonwealth Bank was established in 1911 with the passage of the Commonwealth Bank Act. The rapid expansion of Australia, ten years after the colonial era had ended with the establishment of the Commonwealth of Australia as a dominion of the British Empire, created the need for robust banking services. Commonwealth was the first bank in Australia to be federally guaranteed. It was unusual in that it operated as a central bank while also providing banking services to the public, primarily through savings banks operated by regional governments. The bank was founded in Melbourne (moving to Sydney in 1916) and provided savings alongside general banking. Its central banking duties were assigned to it over time, as the needs of the government grew.

In the 1950s, after Australia was formally recognised as independent from the United Kingdom, Commonwealth Bank became a target of criticism because of its dual roles. In 1959, two legislative acts redefined the bank's place in the Australian economy. The Reserve Banks Act of 1959 spun Commonwealth's central banking functions off into a new entity, the Reserve Bank of Australia, while the Commonwealth Banks Act turned Commonwealth Bank into a new entity, the Commonwealth Banking Corporation. Commonwealth became fully privatised in the 1990s.

Over the second half of the twentieth century, Commonwealth diversified its business and acquired smaller banks. It offered the first credit card in Australia in 1974, under the Bankcard brand. It later offered MasterCard and Visa as well.

In 2017, the Australian Transaction Reports and Analysis Centre, Australia's financial intelligence agency, began civil proceedings against Commonwealth Bank over 53,700 breaches of money laundering and terrorism financing laws. A number of criminal cases against money launderers, drug dealers, and other criminals had uncovered the frequency with which Commonwealth Bank failed to detect or flag illegal or suspicious transactions. In particular, Commonwealth Bank had repeatedly failed to flag or report money transfers over A$10,000, which it blamed on faulty Intelligent Deposit Machines (IDM) that allowed depositors to make cash deposits that were credited instantly to their accounts, with no special treatment for large deposits. Later charges further alleged that Commonwealth Bank had failed to make a timely report of the attempts to wire money by a person convicted of terrorism-related crimes. Most of the abuses were related to four money-laundering syndicates operating in Australia, three of which were tied to drug distribution networks. The bank faced a potential total penalty of nearly $1 trillion in the case.

Late in 2017, Commonwealth Bank was separately accused of misleading Australian Privacy Commissioner Timothy Pilgrim about issues concerning the privacy of a customer and former employee's accounts with the bank. Kylie Murden had been an employee of Commonwealth Bank's mortgage lending arm, and after being fired, had pursued an unfair dismissal claim against it. In the course of that case, Commonwealth Bank's responses led her to believe that they had access to personal financial information about her; further investigation showed that her accounts had been accessed by three people hundreds of times over a period of months. Murden filed a complaint with the Privacy Commission. While the bank initially defended these accesses as part of normal banking business, it was soon uncovered that they lied about the frequency and number of accesses in the documents they disclosed to the commission. The bank was ordered to issue a formal apology and pay punitive damages to Murden in the amount of $10,000.

Commonwealth Bank's problems with regulators led to shaky confidence at the 2017 annual general meeting, at which a protest vote was taken against board appointments and executive remuneration. While the protest did not gain a majority of votes, it was significant enough to demonstrate the degree of concerns among shareholders, and had symbolic signalling value.

Impact

Commonwealth Bank is the largest publicly traded company in Australia and has been instrumental in shaping the financial landscape of the country. It was the first bank in the country to offer many important services, including credit cards and federally guaranteed savings accounts, and at one time operated as the country's central bank. It provides retail banking services across Australia and other countries, as well as wealth management and premium business services.

It has also come under scrutiny for legal and ethical issues. These include not only the issues mentioned above, but also for the bank's financial ties to industrial activities that have destroyed portions of the Great Barrier Reef (and for increasing its funding of such projects at a time when most banks have scaled their funding back). On several occasions, it has provided funding to environmentally damaging projects that were unable to find funding sources from any major banks in Europe or North America.

Bibliography

"About Us – Our Company – History." Commonwealth Bank of Australia, https://www.commbank.com.au/. Accessed 25 Dec. 2017.

"About RBA – History." Reserve Bank of Australia, www.rba.gov.au/about-rba/history/. Accessed 1 Jan. 2018.

"Australia Adds to Money Laundering Claims against Commonwealth Bank." Reuters, 14 Dec. 2017, www.reuters.com/article/us-australia-cba-moneylaundering/australia-adds-to-money-laundering-claims-against-commonwealth-bank-idUSKBN1E80HZ. Accessed 25 Dec. 2017.

"Bags of Cash: How Money Launderers Used Commonwealth Bank of Australia." Reuters, 13 Aug. 2007, www.cnbc.com/2017/08/13/bags-of-cash-how-money-launderers-used-commonwealth-bank-of-australia.html. Accessed 25 Dec. 2017.

"Commonwealth Bank of Australia." Bloomberg, www.bloomberg.com/quote/CBA:AU. Accessed 15 Jan. 2018.

"Commonwealth Bank of Australia Annual Report 2016." Commonwealth Bank of Australia, www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/2016-asx/2016‗Annual‗Report‗to‗Shareholders‗15‗August‗2016.pdf. Accessed 26 Dec. 2017.

Cornish, S., and W. Coleman. "Making a Land Fit for a Gold Standard: Monetary Policy in Australia 1920-1925." Australian National University. Discussion paper 2014-06, March 2014, www.rse.anu.edu.au/media/393365/wp-201406-cornish.pdf. Accessed 31 Dec. 2017.

Gollan, Robin. The Commonwealth Bank of Australia—Origins and Early History, openresearch-repository.anu.edu.au/bitstream/1885/115169/2/b13877197.pdf. Accessed 15 Jan. 2018.

Mann, Phillip. "Commonwealth Bank of Australia – In the Midst of a Money-Laundering Scandals." International Banker, 20 Dec. 2017, internationalbanker.com/banking/commonwealth-bank-australia-midst-money-laundering-scandal/. Accessed 31 Dec. 2017.

McGrath, Pat. "Commonwealth Bank Accused of Misleading Privacy Commissioner." ABC News, 20 Dec. 2017, www.abc.net.au/news/2017-12-20/commonwealth-bank-accused-of-misleading-privacy-commissioner/9275308. Accessed 31 Dec. 2017.

Stevens, Glenn, Governor, Reserve Bank of Australia. "Address to the Reserve Bank of Australia's 50th Anniversary Dinner." 8 Feb. 2010, www.rba.gov.au/publications/bulletin/2010/mar/pdf/bu-0310-9.pdf. Accessed 31 Dec. 2017.