CBA faces multimillion-dollar penalties over money laundering

Each breach of the law carries a maximum penalty of $18 million or a potential fine of $960 billion.

AUSTRAC says that 1640 breaches of the $10,000 transaction threshold valued at $17.3 million were directly connected to money laundering syndicates being investigated and prosecuted by the AFP.

Six breaches were related to customers who had been identified by the bank itself as having links to terrorism or terrorism financing.

AUSTRAC acting CEO Peter Clark said the breaches amounted to serious and systemic non-compliance by CBA.

AUSTRAC alleges that in many instances laundering was conducted through CBA accounts at points just below the $10,000 threshold and then immediately transferred offshore in a practise known as 'structuring'.

"Despite identifying a pattern of activity on these accounts as suspicious and indicative of money laundering, CommBank repeatedly failed to comply with its obligations to give a suspicious matter report (SMR) to AUSTRAC either at all or within the time required," the file reads.

"CommBank adopted a policy not to submit SMRs if the same type of suspicious behaviour had been reported at any time within the three months prior."

Commonwealth Bank issued a statement in relation to the allegations, saying that it took its reporting obligations very seriously and was continually reviewing its processes and systems. It said it reported 4 million transactions to AUSTRAC each year.

"All of our people are required to complete mandatory training on the Anti-Money Laundering and Counter-Terrorism Financing Act. Money laundering undermines the integrity of our financial system and impacts the Australian community's safety and wellbeing," the statement said.

Federal Treasurer Scott Morrison said that the government was watching the developments with some interest.

"This is a very serious matter that is being pursued by appropriate authorities. We should allow them to continue to do this work," Mr Morrison said.

Industry observers were privately asking whether CEO Ian Narev would survive the bombshell development, with the bank still struggling to emerge from the shadow of scandals at its financial planning and life insurance arms.

In 2014 French bank BNP Paribas agreed to pay US authorities $US9 billion for facilitating transactions in violation of US sanctions. BNP Paribas chairman Baudouin Prot resigned three months after reaching a settlement.

The breaches relate to a reporting blindspot in CBA's intelligent deposit machines (IDMs), an updated version of its ATM rolled out from 2012. The machines were able to accept individual cash deposits of up to $20,000 and credit them to CBA account holders instantaneously.

CBA's IDMs were unable to record the identity of the depositor unless the deposit was made using a card issued by the CBA. AUSTRAC alleges that the bank failed to adequately test the machines before rolling them out in 2012 or to carry out risk assessments.

Sources close to the bank maintained that the oversight related to a coding error that was limited to a select group of machines.

But AUSTRAC said over the first six months of operation there was $89 million in cash deposited using CBA's IDMs. By May 2016, more than $1 billion a month in cash was being fed by hand into the machines.

AUSTRAC estimates that $8.9 billion in cash was deposited into the machines before the bank undertook any assessment of the money laundering or terrorism risks.

The details are included in a statement of claim that runs to almost 500 pages and was handed to CBA yesterday.