The Commonwealth Bank and the ‘War on Cash’

Commonwealth Bank of Australia

Many years from now, we may look back at the Commonwealth Bank of Australia [ASX:CBA] money-laundering scandal and realise that it heralded the end of cash in Australia.

Allegedly, Australia’s largest bank — and largest listed stock on the ASX — may have accidently breached money-laundering and counter-terrorism financing laws over the past couple of years with their smart ATMs.

AUSTRAC, the firm that oversees anti-money laundering procedures — alleges that CBA’s smart ATMs are part of a global money-laundering ring.

If you bank with CBA, you may have used them yourself. You simply deposit money into the ATM as if it was a normal withdrawal transaction. What makes these ATMs innovative is that the cash is deposited into your account in real time. Meaning you don’t have to wait for a banker to count the money at the end of the day…or for the working week to begin again.

When these smart ATMs were first introduced, it made CBA a tech leader in the banking industry. Other Aussie banks had planned to follow through, but their IT infrastructure couldn’t cope with the demands of real-time banking.

However, ‘criminals’ found a loophole. They could deposit up to 200 notes at time, with no limit on the number of cash deposits they could make. As long as the deposits were under the $10,000 threshold, no one would be any wiser. Any amount over that would trigger an alert to report the transaction to AUSTRAC. Meaning you can stuff a bunch of dirty money in the bank, and the CBA does all the hard money-laundering work for you.

The attention surrounding CBA at the moment is, in my view, nothing more than a witch hunt. It’s a blatant attempt to sway public opinion on banning cash.

Regulatory bodies are harping on about the loophole, and how criminals were able to exploit it. Even Ian Narev, the CEO of CBA, who has overseen eight years of record breaking profits, has lost his job as a result of the scandal.

UBS analyst Jonathan Mott pointed at the start of this month that this breach raised ‘four critical questions’, saying:

Is the root of the problem the outdated high denomination cash notes? Should Australia move to phase out cash given its role in the black economy (including: proceeds of crime, money laundering, tax avoidance, welfare fraud)?

Benefits may include reduced crime (difficult to monetise; increased tax revenue (fewer cash transactions) and reduced welfare fraud (claiming welfare while earning and hoarding cash).

From the banks’ perspective there would likely be a spike in deposits — if all the A$100 notes were deposited into banks (ignoring hoarded A$50s), household deposits would rise 4%. This would likely fill the banks Net Stable Funding Ratio (NSFR) gap and reduce reliance on offshore funding.

At the end of 2016, UBS was the first private group to make the case for banning large-denomination notes in Australia. Unsurprisingly, politicians are warming to the idea. Kelly O’Dwyer, the Minister for Revenue and Financial Services, suggests the $100 note’s place in the Australian economy should be reviewed.

Pretending to defend the $100 note, the Reserve Bank of Australia has said criminals much prefer to use $50 notes instead.

In one fell swoop, the case was made to remove two large-denomination notes from circulation.

Using words like ‘reviewing’ and ‘assessing’ is akin to stretching before a workout. Policymakers are warming you up for the changes ahead.

Make no mistake; in my view, cash will be eliminated from the economy much sooner than you think.

CBA’s ‘accidental’ money-laundering scandal just helped quicken the process.

The latest tech industry in Australia

Banking isn’t the only industry undergoing disruption at the moment.

Unlike banks, however, the healthcare sector is experiencing the right kind of disruption. It is booming thanks in part to the growth of medicinal-marijuana use.

The Australian government changed legislation last year giving Australians access to cannabis for medical use.

Since then, there’s been a boom in pot stocks. Some analysts are dismissing these new companies, saying it’s nothing more than hype, a bubble, or even a giant scam.

Whoever is saying that clearly hasn’t done their homework. The medicinal-marijuana industry in Australia is still in its infancy, and it’s only going to get bigger.

Here’s why.

Since the legislation was changed last year, 75 growers have applied to the Department of Health to become recognised suppliers of medical cannabis. To date, only 12 have been accepted.

It’s not that the Department of Health is knocking back applicants. They haven’t rejected any. The ones that haven’t been approved have withdrawn their submissions. Few applicants can meet the arduous security demands required.

Fingerprint scanners…motion sensor laser alarms…highly-trained security teams to avoid hijacking during transport…and more. These requirements can cost growers up to half a million dollars upfront. To boot, they must stay on top of the latest security tech at all times to ensure the product is protected.

A company doesn’t spend that sort of money on security without expecting long-term returns.

Australia is only just joining the global $240 billion global medicinal-marijuana industry. The pot stocks at the forefront of this revolution in Australia could potentially be among the biggest winners on the ASX in the years ahead. Don’t miss out on this once-in-a-generation opportunity to get in at the ground-floor. Details here.

Kind regards,

Shae Russell,
Editor, Markets & Money

Shae Russell

Shae Russell

Drawing on her extensive experience, Shae is an editor of Markets & Money. Each day, Shae looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

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ron goddard
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hi shae, in any debate on world affairs one must see what the americans are up to. in fact right now the americans are minting(?) new ‘bitcoins’ or whatever name they will give them. yankcoins? and you can betcha that the oz ‘government’, that appendage of u.s.a. is already cranking up the minters for our new ‘bitcoin’ maybe called ozcoin?:-) and you can betcha that the issue will bend the nations debt away from the government to the citizens of this country. in other words the issuance will be framed to reduce peoples cash on hand or in accounts to… Read more »
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