WHY WAS THE LEGAL SERVICES BOARD AND COMMISSION OF VICTORIA SPYING ON UNDERCOVER

OPERATIONS THAT WERE ONLY KNOWN TO THE LIKES OF THE DRUG ENFORCEMENT AGENCY, IRS
CRIMINAL DIVISION AND WHISTLEBLOWERS?
WHY WAS THE VLSB SPYING ON WHAT THE FBI WAS PROVIDING TO NSW CROWN POLICE
PROSECUTOR CARLA BLACK FOR THE CASE IN THE NSW CRIME COMMISSION?
WHY WAS THE VLSB GIVING INFORMATION TO A BOILER ROOM SCAM FRAUDSTER IN BRIGHTON?

Subject: Fwd: Legal Services Board's whistleblowers to w...

Date: 03/31/2016 (12:26:29 AM CDT)
From: shareholders.
To: admin@lsbc.vic.gov.au
Cc: privacy@dpcd.vic.gov.au

Dear Privacy Officer & Board Directors of the Legal Services Board, Legal
Services Commission and Legal Services Board & Commission;

_CLAIM BY THE SUPPORTIVE RESIDENTS & CARERS ACTION GROUP INC (ONLY)
FOR
COMPENSATION FROM YOUR BOARDS/COMMISSION + STAFF MEMBER UNDER
THEIR
INDIVIDUAL LIABILITY EG UNDER PART 7 OF YOUR ACT;_

As you are perfectly aware from your demands for Witness Statements about
YOUR WHISTLEBLOWING TO PEOPLE, YOUR whistleblowers' tip offs were
reported
to the American SEC, ASIC, Parliamentary Inquiriy Hearings, etc etc, AND
CAME TRUE.

Your friend McTaggart and Hodges carried out a brilliant set up, they
advised Simon Woodford Accounting. However your deluded staff hid things
for their friends, and blurted and blustered in a pathetic cover up. As
stated by one witness at the Foreign Bribery Inquiry at Parliament:

After losing my cases over and over,

VCAT, THE FBI AND THE US SEC.

/LSBC INSIDERS WHISPERED TO GO TO

THAT WAS HOW DEEPLY TROUBLED THE LEGAL

SERVICES BOARD AND COMMISSION PEOPLE WERE/.

the

Who would think to call

FBI!? I thought they were insane. I did anyway. /I AM REGISTERED WITH A

GROUP AT THE SEC/ and the SEC might pay a reward if the Banks are fined.
/THEY SPOKE TO OTHER PEOPLE ABOUT MY CASE/ even though /THE LSBC IS
LIABLE/
for damages if they /BLOW THE WHISTLE/ or talk to the wrong people. (I
estimate that I am /ENTITLED TO

OVER

$3MILL/.)

Soon afterwards, /CHANNEL 7 NEWS SAID A TIP OFF LAST YEAR CAUSED AUDITS
AND ARRESTS OF BANK EXECUTIVES/. (I think the /TIP OFF WAS FROM THE LSBC
WHISTLEBLOWERS/ to the SEC Witnesses).

/THE FBI WANTED THE HUSH DEED/.

Inquiries were made by

AUDITORS from Ace Foundation

AUDITORS from Computer Science Corporation

An MP about an /ACCOUNTANT IN BRIGHTON/,

Bank Reform people in NSW

/60 MINUTES/ producer for the ANZ STORY that was aired in August

this year
*

FAIRFAX AND ABC

The FBI IC DIVISION.

The SEC Office of the Director of Corporate Compliance

The SECS

IBAC anti-corruption commission

VICTORIAN OMBUDSMAN

Senior Counsel

*
/PARLIAMENTARIANS WHO WANT THE NAMES OF LEGAL SERVICES
BOARD
OFFICIALS/
*
the

about the /AMERICAN EXPRESS CASE. THEY LOST BILLIONS/ because of

Reserve Bank of Australia

The LSBC told me to go away despite damning evidence and despite the FBI
arresting people. You would think /THE LSBC/ might see a few ethics issues

if banks executives are arrested over the same Hush Deed /THEY SAID WAS
LEGAL AND ETHICAL/".

As you also know, the SEC and FBI wanted more evidence about YOU.

Mr Glen Jones' accountant confirms you knew that Jones was the landlord and
you knew the con artist McTaggart was a con man. YOU had the court decision
that decided Jones really was a landlord and still you passed our
information with law agencies on to McTaggart and "Hodges" based on a
pretence.
https://www.scribd.com/doc/300415635/Writ-for-Possession-Supreme-Court-Vic
toria-Australia.
You knew there were court cases and investigations by Accountants, and you
defied your own Act to help McTaggart and Hodges anyway!

You knew you're a foreign government agency under this case

https://www.scribd.com/doc/306466129/11th-Circ-11-15331-Esquenazi-Decision.

You knew there were undercover police operations and yet you demanded
information about Witnesses in bank investigation cases.

We think you spied on the FBI and SEC Enquiries for McTaggart. Colorful
character isn't he.
https://www.scribd.com/doc/300152805/Kelvin-Thomson-on-Trevor-Mctaggart-i
n-Parliament,
https://www.scribd.com/doc/301511552/Trevor-McTaggart-MIPA-IPA-findings,
https://www.scribd.com/doc/294136463/Trevor-McTaggart-named-at-Senate-by
-64-Assessors,
https://www.scribd.com/doc/305267767/Freidman-Ravelo-Australia-Reserve-Ban
k-Intel-Sharing-thru-mob-run-scam-litigation-support-firms-like-Trevor-McTaggart
-s-protected-racket-Constanti

The cocaine trafficking undercover operations were true as you knew.

https://www.scribd.com/doc/300151491/Ravelo-Feliz-Complaint-IRS-DEA,
https://www.scribd.com/doc/305980727/Gov-uscourts-njd-313195-1-0-Ravelo-Ir
s-Charges,

Ravelo confessed to colluding in the Amex Visa Mastercard Case but you
informed McTaggart's friends every step of the way
https://www.scribd.com/doc/295947673/Ravelo-Declaration-Gary-Freidman-s-op
en-letter.

The FBI & SEC and auditors called ABOUT YOUR WHISTLE BLOWING TIPS OFF
THAT
CAME TRUE!

Your CEO admitted that you spoke about our information and US & Australian
Politics and the Amex Mastercard Visa "Antitrust Cases" on 25 Feb 2016 (US
Time)
https://www.scribd.com/doc/294843606/who-was-howard-bowles-talking-to-on26-Feb-2015-Australian-time-mastercardantitrust-hearingtranscript.

You knew the Judge,

Garaufis, could tear up the Settlement as he did, and

you passed our group's information to McTaggart.

https://www.scribd.com/doc/273518735/Amex-Antisteering-Settlement-Denial.

Your Whistleblowers tipped off your intention to spy on what the witnesses
might've told their lawyers!

Your whistleblowers tips were recorded at the Victorian Ombudsman

Parliament Inquiry and IBAC only a few days before you went ahead to spy on
whatever the FBI might know about YOUR whistleblowing tip offs.

You made threats on Elliot Sgargetta as a stick to make him

accept your

approved a "$1m Hush Deed https://www.scribd.com/doc/302372709/Sgargetta-to-Whom-Sec-Tcr-Re-BowlesMcgarvie-Etc-Hush-Deed-FBI-Sec-Sworn-Unredacted

- but only one barrister said 'sign it'. Some people don't like deeds that
looked unethical and illegal no matter what your office thought.

You tried to get information by ignoring your own Act's prohibition against
giving information to people while court cases are in progress.

You defied your own advice letter that says you can't do anything if a
Judge doesn't agree with your egregiously egotistical know-it-all
blabbermouths.
https://www.scribd.com/doc/306036060/Lsb-Waldron-Sgargetta-Re-Court-Heari
ng-Ends-Investigation02102015

You passed privileged information to con artist complainers during

undercover drug and tax audits like those on Ravelo and Feliz.

Somehow Waldron and Hunter learned to run to the airport as soon as your
approved Hush Deed went to the SEC and the FBI for checking if it really
was legal and ethical.

Our lawyer is Ian Martin, ianmartinesq@gmail.com. He's in California where

they have jury trials and Grand Juries.

The Inc Association demands $A100,000 x each of your entitities + each of

the relevant whistleblowing staff in 14 days as compensation - you stole
our information and you passed it on to McTaggart for free. At least you're
liable to all the victims AND

you have McTaggart's admission that he

carried out a set up!

Obviously half your office should resign rather than decide if you're
liable, particularly because you knew you're a foreign government agency
and you knew your spying on cases with Reserve Bank information can be
extraditable eg,
http://www.judiciary.house.gov/_cache/files/142a0651-95c5-46cf-b31c-5a2507c
c947f/hon.-william-baer-testimony.pdf.

We accept Cheques, not Visa Mastercard & Amex.

Sgargetta Accountants
for the Supportive Residents & Carers Action Group Inc.
of potential witnesses to the SEC, ASIC & FBI
Tel C/- Ian Martin Lawyer, Stockton CA.

CBA denies IT whistleblower was sacked

over bribery concerns

Faces parliamentary committee grilling.

