The Commonwealth Bank of Australia (ASX: CBA) share price has recovered some lost ground this morning, following an announcement that it will mount a defence against AUSTRAC.
Last week, news surfaced that AUSTRAC, the regulator responsible for money laundering and the security of Australia's money system, revealed that it has launched civil proceedings against the bank.
AUSTRAC says Commbank failed to report millions of dollars being deposited at smart ATMs (in small amounts), which would eventually be used by underworld figures to get the money outside of Australia. Ultimately, it is alleged the bank failed to report around 53,000 suspicious activities to the regulator.
Today, the $140 billion bank announced via the sharemarket its intent to mount a defence.
"CBA takes the allegations made by AUSTRAC very seriously," it said. "CBA will of course file a defence in relation to this matter, which will take significant time to prepare."
Given the gravity of the claims, AUSTRAC's document was a hefty 580 pages. CBA said it is working through it now.
It said the media is speculating on the potential outcomes since the penalty for each breach is $18 million.
"However, these alleged contraventions could be considered to arise from a single course of conduct to the extent that they emanated from the same systems error," it noted. "Ultimately, a Court will seek to ensure that, overall, any civil penalties are just and appropriate and do not exceed what is proper having regard to the totality of established contraventions."
Foolish Takeaway
CBA shares had fallen from $84 to trade at $81 this morning. While the potential penalty is enormous, investors appear to be moving on from the news.
As Australia's largest bank, it is unlikely we will see the news swept under the rug quietly. Nonetheless, it will be some time before we know the court's outcome and until then there appears to be no reason why long-term investors should be alarmed.
