Violation of Ethical Rules and Code of Conduct
The present report provides an overview of the ethical standards and the code of conducts of the Australia banks. The current report analyses two cases studies related to the violation of the ethical rules and code of conduct. The first one is about the money laundering case in Commonwealth Bank of Australia (CBA). The second case is related to the customer abuse that included rigging interest rate and improper financial advice and planning by the four great banks of Australia namely Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), Westpac and Australia and New Zealand Banking Limited (ANZ). The report discusses the violation of the codes and outcome. Finally, suitable recommendations are offered to ensure that such actions can be avoided in future.
Ethics and the code of conduct act as a guide of principles, which is designed to aid the professionals to carry out their business honestly, and with integrity. Code of ethics often acts as a value statement for guiding the behaviour of others and thereby affects the process of decision-making (Davies, 2017). In the banking sector, the code of conduct and the ethics act as the internal guidelines that help in making a commitment for operating legally and at the same time promoting accountability, integrity and honesty. In Australian banking sector, the ethics and the code of conduct guide the employees based on the laws and ensure that all the policies are followed, and the banking products become more customer centred. The present report would analyse two cases related to the violation of the ethical standards in the Commonwealth Bank of Australia (CBA) and the National Australia Bank (NAB), Westpac and Australia and New Zealand Banking Limited (ANZ). The report would examine the code of ethics evaluate the violation and its impact that would offer proper guidelines and recommendation for the future and ensuring that ethics and standards are maintained.
Case study analysis
The present section evaluates the cases related to the violation of the ethics and the standards in the Australian banks. The analysis of the cases would help to provide an understanding of the importance of the ethics and the code of conduct and the ways they can be managed and handled.
Case study 1: Australia's biggest bank hit with record fine for money-laundering scandal
Money laundering refers to the method of developing the appurtenance that a tremendous amount of capital acquired from illegal activity such as terrorist activity, drug trafficking, devised from a genuine source. The money from the unlawful activity is regarded as dirty, and the process launders the cash to make its appearance clean (Madinger, 2016).
In the case study, Scott Morrison has darned the Commonwealth bank for creating risk to national risk after the most significant financial institution of the nation was hit with a record fine of $700 million for breaking the law of anti-money-laundering and counter-terrorism. The most significant penalty in the corporate history of Australia among warnings from the head of fiscal intelligence supervisor (Theaustralian.com.au, 2018).
From 2012 to 2015, CBA (Commonwealth Bank of Australia) failed to report over 53000 doubtful transactions using its ATM to establish on time. Drug mobs laundered money based on the loophole that enabled for large unidentified deposits to the accounts of CBA. It has affected the business practices those are poor, as these are exploited by the criminals to launder the earnings of their crimes. It has affected the daily lives of Australians and placed the community at danger by improving opportunities for bombers to upkeep attacks here and overseas, and allowing ordered crime groups to tout drugs to friends and families. Thus, the criminal activity is not only affecting the financial scenario of Australia, but also the social, environmental, legal and political environment of the nation. It is devastating for the national peace and prosperity of the country. CBA has put the blame of the money laundering on the coding error took place in the computer system that allowed the suspicious transaction (Shane, 2018).
In the words of Masciandaro 2017), it is projected that money launderers scrub equal to $2 trillion per year that accounts to 5% of the GDP of the entire world. The international impact is staggering in economic, social and security terms. Successful money laundering refers to the criminal offences pays off.
Case study 2-Australian Banks abuse of customers
The inquiry of the customer service and the customer advice of the Australian banking sector has helped to make shocking revelations about the abuse of the customers. The investigation has found that the four biggest banks of Australia namely Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), Westpac and Australia and New Zealand Banking Limited (ANZ) has engaged in a culture of rule-breaking, rigging of interest rates and money laundering. Critics have made it evident that these four leading banks of Australia have taken the customers for granted. AMP, which is the financial services company in Australia and New Zealand, is also accused of ripping off the customers and lying to the regulators who have thrashed their reputation. ANZ, NAB and Westpac are charged for rigging the interest rate and name it as the benchmark rate with the title ‘bank bill swap rate’ (Ft.com, 2018).