The Commonwealth Bank has denied a whistleblower in the IT bribery case engulfing two of its
former executives was sacked for refusing to sign off on the software contract at the centre of the
scandal.
CBA group executive David Cohen yesterday told a parliamentary committee investigating the
impairment of customer loans and broader bank conduct that CBA had "considerably"
overhauled its systems and policies to make life easier for whistleblowers.
Cohen was responding to a report in The Australian this week which revealed the bank's former
head of software services, Marcus Nicholson, was sacked two months after refusing to
greenlight a $10.5 million contract with ServiceMesh.
According to the report, Nicholson said he directly informed CBA CEO Ian Narev and former
CIO Michael Harte about his concerns with the contract, but claims he was victimised by his
superiors and then sacked after raising the alarm.
However, Cohen yesterday reiterated CBA's claims that Nicholson had been made redundant in a
restructure for reasons unrelated to his actions regarding the ServiceMesh contract.
Regardless, Cohen said the bank had overhauled its process for dealing with whistleblowers as a
result of the IT bribery case as well as similar problems with whistleblowing in the bank's
financial planning and life insurance scandals.
He said CBA had introduced a "hotline" for whistleblowers run by a third party to allow
concerned employees to notify the bank of potential problems.

Former CBA IT executives Keith Hunter and Jon Waldron have been charged with several
counts of bribery for allegedly taking over $2 million in bribes from ServiceMesh founder Eric
Pulier in exchange for awarding the $10.5 million deal to the company.
The contract involved software that formed the foundation of the bank's core banking
modernisation. ServiceMesh was bought out by CSC in 2013.
Pulier resigned from CSC just days before he was due to be let go for violating CSC's code of
business conduct over "conflicts of interest and appearance of improprieties".
He is being sued by CSC for at least US$98 million (A$122 million) over alleged "fraud, breach
of contract, and breach of the duty of loyalty".
CBA was sued by Ace Foundation - the US-based not-for-profit NSW Police alleges was set up
to faciliate the payments to the executives, and which has since rebranded to CoreTech
Foundation - last year for "wrongfully" freezing the $2.53 million paid to Hunter and Waldron.
The parties reached an out-of-court settlement last month.
Hunter and Waldron have pleaded not guilty to the bribery charges.
Copyright iTnews.com.au . All rights reserved.
Read more:
http://www.itnews.com.au/news/cba-denies-it-whistleblower-was-sacked-over-bribery-concerns417771#ixzz46bTb7539

COHEN, Mr David, Group Executive for Corporate Affairs, and Group General Counsel,
Commonwealth Bank of Australia
DE LUCA, Mr Rob, Managing Director, Bankwest
CHAIR: Welcome and thank you for attending today's hearings. The committee has received
your submission, No. 48, and subsequent answers to questions on notice. Would you like to
make a short opening statement before the committee proceeds to questions?
Mr Cohen : We welcome the opportunity to appear before the committee today. Since this
inquiry was referred to the committee 10 months ago we have provided a written submission and
we have also responded to other submissions that the committee has received; we appeared
before the committee in December for over two hours; we have answered over 50 questions on
notice; we have reviewed in detail 36 customer submissions relating to Bankwest; we have
provided comprehensive responses, including timelines, to eight specific customer cases of
particular interest to the committee; and we have made available hundreds of pages of content to
committee members. I would just like to take this opportunity to summarise what we have
provided.
There are broadly three questions to consider in relation to Commonwealth Bank and Bankwest.
First, is there any evidence of a conspiracy around the purchase of Bankwest and did

Commonwealth Bank have an incentive to impair loans to reduce the purchase price or gain
some other benefit?
The unequivocal answer to that is: no. Commonwealth Bank could not reduce the purchase price
payable to HBOS by impairing customer loans, nor did it attempt to do so. Commonwealth Bank
repaid all of the wholesale funding, and there was no claw-back possible. There were no
warranty claims in relation to impaired loans. There was no loan guarantee from the British
government, as has been claimed, and there was no capital benefit from impairing loans, as has
been claimed. Commonwealth Bank incurred more than $2 billion of losses on Bankwest
commercial loans and had no recourse to other parties for those losses. They were borne by
Commonwealth Bank shareholders. A conspiracy theory is simply not true.
Secondly, putting aside the conspiracy theory and the lack of any motivation to do so, did
Bankwest take action against customers who were meeting the obligations on their loans?
Clearly, the answer again is: no. We have examined 36 of the submissions provided to the
committee. Of those 36, the customer was in monetary default in 33 cases. Of the remaining
three, in one case there was no monetary default at all and, therefore, no enforcement action was
taken. In the second case, the customer appointed a voluntary administrator itself, not
Commonwealth Bank or Bankwest. In the third case, the customer invited Bankwest to appoint a
receiver because of its financial difficulties.
Thirdly, excepting that there was no conspiracy and the customers were failing to meet
obligations to Bankwest, did Bankwest act too quickly or did it fail to adequately work with
customers? Again, the answer is: no. We have examined 28 submissions related to Bankwest
where a receiver was appointed. The average number of days between the first default evident
and the appointment of receivers was 539. That is 539 daysnearly 18 months. The median
number of those days was 397.
If I can just summarise it for you, around 40 Bankwest customers have provided submissions out
of around 26,000 commercial customers. Around 12 CBA customers out of 126,000 commercial
customers have provided submissions. Some individuals continue to claim Bankwest appointed
receivers to more than 1,000 cases and constructively impaired $8 billion of loans. These claims
are simply fictitious.
There is no doubt that a business in financial hardship is stressful for a customer. If the inquiry
produces evidence of any customer being mistreated or any new information about their cases,
we are always willing to review our actions, as we have previously made clear. However, some
customers who have appeared before the committee have simply not given an accurate picture of
events, and we cannot allow these statements to stand without correction. We have provided
clear, factual evidence to refute these inaccurate claims. Some customers who appeared before
the committee claimed that their loan was put into default despite never missing a repayment.
That is just not true. Of the eight customers the committee identified as being of most interest,
seven ended in receivership. Every one of those seven missed repayments or failed to repay their
loan when it expired.
There has been no evidence produced to explain why Commonwealth Bank or Bankwest would
take action against a customer who we believed had the capacity to repay their loan. The
interests of the bank and our customers are aligned. That is, the best outcome is that their

businesses flourish and they repay their loans. Instead, in these seven cases where a receiver was
appointed, Commonwealth Bank wrote off close to $190 million. While we worked with each of
these customers for a significant period of time in an attempt to improve their circumstances, in
all but one of those cases, unfortunately, this was not possible and the actions taken were an
unfortunate last resort.
Thank you, Chairman, for the opportunity to give the opening statement. We look forward to
answering your questions.
CHAIR: Thank you, Mr Cohen, for your opening statement and for the effort you have gone to
to answer a range of questions on notice. It may not surprise you that, just as you maintain that
some of the facts that have been put forward in the submissions are not accurate, we also hear
extensively from consumers that some of the responses you have provided are not accurate, and
we may well engage with you further in terms of understanding just how transparent you are
happy to be with some of the answers you have provided to us to allow consumers to put forward
any evidence they had to refute some of the positions you have taken.
Mr Cohen : I am very happy to do that.
CHAIR: We thank you for the work you have put in. I take it you are aware of the changes that
are proposed to take effect on 12 November this year in terms of extending unfair contract
provisions to small business?
Mr Cohen : Yes, I am.
CHAIR: You are familiar with ASIC's guidance material?
Mr Cohen : Yes, I am.
CHAIR: Could you talk to the committee about what processes the Commonwealth Bank has in
play at the moment to review your standard contracts to meet the intent of ASIC's worked
examples?
Mr Cohen : Yes.
CHAIR: I think the most pertinent one is probably their third worked example which says that
under the current construct, where the bank essentially has a unilateral right to vary a range of
terms and conditions, to make it a fair contract then a small business would be needed to give an
exit clause to exit without penalty in an appropriate time frame from that loan. Could you just
talk about processes and where you think that will end up in terms of extending that to small
business?
Mr Cohen : Certainly. I think the first point to make is that since the legislation was first mooted
and then passed we have had a project underway across the group to review documentation to
ensure that we do comply with the legislation from 12 November. That process is underway. It
involves a cross-team projectso it involves business people, legal people and risk and
compliance people. We are going through every contract systematically, as we did when the
unfair contracts regime was introduced at a consumer level a couple of years ago. We are
following pretty much the same process as we did then, and that project is well underway.

One point that I would make is, as you would be aware, the new regime, as it applies to small
business contracts, does have a $300,000 or $1 million threshold which, in cases such as the one
that we have been considering with the committee, unfortunately does not necessarily help much
because it does not catch those cases. There is, I suppose, an issue in that those thresholds will
catch certain but not manysorry, not allof the relevant, or business loan, contracts that we
have been talking about.
CHAIR: Would you be supportive of raising that limit?
Mr Cohen : I think our suggestion would be: let us see what this first manifestation is and how it
works, and see what the experience is for a short period before people consider extending it
again. It is a new regime, and I think it is sensible for us to see how that new regime is going to
operate for a period before making judgements as to whether it ought to be extended.
CHAIR: So if it is within the bank's gift to exercise your contractual arrangements with
customers as you determine given that ASIC have basically indicated that they will not seek to
determine what is a fair contract or notthey leave that to the courtsand given what you have
just said about your desire to work with customers, would the Commonwealth Bank look to
unilaterally and voluntarily increase the monetary limit upon which you apply the same process
of providing fair contract terms and provisions to small business?
Mr Cohen : I think our position is as statednamely, we want to work within the regime as it
exists at the moment to actually seed it first to see how it works out from both our point of view
and from a customer's point of view. Then I think we can make more sensible decisions as to
whether it ought to be extended voluntarily or mandatorily.
CHAIR: Can I take you to the issue of responsible lending practice. We have at least one
submission in some detail that talks about a loan the Commonwealth Bank provided to a small
business. There is email traffic to indicate that the bank's assessment of the security held by this
person and their business, including their personal assets, was comfortableI think the wording
was they 'gave a degree of comfort'but recognised that their ability to repay the loan was
questionable. Yet the bank made the loan. Why do you do that?
Mr Cohen : That is not the general practice. We apply loan serviceability tests when assessing an
application for a loan. Our business people and our risk teams who assess applications are trained
in serviceability calculations. It makes no sense from our point of view, nor the customer's point
of view, to enter into a loan where the customer is known not to be able to service a loan. That
makes no commercial sense at all.
CHAIR: Then why would a line manager within your business, and the various people who sign
off on the supervisory levels of approval, have approved that loan?
Mr Cohen : Which loan are you specifically referring to?
CHAIR: It was one in Tasmaniato a small business.
Mr Cohen : If you can give me a customer name I can give you details, potentially.

