CBA may need to spend an extra $200 million a year on "defensive actions" in response to the Austrac allegations, analysts predict. Credit:Louie Douvis It will examine whether the bank breached the trust of shareholders when it failed to disclose something that could be seen as material, not just to its share price but importantly its reputation. Maurice Blackburn's national head of class actions Andrew Watson summed the issue up in a statement: "Instead, the CBA has said that its board was aware of the breaches in the second half of 2015 but chose to say nothing to the ASX until 4 August 2017." In other words, the bank failed to tell investors or ASIC that Austrac and the Australian Federal Police had been crawling all over it since 2015 over some serious breakdowns in its risk management, systems and compliance. It culminated in legal action by Austrac alleging "serious and systemic non-compliance" under the Anti Money Laundering and Counter Terrorism Financing Act.

Catherine Livingstone's board will face questions about when it knew about Austrac's action. Credit:Louie Douvis Austrac alleges CBA committed 53,506 contraventions of the act. Of equal concern is that even after the bank became aware of the suspected money laundering, it failed to manage the risks, which resulted in drug dealers and terrorists being able to open accounts and transact. After Austrac's legal action became public on August 3, CBA's shares dropped from an intra-day high of $84.69 to an opening price of $80.11 on 7 August 2017. "Our investigations and analysis show that this drop was in the top one per cent of price movements that CBA experienced in the past five years, making it apparent that the news was of material significance to shareholders," Watson said. For this reason, IMF and Maurice Blackburn are calling on the bank's shareholders to register for the class action. Eligible shareholders include anyone who purchased shares from August 17, 2015 and kept hold of some or all of them until 1pm on August 3, which is when all hell broke loose after Austrac launched its legal action against the bank.

The decision to hit the go button on the class action comes days after Austrac made it clear in Parliament there had been many discussions over the past few years with CBA over alleged anti-terrorism and counter-terrorism finance breaches. Against CBA's backdrop of silence, the bank went to the market and raised $5 billion in September 2015. It touted an entitlement offer to investors that included a warning that one of the risks the bank had to manage was one to its reputation should it breach anti-money laundering obligations. What it didn't tell shareholders was that it had - in the eyes of regulators - already breached anti-money laundering laws, and on a massive scale. A number of issues are at stake here besides Austrac's allegations. There is the question why CBA did it, why it didn't tell the market and why discussions with Austrac ended in legal action? CBA has been battling reputational issues relating to separate scandals in its financial planning and life insurance divisions. Both were brought to light by whistleblowers, not the bank.

The bank's handling of the Austrac scandal - from the day it knew about it to the day CBA chair Catherine Livingstone announced chief executive Ian Narev's retirement plans - has been nothing short of breathtaking. But it has been a lesson to the boards of Australia in terms of the best way to deal with serious regulatory investigations. Loading Of note, BlueScope Steel came forward on Monday and revealed that it was being investigated by the Australian Competition and Consumer Commission over potential cartel conduct relating to the supply of steel products in Australia in late 2013 to mid-2014. This may just well be the first of a number of companies to err on the side of caution and inform the market about serious investigations underway, instead of leaving it until the genie is out of the bottle.