The issue of customer abuse and customer negligence has become a significant issue in Australia. The four leading banks of Australia along with AMP has been accused of taking the customers for granted and also abusing them. The primary outcome for this activity is that the heritage brand of AMP has been trashed and the future is quite dark. CBA was accused in the year 2017 for breaching 53,000 anti-money laundering cases. No steps were undertaken by the bank to prevent any money laundering. The consequence for the same was quite severe as the market capitalisation of CBA fell by A$4bn and encouraged the government to enquire regarding the misconducts of the Australian banks. The consequences of the rigging interest by ANZ, NAB and Westpac were quite severe. The Australian Security and Investment Commission (ASIC) has created pressure on these to admit their wrong actions (Capita Finance, 2018).
Considering the actions of the banks and violations of the ethical standards, ASIC requested a deceleration for the outrageous conduct from the court and the financial penalties due to the breaches of the ethical conduct. These banks were charged a penalty that has created an impact on the fiscal year results and clearly generated distrust among the common people.
Ethics and Codes of Conducts in the Australian banking sector
A code of ethics or conducts may develop a framework of the values and mission of the organisation or business; the way professionals need approach problems, the ethical values according to the standards and median values to which the professional is detained. It is a guiding principle developed for helping professionals carrying out business practices with integrity and honesty (Garegnani et al. 2015).
The codes of conducts in Australian banking are as follows (Gettingthedealthrough.com, 2018):
The Anti-money laundering and counter-terrorism financing act 2006 is the main piece of legislation following the deterrence and discovery of money laundering, and terrorism funding permission laws contain part of AML legislative framework of Australia. In this nation, the legislative government for identifying, impeaching and discouraging money-laundering practices contain criminal activities for money laundering at the level of the commonwealth, the territory of the state. It also includes asset recovery laws at these levels and detection and prevention measures, enacted at the Commonwealth level.
The Federal Criminal Code Act 1995 includes a wide variety of criminal practices. Similar offences are present in the territory and state criminal legislation of Australia. The offences vary to areas like pertinent predicate offences, the determination of the perpetrator and disadvantages.
The Proceeds of Crime Act 2002 allows law enforcement for pursuing the asset recovery related to offences after a belief. Each territory and state of Australia also has asset recovery law for money generated by criminal activities.
The Financial Transaction Reports Act 1988 works together with the AML/CRF act. The FTR impose duties on cash traders and lawyers to report essential cash dealings such as A$10000 or above to the Australian Transaction Reports and Analysis Centre. It also needs cash dealers proving the find of account parties.
Australia imposes the United Nations Security Council approvals command under the Charter of the United Nations Act 1945 and the Australian autonomous agreements rule under the Autonomous Sanctions Act 2011 and related regulations. The sanction measures contain bans on creating a sanctioned import, an approved supplier, offering approved services, dealing with a nominated person or organisation. Australian sanction laws impose severe criminal offences and forfeit comprise up to 10 years imprisonment and considerable fines.
Australia has inexplicable capital laws at state, territory and Commonwealth level. At the Commonwealth level, the POC Act part 2-6 comprises the unsolved wealth supplies, where goals of the orders must demonstrate on the stability of possibilities that their wealth was not resulting from a crime in contradiction of a law of the commonwealth, an international criminal offence or a state crime that has central feature.
The ethical code of the for the Australian banks stands for an excellent corporate culture that would encourage the management to make proper judgements and generate public trust and confidence in association with fairness and efficiency in the financial market. Transparency and appropriate disclosure is another necessary code of conduct for the Australian banks in which the customers should be offered information and ensured a high level of transparency (Wright and Rwabizambuga, 2006). For ensuring the needs and the demands of the customers, the banking services should adapt services that would address these demands and needs. The code of conduct also stands for creating a culture of the shared values and beliefs that encourage the employees and the management of the banks to work in cooperation. Certain ethical principles stand for business culture, responsibility, and stability, observing laws and acting reasonably and with integrity and act professionally and respectfully (Worthington, 2016).