CHAIR: We can do that, but I am looking here more at a governance-compliance regime within
the Commonwealth. If that is not in the business's interest and it is not in the consumer's interest,
how would that have slipped through your system?
Mr Cohen : It should not have. I cannot give you the specifics because I do not know the
customer name. If you tell me the customer name I might be able to give you the specifics at a
general level, which is where I think you are pitching the question. Our systems and our
processes are designed for that situation not to arise. So if it did arise then we would need to look
into that.
CHAIR: In this case, it was looked into. It was lodged with FOS, and FOS found that there was
maladministration within the bank over that loan. What action was taken against individuals
within the bank who were part of the process?
Mr Cohen : Chairman, I have asked you three times now for the name of the customer and you
will not tell me, so it is very hard for me to answer the specifics.
CHAIR: I am happy to tell you but not in public session.
Mr Cohen : Okay. I am happy to answer you but not in public session as well, once I know the
name.
CHAIR: Let's take it back to a general level then. In a situation where FOS found that there had
been maladministration, regardless of who the consumer was, what would your expectation be
about action the bank would take?
Mr Cohen : If there was maladministrationand it sounds like it was proven in this case, at least
as found by FOSnormally in those circumstances we would look at the individual concerned
and their conduct and look at their performance on the individual loan. If we found that they had
failed to meet their obligations both in terms of their key performance indicators and their risk
requirements then a range of sanctions could be applied. It would depend on the individual case.
The range of sanctions could be, for example, a training counsellingin other words, go and do
more training; it could go to something more significant such as a reduction of pay or of a bonus;
or, if it were a very serious case, it could go to termination of employment.
CHAIR: That would be a breach which would be reported to ASIC?
Mr Cohen : Not necessarily, because the breach reportingagain, depending on which area we
are talking aboutis often done on the basis of significant breaches. So, an individual case
might not amount to a significant breach. As you are probably aware, in the Corporations Act
there are various tests for determining when a breach is 'significant'. It is unlikely that a single
individual case, unless it was something that was systemic or there was evidence of a systemic
issue, would amount to a reportable breach.
CHAIR: In the correspondence that FOS sends out to people who make a complaint through that
system there is an indication that, if the bank or lending institution is found to be at fault, FOS
will seek to restore the consumer to the position they would have been at prior to that loan or if
that loan had not been made. Do you support that as a general principle?

Mr Cohen : Yes, generally, we do. That is the situation which we find ourselves in those cases
where FOS does make a determination in favour of the customer. For example, if it were
maladministration or 'mislending', the intention would be to reduce the loan amount by the
amount of excessive lending, if I can call it that, and then repay interest that was paid on that
excessive amount and the fees that there were paid on that excessive amount so that the customer
is in a position whereby they were effectively lent what they should have been lent.
CHAIR: If following the process with FOSand, again, a generic questionFOS realised that,
because of new evidence that was presented, their determination about the size of that excessive
lending had been inappropriate, despite the fact that it made a determination would the bank seek
to actively work with the consumer to redress that situation, or would you rest on the finding of
FOS and allow it to sit at that point?
Mr Cohen : From our point of view, it would be unusual for us to simply rely on the strict
finding of FOS one step before FOS received updated information. From our perspective, we try
to ensure that we give excellent service to customers, and that does not just mean in the lead-up
to entering into a transaction; it also means afterwards. So, at a general level, on its merit, if there
were subsequent indications that lending had been excessive, over and above the extent
previously determined by FOS, that is something we would look at seriously.
CHAIR: Would you require FOS to make a new determination, or would you be happy to engage
with clients?
Mr Cohen : Generally speaking, no, we would not insist on going through another FOS process.
In those circumstances, one has to be both practical and understanding of the customer's
situation. If we have had information brought to us that suggests that the lending was more than
or more excessive than the FOS determination, and that is not a fanciful or lightly made
allegation but is backed up with some evidence, then that is something that we would take
seriously and we would not require that it go back to FOS for yet another round.
CHAIR: It has been put to the committee that we should consider a commercial arbitration
option to be built into contracts. What would the bank's view be if that became a standard part of
contracts, for lending above a certain threshold? We are generally talking here about a larger
companynot a corporation but an SME. Should commercial arbitration be something that is a
standard way of resolving these issues? So, essentially, a FOS but built into the contract.
Mr Cohen : But built into the contract rather than being through a body or an agency as such?
CHAIR: Yes.
Mr Cohen : Well, it is interesting; over the years, commercial arbitration has evolved from being
quite an expedient alternative dispute resolution mechanism, and it has developed to the point
where actually it is not much more expedient these days than court proceedings, unfortunately. It
is still more expedient. It does not suffer from quite the same resource constraints that the court
system often suffers under. However, it has evolved somewhatand I think somewhat
disadvantageously for the sorts of purposes that you are talking aboutfrom being quite an
expedient alternative way of resolving disputes into quite a technical and, in some respects,
legalistic way of resolving disputes. So my only caution would be to say that, whilst in the past it
had quite an attractive element to it, these days commercial arbitration itself is quite a lengthy,

time consuming and legalistic process. Perhaps to just take your question away from commercial
arbitration per se and to look at some alternative dispute mechanisms, my response to that would
be: in the case of small business, that might be an appropriate position to take. However, I
imagine that, in the case of medium to large businesses, we tend to operate on the basis that those
businesses are able to pursue their legal rights if the parties are unable to come to an agreement.
Mr RUDDOCK: As long as they are not wound up or bankrupted.
Mr Cohen : Correct. Yes.
CHAIR: Which appears to be the case for many of the people who have been affected by the sort
of thing that we are looking into. Can I take you to the issue of remuneration. The new CEO of
one of your competitors has recently made some comments about reviewing the remuneration
structures of staff because of the potential for it to adversely impact on culture and practice. We
have seen the head of ASIC make comment on this and a range of people identifying that the
culture within a bank or within any institution is as important as the conduct of any individual
person who may be labelled a bad apple. When it comes to lending practice, we have had
concerns raised with the committee about remuneration structuresand I notice in your answers
to questions on notice that you gave quite a detailed breakdown about, essentially, the gate that
people have to pass in terms of their ethical conduct before they are even eligible for bonuses.
Can you describe to us what your compliance-checking process is to evaluate their conduct so
that there is some level of assurance that it is not just a box-ticking exercise but that their conduct
is indeed being scrutinised to stop the kind of behaviour that would ultimately disadvantage a
customer who was given a loan, as we saw in this case in Tasmania, that they could not service,
or was on the basis of a valuation that was very optimistic.
Mr Cohen : Yes.
Mr De Luca : I am happy to respond to that question. Just to give you a little on how it works on
a day-to-day basis: from the point of origination when the commercial lenders put through a
submission to provide financing to a business, depending on delegations and authoritieswho
can actually sign off on and approve thatthat has gone through its process. Typically they are
risk officers. Once the loan has been approved, then there is ongoing monitoring of the
performance of the loan. Typically, there are things like arrears management; so if the loan goes
in excess of its limitsgoes overdrawnthat appears on a report.
On a monthly basis the business bankers have a scorecard assessed against their performance. It
looks at a number of typical metrics. That is reviewed by line 2 in our case, which we call risk
management and which is independent from the commercial lenders. When it comes to the
performance remuneration process at 30 June, when we assess the individual commercial
lenders, there is input from detailed reviews from risk officers on the performance, the loans and
the portfolio to give managers and senior management comfort that they have operated within
the terms and conditions from a compliance perspective.
CHAIR: I am not filled with comfort as I read The Weekend Australian, where I see that your
compliance checks within the organisation around things like acquisition of IT involve lines of
management who disregarded concerns that were raised because of, in this case, the potential for
them to seek illegal benefit. The systems of compliance and checks obviously broke down, and

those bribes occurred, but we have also heard that remuneration packages relate not just to
individuals but also to groups that they work within, so clearly there is an incentive at those
levels of sign-off within the group for the group as a whole to do well. Pressure can be applied as
it was in the case of the IT acquisition.
My question then extends to whether in the area of financial advice we are seeking to raise the
ethical, educational and professional standards of advisers and in things like FOFA make them
individually accountable for statements of advice. How would the bank respond to a requirement
to lift the individual accountability of the people who sign off on a small business loan where it
is potentially going to impact on not only the livelihood but the families and the family home
equally as significantly as the financial advice somebody might give around retirement savings?
If the requirement were to come in so individual accountability became a feature of the lending
system of Australia, what would be the unintended consequences? What would be the benefits of
moving down that path?
Mr Cohen : It is difficult to say what all those unintended consequences would be. I think one
issue that the industry, not just us as an institution, would have to consider is whether that makes
the industry sufficiently unattractive for people to join. Does that mean that you do not get the
best quality people? Does that mean that you end up with second-level quality people?
Personally, I think there are ways around that, but that would be one issue that would be
considered.
I think the overall notion of having individuals accountable, whilst it has some attraction, does
not necessarily deal with what some of the regulators and others in the industry have been talking
about, and that is the absolute importance of having the right culture in an organisation as a
whole. It needs to be a culture that is organic. I think having that culture imposed purely by
regulation only works to a degree. That is not a reason to say it should not be coming at all, but it
should only be one of a number of initiatives.
CHAIR: Have you organically reached out to make some remedy to, for example, the gentleman
who was the whistleblower who objected to things like this IT contract? That speaks to the
consumer, the broader public and all the employees in the Commonwealth that the culture in the
bank still does not support individuals who wish to do the right thing even if it is seen to go
against the interests or the wishes of somebody in the line of management.
Mr Cohen : I have actually met with that individual. I met with him in June and August of last
year when it became apparent to us that he had raised issues with his direct manager in
December 2013, just before the IT contract in question was signed. It became known to me in
June last year that he had raised issues. The reason it became known to me is that, once the
police laid charges against the two former executives and the issue was out in the public domain,
that former employee came forward to say, 'I raised issues back in December 2013 with my
direct manager and, by the way, I was then made redundant several months later.' I was
sufficiently concerned by that when I received that notice that I met with him on 30 June to hear
from him, firstly, exactly the circumstances of him raising the issues and, secondly, his concerns
about being made redundant. He was concerned that he had been made redundant because he had
raised issues.

