The Commonwealth Bank has axed senior executive bonuses in response to a scandal around money laundering and a lawsuit by Australia’s financial intelligence agency.
Australia’s largest bank announced the cuts to bonuses and board pay ahead of its annual results presentation on Wednesday, amid calls for repercussions in senior ranks over claims of “serious and systemic” violations of laws to combat funding for terrorism and crime syndicates.
Its chair, Catherine Livingstone, said the board had given “consideration to risk and reputation matters impacting the group” after the Australian Transaction Reports and Analysis Centre (Austrac) launched civil proceedings in the federal court last week.
Austrac alleges the bank has made more than 53,700 breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act since 2012.
Most of the alleged violations concern late reports of large transactions through the bank’s “intelligent deposit machines” (IDMs), including by five people it assessed as possibly involved in terrorism or terrorism funding.
Austrac also alleged the bank repeatedly failed to take appropriate action on suspicious transactions worth more than $77m, despite internal red flags and warnings from police of suspected laundering of drug profits by criminal syndicates.
Livingstone in a statement said the board “recognises heightened public interest in executive remuneration, particularly having regard to the civil penalty proceedings initiated last week by [Austrac]”.
She said on Monday the board ruled that “short-term variable remuneration” for last financial year for CEO Ian Narev and other group executives would be cut to zero, while nonexecutive director pay would be cut 20% this financial year.
“In reaching this conclusion the overriding consideration of the board was the collective accountability of senior management for the overall reputation of the group,” she said.
But Narev “retains the full confidence of the board”, Livingstone said.
The bank has blamed the “vast majority” of its alleged breaches – around late reports of large transactions to Austrac – on a “coding” error in the IDMs that went undetected for three years.
“We recognise that there are other serious allegations in the claim unrelated to [the late reports],” it said in a statement on Monday.
Commonwealth executives last year pocketed $16m in short-term bonuses despite a landmark shareholder rejection of its remuneration plans under Australia’s “two strikes” laws.
The prospect of a “second strike” against Commonwealth’s pay plans, after a 49% protest vote last year, would force a spill of the board.
It is unclear whether the move will head off calls for sackings of senior managers at the bank.
John Abernethy, chief investment officer at Clime Asset Management, told Fairfax the board’s reaction needed to be “hard and swift”.
He said cutting bonuses alone was “pathetic” and “heads should go” among managers overseeing relevant areas of the bank.
The Austrac lawsuit in theory could give rise to a maximum fine of $18m per breach if proven – a total of $966.6bn.
The agency in March secured what was reportedly the largest civil penalty in Australian corporate history against Tabcorp, $45m, for breaches of the same act.
Investors and proxy shareholders last year were concerned a move to institute a long-term “culture bonus” linked to non-financial measures was an undue reward for Narev in the wake of scandals including around the bank’s financial planning arm.
Narev’s pay in 2016, with bonuses and shares, has been calculated at 106 times the average Australia full-time worker’s salary at $8.6m. He stands to lose $2.8m in short-term bonuses for the last financial year.
He and other bank executives will forgo as much as $20m in short-term bonuses for last financial year, but long-term incentive payments remain in place.
Livingstone faces a $174,000 pay cut but is in line to pocket around $700,000, while other nonexecutive directors will earn around $240,000.
The bank will release full details of pay decisions in its annual report next week.