Code of conduct and analysis of cases
Australia is an attracting place for criminals to conduct their unethical activities because of its developed economic condition and high price associations can control drugs. 70% of the grave and organised crimes are originated or linked to overseas. The CBA is highly criticised by the regulators and politicians for enabling drug-smuggler, gun dealers and distrusted terrorist financiers to use its ATMs for laundering money by the finance system. Thus, the CBA has violated the AML/CTF Act 2006 that focuses on the identification and prevention of terrorism financing and money washing. The AML/CTF Act 2006 operates alongside the AML/CTF Rules Instrument 2007.
The act is amended in 2017 that puts responsibilities on digital currency exchange or DCE providers from 2018 3rd April. Under this act, a DCE provider has the following obligations (Lexology.com, 2018):
- Enrolling and registering a business with the ABSTRACT Reporting Entities Roll.
- Setting up and maintaining an AML/CTF program for identifying, overcoming and managing risks related to terrorism financing and money laundering that reflects the business operations.
- Identifying and certifying the identity of customers and carrying out continuous customer due to attentiveness
- Reporting doubtful matters and verge transactions to AUSTRACT
- Maintaining definite records for seven years
However, the DCE providers of CBA did not fulfil the responsibilities appropriately due to which the massive case of money laundering took place that led to the record penalty of $700 million. The bank confessed that it failed to follow the regulations for preventing money laundering. Due to the inattentiveness of CBA, it failed to report over 53000 illegal transactions conducted using ATMs and money laundered by Drug gangs. The DCE did not establish an appropriate system for identifying and mitigating risks rated to terrorism financing and managing correctly that resulted into the considerable scandal.
Next comes the FTR 1988 act, which is also not followed by the CBA that could have helped the firm preventing washing of money. The act imposes duties on cash dealers to record and report the transaction of money more than A$100000 to the AUSTRACT. However, due to the ineffective management of the cash dealer in the CBA and coding error that occurred in the computer systems. It allowed terrorist to conduct a large number of illegal transactions that increased the risks of an attack on general people. Hence, CBA accepted the significance of the mistake it did and agreed with the charging fees.
The CBA has also dishonoured the POC Act 2002 that imposes obligations for recovering assets, produced by criminal activities. The law puts stress on the basic principle of repossession regulation. It means individuals, who are involved in illegal activities must not profit from breaching the laws. Property or money obtained from such activities must be seized for stopping the reinvestment of that profit into future unlawful activities. However, the CBA was not focused on identifying the money laundering, and a large number of unlawful transactions carried out using the ATMs of the bank and thus, failed to obey the POC act.
The FCC Act 1995 that comprises of a range of criminal activities including money laundering is also not compiled by the CBA. This act follows the model criminal code developed by the State, Territory and Commonwealth criminal law suggests state discussion. The act includes offences related to dealing with property or money in a way that leads to the enormous risk that the property or money can become a tool of crime in others hands. The law makes it illegal to support terrorism financing and similar activities directly or indirectly (Ag.gov.au, 2018). In the case of CBA, due to the coding error in its computer system, the bank supported the act of money laundering indirectly. It opened ways for the drug gangs to wash off money in a tremendous amount from that bank that they can use for attacks and other illegal offences in the country.
Under the United Nations Act 1945 and Autonomous Sanctions Act 2011, money laundering or generating money illegally may result in substantial fines and ten years of imprisonment. The aim is to support the overseas policy objectives of Australia. It contains arms embargoes, civil aviation restrictions, financial sanctions and export banks of specific commodities (Defence.gov.au, 2018). The CBA failed to prevent the acts of drug gangs, who laundered a considerable amount of money. Using this money, they can expand their drug business even more in Australia and overseas that is against the law. The drug is a commodity that cannot be exported or imported under the law. By infringing the act, CBA conducted criminal offence of money laundering and as a penalty; the bank had to pay a considerable fine. The bank failed to report an incident of the illegal transaction for three years, and the criminals took advantage of the inefficient business practice for conducting unlawful activities. Thus, they are indirectly supported by the bank authority.