I then investigated with a couple members of my legal team. I personally went into quite a lot of
detail around the restructure of his team. What happened in January 2014, about a month after he
raised issues, was that his entire team in his division was restructured and seven executive
manager positions were reduced to, I think, five. Everyone had to apply for their position again.
Everyone was scored on an individual basis. I went into that in a lot of detail to look at his
individual scoring on all of the criteria for the role against the criteria scores for every other
candidate. I then met with him in August of last year to take him through that and to explain to
him my view, which was that I had looked at it as impartially as I could together with one of my
legal team members, who is an expert in employment law. We had gone through the selection
criteria in detail, we had gone through the scoring in detail and in fact he had not measured up as
well as some of the other candidates against the criteria.
CHAIR: You have used the word 'impartial' there. It is my understanding that the person who
perhaps did that scoring was in fact one of the managers to whom this person had objected to the
IT deal going through and who was subsequently jailed. Is that correct?
Mr Cohen : No, that is not right at all.
CHAIR: It was reported in the paper this weekend. That is incorrect, is it?
Mr Cohen : You should not believe everything you read in the papers. I will tell you the facts. He
raised his issues in late Decembermid-December, actually2013 with his direct manager. His
direct manager reported to one of the executives who we subsequently terminated in December
2014. The assessment of criteria and skills used to determine who would take roles was carried
out by the person to whom he reported his concerns, so his direct manager carried out that
assessment. The ex-employee did have an interview with one of the executives who was
terminated and who has been charged, but it was not that executive who made the choice. It was
his direct manager who made the choice.
CHAIR: Okay. The reason I am labouring this point a little is that I am concerned about
understanding what has changed within the bank and its culture in that, if those kinds of concerns
could be raised and dismissed by management over something as transparent as poor acquisition
practice that puts the bank's money, let alone the consumers', at risk, then somebody who is
concerned about pressures within a business unit of the bank in terms of remuneration structures
and lending practice who wishes to raise a concernwhat confidence can the committee or the
public have that concerns they would raise would be dealt with in any more of a transparent or
effective manner given that, because of the group remuneration incentives, the people in the
management stream may see that such a complaint could impact their personal remuneration
bottom line? What has changed in the last two years after that experience to make sure that
people who wish to raise a concern are able to do that? I have met with people who have left the
banking system because their concerns over the corrupting influences of remuneration structures
were not listened to.
Mr Cohen : I understand. I will deal with that on two levels. Firstly, at the specific level, the
issues raised by the former employee did not give any indication of the sort of criminality that
has been alleged to exist. He raised issues specifically on two fronts. One was that normal
procedures around contracting had not been followed. At the point he raised issues with the

executive who was dismissed, he was concerned about a lack of legal review and a lack of due
diligence review.
CHAIR: Excuse my interrupting. The very concern we are raising around things like responsible
lending and the corrupting influence of remuneration structures is that you have said they rely on
adherence to and compliance with a process, and that is exactly what this person reported and
was ignored for.
Mr Cohen : Yes. He raised a number of process issues that concerned him. What has not been
reported subsequently is that, having raised the issueshe raised the issues around no legal
review and due diligence quite early in the contracting processwhat he did not know and what
he has not subsequently revealed publicly is that there were lawyers working on that transaction.
In fact, there were external lawyers working on that transaction. He has never mentioned that,
but that is a fact. There were actual processes going on around due diligence bearing in mind that
this was a relationship that we held with the IT providers since 2012. This was not a new
relationship; it was a relationship under which a contract existed for some time. He was not
particularly close to that previous contract, so, whilst there were processes in place, he was not
necessarily aware of them.
CHAIR: And they were not necessarily particularly effective from a due diligence perspective
either, I might suggest.
Mr Cohen : The service provider had been doing so since 2012 quite successfully.
CHAIR: Do you frequently have $2.9 million worth of bribes paid as part of your normal
process?
Mr Cohen : No, we do not. In fact, because it was criminal as alleged and because it was not
happening above board, the due diligence around it would never have picked it up. The due
diligence goes into the nature of the company we are contracting with. The bribes were not paid
by the company we were contracting with.
CHAIR: I do not particularly wish to go down the rabbit hole of that contract. My point which I
think I have made is that I have concerns about the ability of people within your system to report
concerns and be listened to. I would be happy to take an answer on notice about what specifically
has changed in terms of the reporting and ability of somebody essentially to whistleblow around
concerns in that structure.
Mr Cohen : To say one thing in closing on that point: we have considerably revamped our
whistleblowing system over the last couple of years and particularly in the last 12 months. We
have a hotline or reporting line called Speak Up. It is staffed by an external contractor, not our
internal people. It receives information either confidentially or with name attached as the staff
member wishes. That external consultant then makes a determination as to what type of issue it
is and therefore what sort of resource should be applied to investigate itwhether it is a legal
issue, an HR issue, a commercial issue or a fraud issue, for exampleand then investigations are
carried out. The enhanced system involves keeping the whistleblower informedobviously only
if they are not an anonymous whistlebloweralong the way. I think that in the past a weakness
of the process has been knowing how to deal with the whistleblower, so that has been enhanced
considerably. There is now also an oversight committee comprised of four group executives of

the bankI am one of themthat oversees the complaints every quarter and looks at the
progress of each complaint to make sure none are just left wallowing or stuck but are actions. It
also looks at the treatment of the whistleblower to make sure they get the protections they
deserve. It also looks at the consequences and how the consequences have been dealt with.
CHAIR: Thank you.
Senator O'NEILL: Have you appointed that gentleman who was the identifier of these practices
quite early on to one of those probity boards that you were just talking about then? Is he still
looking for a job? He might be your man.
Mr Cohen : No, he is not any longer looking for a job. When I met him in June and August of
last year, he was working, from memory, for another financial institution. He actually expressed
that he liked Commonwealth Bank and would still like to work for Commonwealth Bank if there
were an opportunity for him to do so. Whilst he was happy with his job at that stage, he would
come and join us if there were an opportunity to do so. We have not made an offer to him. The
probity that I have just described to you is an internal committee of group executives, so senior
executives.
Senator O'NEILL: There are many more questions that I would like to go to on culture before I
go to my questions around value of investigative accountants and receivers. I also want to talk to
you a little bit about Basel I and II. My questions this morning to the ANZ bank were really
about cultural dimensions of behaviour that cannot actually be measured with the sorts of
processes we have just been hearing about from you. Leadership is required to deal with that
behaviour that goes beyond the pale and will not be accepted. I have to say that I appreciate how
well prepared you are, Mr Cohen, but that the tone of the conversation that we consistently hear
is, not unsurprisingly, defensiveit is your role to be here and defend the bank. I do not sense a
shift in language use about conciliatory behaviour and more of an ethical discourse around
customer relations. I do not quite hear that we are there yet, if I can make that observation.
I will go to the valuers investigating accountants and receivers. Where a bank does not appoint a
receiver but proceeds to possess and sell off a property, what governs the Commonwealth Bank's
conduct in terms of using proper processes, ensuring that that property is sold at market value in
a manner that is agreed to and understood by the commercial loan holder as well as the bank
officer?
Mr Cohen : This is in circumstances where a receiver has not been appointed but where the bank
itself sells a property?
Senator O'NEILL: Yes.
Mr Cohen : That is known as mortgagee in possession, as you would probably know. There is a
whole body of case law over several hundred years dealing with the obligations of a mortgagee
in possession. There are also obligations under our conveyancing legislation dealing with that.
The legal obligations are very well known. I should say that it is probably in the vast minority of
cases where the bank acts as mortgagee in possession. It is definitely more common for a
receiver or other controller to exercise a power of sale and sell property. However, where a
financial institution generally acts as a mortgagee in possession and actually sells the property
then it is subject to the common law and the statutory law duties around doing that.

