Is National Australia Bank Ltd. (ASX:NAB) the next to face regulatory trouble?

Credit: NAB

Don’t look now Fools but Commonwealth Bank of Australia (ASX: CBA) may not be the only big bank that’s tarred by the money laundering scandal which prompted the Australian Transaction Reports and Analysis Centre (AUSTRAC) investigation.

The investigation uncovered damning evidence of a culture of complacency by Australian’s largest listed bank and National Australia Bank Ltd. (ASX: NAB) could be the next to be swept up by a similar scandal.

A report by the Australian Broadcasting Corporation (ABC) alleging that the son of a South Sudanese general used a NAB account to launder money through a purchase of a $1.5 million home should sound alarm bells for the bank’s shareholders.

The share price of NAB doesn’t appear to be harmed by the news as it gained 0.4% to $28.51 in late Monday trade with management issuing a statement stating it undertakes checks and due diligence on all customers, although the breach does raise serious questions about the bank’s processes.

Perhaps the culture of complacency isn’t isolated to just CBA? An expert interviewed by the ABC said that NAB should have flagged the account in question as the funds used in the purchase of the property “travelled a circuitous route for which there is no apparent commercial reason”.

The report went on to state that more than $1.5 million was transferred in five instalments from Ugandan and Kenyan companies, sometimes going through banks in Dubai, into the NAB business account linked to the general’s son.

It is also alleged that some members of the family were on Centrelink benefits and lived in commissioned housing until the $1.5 million property was purchased. Talk about effective retirement planning!

But back to the more serious issue of bank governance, the big banks, which also include Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ), are already under a dark cloud from the Banking Royal Commission into unfair practices.

There is no suggestion that Westpac or ANZ Bank have similar problems with money laundering, but the affair with NAB reminds us that perhaps not all the skeletons in their closets have been found at a time when some analysts are saying that big bank stocks are too cheap to ignore.

Interestingly, CBA is the cheapest from a valuation perspective as the stock is trading at the biggest discount to where it normally trades historically, while NAB is the most expensive.

This means NAB has more room to underperform if investigators can prove that NAB has been asleep behind the wheel when it comes to its anti-money laundering commitments.

I find the valuation argument for the big banks unconvincing and I am expecting these stocks to keep underperforming the S&P/ASX 200 (Index:^AXJO) (ASX:XJO).

If you are looking for blue-chip stocks that can outpace the market, the experts at the Motley Fool have three that they think should be on your watchlist.

Click on the free link below to find out what these stocks are.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, National Australia Bank Limited, and Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.