The code of conduct and the ethical standards are developed to ensure that the financial organisations of Australia provide the best services to the customers that would help in maximising the contribution of the banks to the economic health of Australia. In the second case study, it has been seen that the four central banks of Australia have violated the established code of conducts. While analysing the case study of CBA, it is seen that CBA is engaged in money laundering and has clearly defined the code of Financial Transaction Reports Act 1988. Austrac claims that the failure of CBA has facilitated crime syndicates. A limit was set for transaction reporting which is A$10,000 but CBA failed to maintain the limit and allowed higher deposit limit to some of the syndicates. The FTR impose duties on cash traders and lawyers to report essential cash dealings such as A$10000 or above to the Australian Transaction Reports and Analysis Centre(Capita Finance, 2018). But the bank failed to maintain the code. This made CBA to come under severe investigation and penalty. As per the act of Anti-money laundering and counter-terrorism financing act 2006, the banks in Australia had to regulate for this type of activity and create a suspicious matter report (SMR) to Austrac within 3days of the occurrence of such incident. However, in this case, it is evident that CBA has denied this reporting standard that has resulted in the money laundering issue.
As per the report of Austrac, CBA has skipped the upper limit of cash withdrawal or deposits which are adopted by other banks. In case, the upper limit is crossed by any depositor then the banks need to submit to Austrac. However, in this case, CBA has failed to submit TTR within the correct time. In CBA more than A$620million has been deposited between 2012 and 2015 that represented 95% of the IDM transactions. The activity of the five customers suspected terrorist activity but CBA was not bothered to perform any activity. Hence, CBA denied the Financial Transaction Reports Act 1988 by not reporting about the correct amount of the deposits and the transactions that was going on for three years(Ft.com, 2018). The violation of the code and the laws have hampered the working of the banks and the entire economy for which the bank has to pay consequences in which the penalty was quite higher.
The four banks namely CBA, ANZ, NAB and Westpac, are accused of violating the ethics and the code of conduct by abusing the customers and taking them for granted. The high-interest rigging rate of the customers have affected the performance of the banks, and this action of the banks along with the dangerous and ineffective customer service of the banks has violated the following code of practice and the ethical practices:
- The four pillars of Australia defied the responsibility of carrying out the business affair, serve for the better interest of the community, and create a stable and trusted financial market. The way CBA violated the Anti-money laundering and counter-terrorism financing act 2006 and Financial Transaction Reports Act 1988 makes it evident that they just failed to maintain its responsibility of serving the best interest of the community and create a trusted financial market. This activity disrupted the trust of the customers and the country and hampered the reputation of the bank.
- As per the code of the conduct and the established ethical standards, the banks need to maintain a business culture that sets down appropriate conduct and behaviour. However, the taken for the granted attitude of the banks and the ineffective customer service has hampered this ethical standard. Proper conduct of the banks require the members to adopt the dealings of the Australian marketplace(Afma.com.au, 2018). Nonetheless, the improper service to the customer creates a negative impact on the business.
- The third ethical principle was related to the understanding of the established laws, and their activity should ensure honesty and integrity. As per the report of Australia's Productivity Commission, the policies and the activities of the four pillars has removed the discipline in the market (Afma.com.au, 2018). The four pillar policy which was created by ANZ, CBA, NAB and Westpac create an absolute guarantee of the government to these four banks that decline the funding cost, reduces the ability of the new entrants and prevents the small lenders to compete in the market. This is the integrity and honesty of ethical practices that the banks need to follow.