Senator O'NEILL: We have heard a range of evidence this morning from different organisations
that are responsible for the management of valuers in the country. What are the processes that the
bank engages with in terms of getting a valuation that allow the loan holder to be part of the
process of determining the terms on which that valuation is undertaken and receiving the
valuation? What is the relationship in terms of who pays for this?
Mr Cohen : You may recall, Senator, when we appeared before the committee in early
December, as part of our opening statement we made a suggestion around valuations because
Senator O'NEILL: You did.
Mr Cohen : I think as we discussed then, the practice to date has not been to necessarily provide
the customer with a copy of the valuation that the bank requires to be obtained.
Senator O'NEILL: Which is very different from what we heard from the ANZ. They were at
quite a degree of pain today to make sure we understood this was a longstanding process, for
their part.
Mr Cohen : I am just talking at a general level here, not individual cases. I did not hear ANZ this
morning. That is why we made the suggestion in December that, across the industry, the practice
could change to one whereby, if a valuation is obtained by a financial institution, then a copy of
the valuation is provided to the customerall the more so, as we discussed then, because the
customer is paying for that valuation.
Mr RUDDOCK: Has your practice changed?
Mr Cohen : Has our practice changed to date? No, not yet.
Mr RUDDOCK: You have not implemented it voluntarily?
Mr Cohen : No, not yet.
Senator O'NEILL: We find ourselves at a point where the customer is still paying for the
valuation. They do not get to see it. I would assume then that they are not a part of the decision
making around the terms that are given, or the directions that are given, to the valuer?
Mr Cohen : You mean the instructions to the valuer, for example?
Senator O'NEILL: Yes.
Mr Cohen : Generally speaking, if it is a valuation that is obtained at the commencement of a
loan relationship, the bank will instruct the valuer. Likewise, at the enforcement stage, if there
is
Senator O'NEILL: Is there a standard form that you use for that?
Mr Cohen : Of the instructions?
Senator O'NEILL: Yes, at the beginning.

Mr Cohen : I do not know the answer to that. I do not know whether it is a standard form. We
can find out for you and take it on notice.
Senator O'NEILL: That would be good, if you can provide us with a copy. One of the interesting
things that seem to be emerging is the difference in the type of valuation that is acquired as the
business is constructed and then there is a significant change at a point further down the line
when the business looks like it might be in distress. There is a different set of instructions issued,
which are extremely opaque to us at this point in time. Who makes the decisions around that?
From what you have said, certainly there is no consultation with the loan holder about those
directions and change in directions to the valuer.
Mr Cohen : No, that is generally the case. The only other thing I would add is that, in December,
we suggested therefore that where appropriateand we acknowledged that not all circumstances
were appropriatethe basis of valuation going in should be the same as the basis of valuation
going out, where that can be done, which I think gets to your point around standardisation of
instructions.
Senator O'NEILL: And also a degree of transparency and understanding. One of the things that
strikes me is how we have had to go through so many inquiries to get to the point where we now
know, as of today, that there are different types of valuations. There is a market valuation and
there is an asset valuation. Could you give me a little bit more information around whether or not
it is an asset valuation that you are actually getting when you seek to sell off a distressed
property? Is that what you are asking for?
Mr Cohen : It depends on the circumstances. It depends very much on the condition of the asset,
the condition of the industry and the condition of the market. Generally speakingand this is
again at the generic levela valuation will be sought which seeks to value the asset as it stands
on that day.
Senator O'NEILL: So its worthits investment value rather than its market value. Is that
correct?
Mr Cohen : The valuers apply their professional expertise and their professional standards in
coming up with the value, but what we generally ask is for a valuer to tell us what the value of
the asset is in the market. In order to determine that, amongst other things, the valuers will look
at comparable sales of similar properties in similar locations.
Senator KETTER: The RICS organisation indicated that the standard assumption as part of those
instructions is that there would be reasonable time given for marketing of the property, so that
has to be one of the presumptions. Are you aware that there may be some situationssay, a
mortgagee in possessionwhere there is a truncated marketing period as part of your
instructions?
Mr Cohen : Generally, truncated marketing periods are rare, and they usually arise only in fairly
unique circumstances. For example, the only unique circumstance that I can give you straight
off, and Rob might be able to give you more, is where there is clear evidence that a market is
rapidly declining for that type of asset in that location. In those circumstances, it is not to the
borrower's or the bank's advantage to delay, if it is felt that that market is going to continue
falling rapidly.

Senator KETTER: But in that case, and in many of the situations we have heardyou might
disagree with thisthe borrower feels that it is not to their advantage to have a 'forced sale', to
use that term.
Mr Cohen : Yes, and we completely understand that. Actually, it is not to the bank's advantage
either for a property to be known to be sold as a forced sale or a fire sale by any stretch because
it tends to scare off bidders and it tends to produce a lower price, which is not to anyone's
advantage.
Senator O'NEILL: We cannot seem to get any clear line of sight over the valuers. You have a
pretty big institution that uses valuers fairly frequently. Could you give us an indication of how
many valuers you believe are out there?
Mr Cohen : I could not tell you how many valuers are out there.
Senator O'NEILL: You have no idea?
Mr Cohen : We have a panel, as I think we have explained to you previously, but, as to how
many valuers there are in total, I do not know. We do know that some valuers are members of
the Royal Institution of Chartered Surveyorsthe organisation you heard from todayand some
valuers are not.
Senator O'NEILL: How much does their membership of a particular organisation influence your
determination of whether they should be on your panel or not?
Mr Cohen : We select our valuers based on a range of factors: expertise, experience, knowledge
of the particular asset classwhether it is a shopping centre, a commercial property or a hotel,
for exampleas well as the size of the organisation and the extent of resources.
Senator O'NEILL: How do you know the size of organisations? We cannot find that out.
Mr Cohen : We know very well the size of the organisations that we deal with regularly. It is
like, for example, dealing with a large law firm or an accounting firm. You know the firm and
you know their capabilities.
Senator O'NEILL: Mr De Luca, do you want to answer that?
Mr De Luca : I would also say location as well. We want diversification across the country
because, obviously, we have a spread of customers all across the country.
Senator O'NEILL: It would be helpful for the committee if you could give us a bit of a mud map
of the lie of the land as you see it and any understanding you have of the different levels of
probity and oversight that are embedded in the different organisations that give the valuation
certification. There seems to be quite a bit of variation within different organisations, and
certainly the quality of the evidence we have received has been very variable.
Mr RUDDOCK: How many are on the panel?

Mr Cohen : How many valuers are on our panel? I do not know off the top of my head how
many individual firms, but we would have at least a dozen valuers. In fact, when you take into
account all the geography there would be many more than that.
Mr RUDDOCK: So not hundreds.
Senator O'NEILL: Not hundreds, no, which is interesting. If a valuation is in dispute between the
bank and the client, what processes do you have in place currently to deal with that? And what
processes do you propose going forward, given the fact that generally you are not yet sharing
these with people?
Mr Cohen : At the moment there is no formal process in place. If we obtain a valuation and the
customer believes that valuation is flawed for some reason, there is no formal process in place.
Having said that, if the case or the client account is being handled by our area that deals with
distressed or impaired loans, there is regular communication between the two. So there would at
least be an opportunity for a discussion.
But, firstly, on the point that we made earlier, because the client does not automatically receive
the valuation, there is no automatic way for the client to say, 'I object to that valuation.'
Secondly, going forward, in line with the comments we made in December about the
appropriateness of providing valuations, that would at least bring the issue out into the open
fully. I suppose that could lead to an opportunity for discussion. I have not given any thought to
whether there ought to be a formal mechanism allowing the client to dispute the valuation, but
clearly if the customer is given a copy of the valuation then there would be a much more open
and knowledgeable discussion on both sides around that valuation.
Senator O'NEILL: How would it impact on the efficiency and business of the bank if at the
commencement of business the terms and conditions that were set out for the valuation and the
valuation itself were provided to the client? At a later point, then, they would have that to refer
to. Would it be a major imposition on the bank to provide that at the commencement of the
banking relationship?
Mr Cohen : No, I do not believe so. Rob can comment on this in a bit more detail in a second,
but generally the practice is that when a valuation is obtained up-front, at the time the loan is
applied for, there is a discussion with the customer about the valuation, because that valuation
sets the security level, if you likein other words, to what extent the bank is secured by that
particular property.
Senator O'NEILL: So, seeing as it is already undertaken, it would not be a major problem for you
to hand that information on to the person to hold?
Mr Cohen : No, I do not believe it would.
Mr De Luca : At the point of the origination the client would have input into the instructions. To
answer your earlier question, there are times at the point of origination that the customer may
disagree with the valuation. If there is another valuer on the panel that they are happy to pay for,
we give them the option to get another valuation.
Senator O'NEILL: So they have to pay twice to be unhappy?

Mr De Luca : Yes.
Senator O'NEILL: Moving further down the line, you have indicated a willingness to consider
sharing these valuations, I am assuming at each of the points that we are discussing, whether it is
at the happy beginning or the distressing close. You are proposing to share that. When do you
think that that will be the case?
Mr Cohen : That is a good question. I have not actually raised it within the business as something
we are doing yet. It is something that we are comfortable withwe would not have suggested it
in December otherwise. One of the issues that has been on our mind is what recommendations
might come out of this inquiry, so we will be very interested to see what they are. But, as I have
said, we think it is a good idea. We would be happy to do it.
Senator O'NEILL: I have to say, given the public relations drama that surrounds banking at the
moment, and your bank, I am surprised that you have not taken the opportunity to do something
of that kind already. Maybe we can wait for it next week or the week afterwe will see.
Could I go to Basel I and II. In today's Sydney Morning Herald there is an article by Ms Rose
and Mr Eyers, I think it was, about concern about the 'brittle' nature of the economy, with APRA
suggesting there is 'still work to do to reduce reliance on short-term funding' and that there will
be a 'higher capital requirement', which I think was characterised by ANZ as 'Basel IV'. One of
the concerns that has been raised with this committee was that the Basel I and Basel II change
meant that there was a different requirement on the bank and that there was some incentive there
to change your loans structure to comply with Basel. It has been put to the committee that under
the Basel II rules APRA required Bankwest to significantly increase regulatory capital held for
non-investment-grade corporate loans on the Bankwest book. Do you have a view to put on that,
Mr Cohen?
Mr Cohen : Yes, I can find the particular letter that we have sent you. We have already
commented on that, and we have said actually there was no incentive through the Basel capital
impositions to change the treatment of loans.
Senator O'NEILL: I keep hearing 'bahl' and 'Basel', but I know that both of them are in active
use. In terms of the capital that is required to be held and increasing capital demands on the bank
going forward, should people with commercial loans be concerned that the bank might be
beginning to reassess them if the capital requirements demand that the bank changes the capital
that it holds and reassesses its risk with regard to commercial loans and lending?
Mr Cohen : What I will say is that probably the group of stakeholders who are most concerned at
the moment about increased capital holdings are investors, because the more capital that is held
and that cannot be utilised in the business the lower the return on equity for the institution as a
whole and, therefore, the lower the return that a shareholder receives. It is a fact that all of the
Australian major banks have significant foreign investors, and those foreign investors make their
decisions on where to invest based on the return that they can get in the various investments they
make. So we do hear that there is a degree of interest, perhaps even heightened interest, amongst
foreign investors around how the capital implications for Australian banks will pan out in terms
of the return that they receive on their investment in the bank. In terms of customers, which I
think is specifically what you are asking about, we do not anticipate that holding more capital,

whether it be for prudence or whether it be for operational risk reasons, is going to impact
adversely on the organisation's willingness to make commercial loans.
Senator O'NEILL: One of the arguments was that around 1 January 2009 there was a critical
period of transition from Basel I to Basel II that impacted at the same time, because of the
purchase of Bankwest, on the capital holding of the Commonwealth Bank. Those two things are
not connected in any way, in your view?
Mr Cohen : No, senator.
Mr RUDDOCK: I noticed on 15 February a Mr Narevyou may know himwas interviewed
by Ticky Fullerton. They were speaking about a project Magellan, which was revaluing the loans
of thousands of commercial clients by some 75 per cent. Mr Narev went on to say that it was
important to understand the history of the purchase of the bank: it was really struggling for a
number of reasons, it did not have a strong funding base, and it had done a lot of lending which
was not prudent and lending that the Commonwealth Bank certainly would not have done and
did not do in those circumstances. He went on to say:
I wouldn't characterise it as aggressive lending. I mean, most of the difficulties we'd been
working through over a period of time have been as a result of loans that were on the book when
we bought the bank. We have, over time, made sure that the lending standards and pricing
become prudent, and as a result of that we've had to work through some difficult situations with
some customers.
Perhaps it is not surprising that people may be looking for motivation when, as he did not rebut,
it was suggested that there were thousands of impaired loans. As you said there were no
inappropriate motives, I was interested today that you characterised it as being less
significantperhaps only 46 contested loans. If it is such a small problem, I wonder why you are
not in the same club as the ANZ: endeavouring to work these issues through in a way which may
resolve some of the contested questions. Let me just say that I would love to be able to
forensically go through each of the letters that you have adduced for us, and for which I thank
you, but the parties have not seen them. I do not know whether or not they agree with the
assertions you have made, or contest them. I suspect that numbers of them do contest what you
have put. So I ask myself, and I put this question again to you, because I have done it before:
whether the bank, rather than waiting for some recommendations from us, is prepared to be
proactive in putting in place a genuinely independent commercial arbitration or mediation where
people are properly resourced, particularly those that have been wound up or bankrupted, to be
able to test these issues and to have them resolved in a way that brings this matter to an end.
Members of the audience interjecting
CHAIR: Order! Could I have silence, please, in the public gallery.
Mr RUDDOCK: The opportunity is there if the bank is minded to take it up.
Mr Cohen : Thank you, Mr Ruddock, for the question. Firstly, all the responses that we have
given to the committee are available on the website, so all customers have access to them. I am
not too sure if all customers have read them, but all those facts are there. We have been very
deliberate in being as open as possible and in being as fulsome as possible as well, for that very

reasonthat we expected these responses to be publicly availableso that not only committee
members but also customers and the public can form a view. That is No. 1.
Secondly, we have provided to the inquiry very detailed responses to the allegations made, and
the committee asked us to look into eight cases in particular, which we have done. We were very
happy to do so, and very happy to provide the fulsome answers that we have. In each of those
eight cases we have answered the various allegations that have been made by customers when
giving testimony to this committee, and we have sought to show exactly where those allegations
are not correct.
I do genuinely understand the emotional distress and the financial distress that occurs when a
business does not succeed as hoped, and I do recognise that there is significant emotion involved.
However, what I will say is that we have sought to deal with allegations that quite often are
general, and quite often are not specific. In some cases they are specific, but in each case we
have sought to deliver a very specific, fact-based answer so that at least everybody can be as
fully aware as possible of the actual facts. And I would say that, so far, on all of the facts and the
information that we have given the committeenotwithstanding the fact that the wind-up of a
business or the sale of an asset or a business not succeeding as hoped is emotionally distressing
and financially distressingthe fact of the matter is that that does not per se make the actions of
Bankwest or Commonwealth Bank wrongful. We have sought to show you, through the
information that we have provided, that there has been no wrongdoing on the part of
Commonwealth Bank or Bankwest.
Mr RUDDOCK: I take it the answer is no, but let me just say that our terms of reference do not
permit us to bring counsel in. The chairman will bring me into order fairly soon when my
questioning gets going, and will say: 'There is no more time for you. We have to share it with
some of your colleagues.' This is not the forum in which that can be done, but I do have on my
email system today two people who must have known you were putting this information on the
website and who have sought to rebut comprehensively many of the points you have made.
I do not know how I am going to be able to resolve those issues. I put it again: rather than us
having to recommend that there be a royal commission to deal with these issues
comprehensivelybecause there are matters unresolvedare you prepared to look at some form
of independent, and genuinely independent, mediation?
Mr Cohen : I do not believe there is a single thing that a committee member would want to know
that you cannot obtain from us simply by asking the question. And you have asked many
questions.
Members of the audience interjecting
CHAIR: Order! Ladies and gentlemen, this is a public hearing. I would ask you to listen in
silence. If you cannot show the witnesses that respect, I will ask you to leave.
Mr Cohen : This committee has asked us over 50 questions on notice. We have provided factual
answers, we have provided information, we have been completely open and have shown a
complete willingness to answer every single question that the committee has asked and to
provide everything that the committee has sought. There is not one thing, I think, that a
committee member could want from us that you could not obtain simply by asking. It is going to

be up to the government to decide whether a royal commission is necessary but, based on what
we have provided to you and our willingness to answer every single question you have asked, the
royal commission does not seem warranted.
Mr RUDDOCK: Well, I just make the point. I know how you would do it in a proper tribunal,
where you have got unlimited time to forensically test evidence before you, and these committee
processes do not lend themselves to that modus operandi. It is just very clearyou are here for
two hours; the chair will share the time around amongst the membersthere is not an
opportunity for that sort of forensic analysis. Our terms of reference do not permit us to examine
individual cases on that basis. We have to find a way forward to deal with the matters that I
believeon the evidence that has been put to us by you and those who have responded to the
evidence that you have put to usneed to be resolved.
Senator KETTER: I would like to return to the issue of the scale of the problem and the quantum
of loans that have been defaulted on here in comparison to the population size that we are
dealing with. I would like to try to come to grips with the population size. You indicated in your
opening comments that there were 26,000 customers of Bankwest. I am interested in digging into
that number, 26,000. It is possible that that number is your broader commercial customer base,
which includes business deposit accounts, business cheque accounts and business credit cards,
and therefore we might be comparing apples with oranges to some extent. Is there a distinction
between commercial customers and SME commercial loan customers?
Mr De Luca : The numbers that we have provided there are commercial lending customers. We
have about 87,000 commercial and business customers overall at the moment. These relate to
customers who have actually had borrowings at the timeeither at the acquisition or today.
Senator KETTER: So 87,000
Mr De Luca : Small and medium-sized commercial businesses. The remaining customers would
be a number of customers who may have just a business credit card, a deposit with us or just a
merchant facility.
Senator KETTER: So they were Bankwest SME
Mr De Luca : 87,000 total customers today.
Senator KETTER: Sorry; I want to go back to 19 December 2008.
Mr De Luca : I do not have the number at hand, but it would be more than the 26,000 that you
have got in front of you, who were customers who did not have borrowings but would be SME
customers.
Senator KETTER: Okay. In terms of the value of the loan book, I think Mr Cohen has given
evidence that it was $23 billion as at the date of acquisition19 December 2008. Is that your
evidence?
Mr Cohen : Yes. Broadly speaking, the commercial loan book was $22.8 billion.