- Another important code of conduct that the four banks gas defied is related to the act of fairly dealing with the clients and counterparties (Howell, 2015). However, the interest rigging of the four banks seems to clear this standards and code of conduct. The high-interest rate has created pressure on the customers who had taken loans from the banks. The rigging interest rate may have created a high level of profits of the banks, but they have violated the code of conduct of fair dealing with the clients as with the increased interest rates the banks were only concerned with their profitability level rather than addressing the needs of the customers (Capita Finance, 2018).
- The ethics and the code of conduct of the Australian bank also call for the staffs to be adequately trained and provided adequate support for performing their job professionally (Keating et al. 2008). However, the improper customer service of the four min banks has breached this code of conduct. Several customers have complained about severe financial advice. A nurse mentioned that how an expensive insurance policy in Westpac charged her high prices for which she had to give up on her house (Ft.com, 2018). This unplanned and unprofessional financial advice by the customers hampered he customer service and has defied the code of conduct in which the staffs should be professionally trained and offer the required support to the customers.
- Observation of the market standards and conventions and engaging in the fair dealings is another essential ethical standard for the banks of Australia(Afma.com.au, 2018). The customer abuse by the four banks and the interest rigging issues and the money laundering cases seem to violate the code of conduct. As fair dealing was overlooked in this case and the market standards and conventions were also neglected when CBA crossed the upper limit of deposit and the four banks concentrated in the rigging interest rates. The violation of the ethics and code of conduct resulted in severe consequences for all banks.
1. Based on the above discussion, it can be recommended to the CBA that it needs implementing a rigorous system for obeying the legislation related to the banking industry and taking necessary measures for meeting the legal standards efficiently. There is a lack of seriousness regarding complying with the regulations, ethics and codes of conducts imposed by the Australian government for the effectiveness and security of the bank activities. The bank must develop an inclusive system and people for having updated knowledge regarding various laws and making everyone informed about it. It will help the firm ensuring that everyone is performing their respective tasks based on the organisational and legal requirements. Everyone must have a clear idea about the organisational expectation from him or her so that each carries out their tasks accordingly without violating the established codes of conducts.
2. It is found that the money laundering took place because of poor business practices and inefficient computer management system within the CBA. It took the firm three years to identify the coding error happened in the computer system that allowed the criminals to launder money. Hence, there is a necessity of setting up a culture of daily examining the efficiency of the computer systems, so that errors can be identified and mitigated instantly before it creates a risk to the organisation as well as the nation. It will help the firm identifying any suspicious transaction if take place and report the incident to the AUSTRACT for a quick resolution.
3. Customers are a most important stakeholder of the bank, and hence, in this case, it can be mentioned that the violation of the ethics related to the provision of the proper service to the customers can destroy the reputation and the business permanently. Hence, it is recommended to create a customer-centric approach that would ensure that the business of the banks is committed towards the maintenance of its responsibility of serving the best interest of the community and create a trusted financial market.
4. It also recommended to professionally train the employees so that they can work for the best interest of the customers as well as for the organisation. ANZ, CBA, NAB and Westpac needs to maintain the code for equipping the employees with the resources, knowledge and support to ensure that they offer effective financial planning to the customers. The customers visit the banks for several practices and hence, in this case, it is crucial that the employs of the banks are trained enough to offer the best service to the customers.
The conclusion is quite clear that the legal framework and codes of conducts have a significant impact on the operations of the banking industry in Australia. A wide range of legislation is there to be followed by the banking industry for conducting their business smoothly and avoiding ethical issues. However, failing to do so may lead to penalties, fines and imprisonment. Besides, it also damages the company image and eventually, decreases profitability. Therefore, conforming to the legislative standards is critical for ensuring security and safety of the banking business, the customers and the society. The ineffective system not only encourages criminal activity, but it also threatens the peace of public, as happened in the case of CBA and Australian banks, who abused their customers. Hence, every bank must work obeying every policy and regulatory standard levied by the government for the welfare of everyone for conducting business ethically and gaining trust and respect from all the stakeholders.