Senator KETTER: I noted that Bankwest reported in their capital adequacy and risk disclosures
quarterly update on 31 March 2009 that commercial loans were to the value of $14 billion, which
is a significantly lower amount. Would that figure be correct?
Mr Cohen : Did you say that was at 30 June 2009?
Senator KETTER: It was at 31 March 2009.
Mr De Luca : Do you know whether that is an exposure number or a facilities number?
Senator KETTER: I note that it is in this 'Capital adequacy and risk disclosures' quarterly update.
I am not sure what the actual
Mr Cohen : Those are not necessarily the full exposures that we faced to customers as a result of
loans. That could be the exposures at a capital level that we were holding.
Senator KETTER: So it is not comparing apples with apples?
Mr Cohen : No, I do not think it is. I would have to look at it in detail for you, and I am happy to.
But, off the top of my head, it does not sound like it is a direct comparison.
Senator KETTER: What is the explanation for the disparity between the $23 billion and the $14
billion?
Mr Cohen : It sounds to me as if that number that you are referring to, the $14 billion, is more
likely a number based on the capital that we hold against the loansI suspect it iswhich is not
necessarily the same amount as the full exposure under the loans.
Senator KETTER: I go to the commercial loan warranties. I note that Freehills, on behalf of
CBA, sent a letter to HBOS reserving CBA's rights in relation to a number of warranties. That is
correct, is it not?
Mr Cohen : Yes, three warranties in particular.
Senator KETTER: These were separate to the 67 commercial loans that were subject to the draft
completion balance sheet dispute notice?
Mr Cohen : That is correct.
Senator KETTER: You have given evidence that CBA has made no formal warranty claims in
respect of customer loans.
Mr Cohen : Yes.
Senator KETTER: Did you ever proceed with the warranty claims that were flagged in that
Freehills letter?
Mr Cohen : Yes. We wrote to HBOS and said we believed that HBOS was in breach of three
warranties. One warranty was in relation to basis swaps, the other was in relation to invoices paid
by Bankwest for IT platforms and the third was a claim relating to the discovery that certain
letters of credit and bank guarantees provided by Bankwesttwo were on behalf of HBOS

Groupwere off balance sheet. Those were the three issues that we raised with HBOS. We
claimed that those were breaches of warranty. In the end, rather than proceeding all the way
through with a dispute with HBOS, we agreed to settle the claims for $5.3 million.
Senator KETTER: So they were formal warranty claims but were settled?
Mr Cohen : No, they were not formal warranty claims, because we did not go through the
warranty process set out in the sale agreement. Instead we wrote to them saying, 'We think you
are likely to be in breach of these warranties,' and we in fact commenced some legal proceedings
at a very early stage around those, because they said, 'No, we don't think we are.' We settled
those legal proceeding on the basis of a payment of $5.3 million to CBA.
Senator KETTER: So there were no warranty claims in respect of commercial loans?
Mr Cohen : That is correct.
Senator KETTER: Perhaps not formal warranty claims, but were there any alternative
settlements reached in respect of commercial loans that may not have gone through the warranty
process?
Mr Cohen : No, none whatsoever. As you will recall, the only process around commercial loans
was around impaired loans, and that was through the price adjustment process that we undertook
in 2009.
Senator KETTER: Can you tell us what the settlement that Dr John Schubert referred to at the
2009 AGM as a confidential post-acquisition settlement related to?
Mr Cohen : Off the top of my head, I do not recall what he was referring to. The only
post-acquisition settlements that occurred would have been around the three warranties that I
have just described to you, which did not relate to commercial loans. That is about all I can
recall. I am not too sure if you have anything there that is a bit more specific.
Senator KETTER: No, that is all I have.
Mr Cohen : We can look into it for you, but I think that would be what he would be referring to.
That settlement occurred in December 2009. Did you say he was speaking at the 2009 AGM?
Senator KETTER: Yes.
Mr Cohen : December 2009 would have been after the AGM, I think, so we will have to look
into that for you.
Senator KETTER: Is it possible that that post-acquisition settlement did not relate to warranties,
that it could have been some other settlement?
Mr Cohen : I am trying to recall whether there was any other form of settlement. We had a
number of IT contracts in place with HBOS where BankWest was continuing to use HBOS IT
platforms. We finished those a little bit early because we managed to transfer BankWest over a
little earlier than planned, so it may have been in relation to that, but there was no significant
post-acquisition settlement. The major thing that happened was the July 2009 finalisation of the

purchase price, which involved CBA paying back the remaining wholesale funding that
BankWest had borrowed from HBOS, number 1, and, secondly, the price adjustment process
through the independent expert.
Senator KETTER: Right, but you will come back to us with that.
Mr Cohen : Yes. I will certainly look into what Dr Schubert was referring to at the AGM.
Senator KETTER: Will you be able to give us a quantum of that settlement?
Mr Cohen : Yes, I am sure.
Senator KETTER: I want to return to the vexed issue of Basel I and II, to try to understand that a
bit more. This has obviously been touched on on many occasions, but it has been put to us that
APRA required BankWest to increase significantly regulatory capital held for non-investment
grade corporate loans on the BankWest book. That would have been under the Basel II
requirements. Would you know anything about that?
Mr De Luca : When was that?
Senator KETTER: I do not have a specific date for that.
Mr De Luca : There was a process for BankWest, which it went through Basel accreditation. It
had its accreditation revoked I think in 2013 for not following certain processes that it needed to
rectify. We are currently going through a process of reapplying for accreditation. If it relates to
that, it means that the portfolio needs to be assessed on a capital basis on a standardised basis
versus using our own models. I think that would be the difference.
Senator KETTER: My information is that BankWest changed from Basel I to Basel II on 1
January 2009.
Mr Cohen : Yes, that was early. That is correct.
Senator KETTER: That is 11 days after the acquisition.
Mr Cohen : Correct.
Senator KETTER: Did those Basel II regulations require BankWest to hold significantly more
capital for non-investment grade loans?
Mr Cohen : Not to any material respect as far as I can recall. There was no significanceas you
probably know, Basel I and Basel II represent a difference in evolution of the capital standards
and also looked at allowing banks which had more advanced risk management systems to
internally rate and internally model their risk profiles. That was one of the significant differences
between Basel I and Basel II. CBA and the other large banks, as you are probably aware, were
able to effectively use their internal modelling systems in order to risk-rate. Under Basel I that
was not possible. Under Basel II that did become possible. That did not happen immediately for
BankWest and therefore it did not make any significant difference to BankWest.
Senator KETTER: I note that the timing of the change from Basel I to Basel II was very close to
the date of acquisition. Was there a particular reason for that or was it a coincidence?

Mr Cohen : That is purely a coincidence. The introduction of Basel II was well flagged in
advance. It was known by the industry for many, many months before the commencement date.
In fact, the banks had been doing a lot of work in the lead up to the introduction of Basel II in
order to show that their internal risk-modelling systems were sufficient to get what is called the
advanced accreditation status from APRA.
Senator KETTER: You are telling me that there was not much significant additional capital that
needed to be raised by BankWest to meet those requirements?
Mr Cohen : No, there wasn't any significant difference. To the extent that there was any
difference it was effectively provided through Commonwealth Bank now being the parent of
BankWest.
Senator KETTER: So there was some sort of realignment or a new methodology of calculation.
Is that what you are saying?
Mr Cohen : No. What I am saying is that one of the advantages for BankWest of having
Commonwealth Bank as its parent was that Commonwealth Bank was very well capitalised at
the time, whereas HBOS had found itself in a very challenged capital position at the time. So one
of the advantages for BankWest was that it was able to rely on the CBA as a well-resourced
parent and, secondly and very specifically, BankWest was able to rely on Commonwealth Bank
being able to raise wholesale funding in wholesale funding markets at rates that were more
advantageous to BankWest than if it had been trying to do so on its own, which at that point was
very difficult.
Senator KETTER: I wanted to move to your review of BankWest's loan book. I want you to
confirm that your assessment of the loan impairment provisions and of the proposed adjustments
carried out were in accordance with BankWest's accounting and credit policies as at 31
December 2007.
Mr Cohen : The review was carried out in 2010. This is Project Magellan I think you are
referring to, is that correct?
Senator KETTER: It has been referred to in that way. I am talking about the assessment of the
loan impairment provisions.
Mr Cohen : Yes. That was an exercise that was called Project Magellan. It was carried out in
May and June 2010 and involved a review of about 1,200 files, which was approximately just
short of 50 per cent of the commercial loan book. Your question I think was: was that in
accordance with accounting standards that applied back in 2007?
Senator KETTER: Yes.
Mr Cohen : They would have applied the then current accounting standards.
Senator KETTER: From 2010.
Mr Cohen : Yes, what was prevailing in May and June 2010. Those accounting standards would
determine the rules around impairment and obviously would have to impair according to the then
existing accounting standards.

Senator KETTER: Is it correct that the commercial loans were reviewed for accounting purposes
and reported to relevant regulatory and audit bodies on a downside or conservative or worst case
basis?
Mr Cohen : I am not familiar with reporting to accounting bodies. The way impairment is carried
out is that a view is taken on whether or not the loan is going to be fully or partially recoverable
and whether any losses might be incurred on that loan. The requirement is that once an
impairment becomes evident then the organisation is required to make an impairment provision.
That was part of Project Magellan and having made an impairment provision then an equivalent
impairment expense is taken to the income statement of the bank.
Senator KETTER: I am aware of an email between Mr Michael Hayes, National Manager,
Portfolio Groups, BankWest, to Catherine PorteousI am not sure of her position within that
Mr Cohen : CBA
Senator KETTER: on 27 March 2009, where Mr Hayes says, 'Catherine, as per our telephone
conference call on Wednesday, I have been asked to remind all that the papers have been
prepared, as instructed, on the basis of downside risk, in most cases representative of
insolvency/enforcement of our security, and these strategies are not representative of anticipated
likely case outcomes currently being pursued.'
Mr Cohen : Yes. I think that is an email, if I recall, talking about the basis on which impairment
calculations were carried outso as staff went through each file, thinking about the impairment
that the bank might have to raise against that loan. That is quite different from a default and quite
different from a loss or a write off. It is just a view on how much might be lost on that loan in the
future. Impairment is a dynamic process. It occurs regularly. Impairments can go up if the
situation is looking worse, but if the situation with a particular borrower, and collectively across
a portfolio, improves then impairments can go down as well. I think that is an email, from
memory, that refers to the basis on which the impairments would be calculated for the purposes
of raising an impairment provision.
Senator KETTER: Did CBA instruct Bankwest credit officers to conduct such a review and
report the results back to CBA, even though they were not representative of anticipated likely
case outcomes being pursued?
Mr Cohen : The Project Magellan exercise was carried out and the results of that exercise were
reported back to CBA. CBA asked for that project to be carried out because we had seen, on a
number of occasions, in the period between acquiring Bankwest in December 2008 and May
2010, Bankwest raise impairment provisions in lumps, and it was felt that we had to look through
the book to get a proper view of what the impairment situation was rather than getting surprised
every now and then by a sudden lump of impairment.
Senator KETTER: The question for me is: were those impairments assessed on a downside,
conservative or worst-case basis?
Mr Cohen : Not on a worst-case basis, no. They were certainly assessed on the basis that, in the
past, a number of impairments had not come to light sufficiently quicklythat had been our
experience. I think it is fair to say that impairments had not been recognised as promptly or as

regularly in the early stages of CBA's ownership of Bankwest as CBA was used to, and certainly
not as regularly or promptly as CBA itself practised.
Senator KETTER: Were the results of that review used to characterise non-impaired performing
loans as at 19 December 2008 as having impairments prior to that date?
Mr Cohen : Sorry, I do not think I understand the question.
Senator KETTER: Were the results of this CBA instructed review used to characterise
non-impaired performing loans as at 19 December 2008 as having impairments prior to that
date?
Mr Cohen : I see. No, the impairments were calculated as at the date the impairment review was
carried outnamely, May and June 2010. It was a view of the impairment situation of a loan as
at May or June 2010, not retrospective.
Senator KETTER: Were HBOS informed during any dispute process that this basis of
Bankwest's performing commercial loans was undertaken by the CBA?
Mr Cohen : In 2010, at the time that review of impairments was carried out, we were not then
dealing with HBOS. The sale had completed and HBOS had been taken over by Lloyds, which in
turn had been bailed out by the British government. There was no dispute process ongoing.
Effectively, from July 2009, about a year before this impairment process was carried out, we
ceased our dealings with HBOS because there was nothing further to deal with them on. So there
was no dispute.
Mr VAN MANEN: Thank you for your testimony today. I should disclose up-front that I used to
work for the Commonwealth Bank many years ago. In this whole process, particularly around
the Bankwest book, I am interested in what work has been done by the Commonwealth Bank
since its acquisition of Bankwest to identify and, ultimately, self-report any breaches of the
banking code of practice?
Mr Cohen : We have a process in place across the group, so it is not just specific to Bankwest,
and that process across the group is to comply with our reporting obligations to the Code
Compliance Monitoring Committee. Bankwest is very much part of that, just as the other areas
of CBA are.
Mr VAN MANEN: Have you identified cases where there have been breaches that had not
previously been reported and subsequently reported those breaches?
Mr Cohen : No, we have not identified any such cases.
Mr VAN MANEN: I find it interesting that, from 2007-08, around the time of the GFC,
reporting of noncompliance with the banking code of practice was running at about 1,000 per
year and, as of 2013-14, it is now running at between 5,000 and 6,000 a year and reporting of
non-compliant breaches of the banking code of practice has got up as high as over 7,000 a year. I
find it strange, given the broad-ranging discussion we have had, in relation to both Bankwest and
others, that there is no self-reporting of breaches, and I find it hard to believe that there have not
any breaches that have occurred in that process.

Mr Cohen : I am sorry; you say no breaches have occurred. We have been reporting breaches in
the normal course of events, so I would answer your question
Mr VAN MANEN: That is what I asked. Have there been breaches reported?
Mr Cohen : Sorry, I understood your earlier question to be: have there been breaches in relation
to specific Bankwest cases that we have subsequently identified and reported? And the answer to
that was no. However, generally speaking
Mr VAN MANEN: There have been breaches?
Mr Cohen : We do report breaches of that code to the Code Compliance Monitoring Committee.
Yes, we doand that is across the group.
Mr VAN MANEN: I want to go to an area that we probably have not really touched on. Without
referring to any specific clients, I would like to pick out one particular case that you have
outlined to us in response to a question on notice of a customer that was in difficulties and had a
very substantial loan facility. I am concerned about some of the fees that are levied on people
who are already in difficult situations, and then you levy substantial additional fees on top,
which, in my view, just makes the situation worse. In this particular customer's situation, the
increase in the interest rate on their facility resulted in an increase of nearly $2.4 million just in
their annual interest liability, in addition to which you charged a $75,000 fee for the privilege of
increasing their interest rate. You subsequently charged an additional extension fee of $100,000.
Subsequently, six months or so later, you changed the facility around but you charged a
$600,000 fee and, subsequently, another $25,000 fee. So in the space of 18 months you charged
approximately $900,000 in fees, plus additional an interest bill of $2.4 million. How, in a
situation where a business and a client are already in difficulties, can you possibly justify, in the
space of 18 months, charging additional costs of some $3.3 million?
Mr Cohen : I am happy to explain that. The customer you are talking about is an ASX listed
companyCEC Group Ltd, as you are aware. Each of those fees that you are talking about is
actually not a fee for being in trouble; it is not a fee are doing anything wrong; it is a fee for
extending the facility. In each of the cases you have mentioned, and as we pointed out in our
letter to you of 31 March, the fees were charged for extending facilities that had expired. That is
absolutely standard practice. When a borrower takes out a facility, they get charged what is
called a facility fee. In this case, when the facility had expired and the bank decided to support
the customer by extending the facilitynotwithstanding the fact that it had not been repaida
facility fee was charged because it was, in effect, a new facility.
CHAIR: Can I ask a question of clarification there?
Mr Cohen : Yes.
CHAIR: The facility provides the framework within which you lend capital and the consumer
pays capital and interest back, or capitalises interestwhichever the structure is.
Mr Cohen : Yes.

CHAIR: What is the value offered by the Commonwealth for the three-point-something million
dollar fee? If, as you have stated, your intention is to work with the company to help them work
out of their problems, what is the value added by that fee, as opposed to the long-term business
proposition of them having a loan?
Mr Cohen : The value is the continuation of the funding. Let's say the facility expires. The
customer, in this particular case CEC, came to the bank on each occasion to say, 'We're not in a
position to repay. We'd like to continue the funding.' At that stage the bank had the option of
continuing the funding and working with the customer to achieve some pay-down milestones
which CEC sought to achieve. In return for that, the bank agreed to continue the funding and
charged a facility fee for continuing the funding. The alternative was to say to the company,
'We're not going to extend the facility,' so the company would have to find another way of
repaying the bank, which would be through either refinancing or sale of assets. In this particular
case, CEC did undergo a program of selling assets as well to reduce its debt.
CHAIR: In effect what you are saying when you argue that you are prepared to work with the
customer is you will work with the customer on the basis that you make a very handsome profit
along the wayin this case, over $3 million from a fee that actually adds nothing to the
customer's survivability except for the fact that the facility continues.
Mr Cohen : That is a major factor in the survivability.
CHAIR: But, Mr Cohen, your argument to us to date has been that the bank bends over
backwards to help the business survive because it is in the bank's long-term interests and the
customer's long-term interest for them to be able to continue under the loan agreementthat
they will pay out that loan. What we have seen in many cases is that companies may have had a
25-year facility when they reached a certain point, whether it is a cash flow crisis or perhaps a
change in valuation, and a process was put in place by the bank. Fees like this, to a lay observer
such as me, do not appear to be adding much value to the company in terms of meeting that
long-term proposition of working through the loan for the 25-year period that in the case of one
of the submissions was the original agreement the bank had with the customer.
Mr Cohen : In this particular case, the facilities had expired, so the customer was in a position
where it owed $169 million. The facility had expired and the customer was faced with the
question of how to move forward. It had a discussion with the bank. The bank agreed to continue
the funding, so to continue to lend $169 million. The bank's situation here was it had a certain
amount of capital set aside for that particular customer. It had worked on the basis previously
that that capital would be returned at the expiry of the loan and that the bank would then
hopefully go and use that capital to lend to another customer. In lending to that future customer it
would have charged a facility fee. In this particular case, the customer asked that the facility be
extended, so the bank forwent the opportunity of taking that capital and lending it to somebody
else and instead stayed with this customer and kept the funding going. I agree with you that
certainly had a benefit of the customer being able to continue in business and therefore that is a
benefit to the bank as well, absolutely. But it is in effect a fee charged because the bank is no
longer able to use that capital as it was going to do when the facility was due to expire.
Senator O'NEILL: How much does it cost to get $169 million? Is $900,000 the average cost, or
is that excessive or small? Was that a special deal for a favoured customer?

Mr Cohen : Do you mean the interest charged or the fee charged?

Senator O'NEILL: Was there a $900,000 facility fee? Am I understanding what is being said
correctly?
Mr VAN MANEN: That is a combination.
Mr Cohen : No, the fee charged was $75,000 for $169 million.
Senator O'NEILL: In terms of that business, it was seen that they were over a bit of a barrel and
then you came in and gave them a bit of a whack on the way through. What sort of capacity does
a business really have at that pointwhen it is in a crisisto go to another major bank and say,
'We would like to establish another facility'?
Mr VAN MANEN: None!
Mr Cohen : What I would say is that in those circumstances, if the borrower did go to another
bank to refinancefor example, if they had gone to another bank to refinance that $169
millionnaturally, that bank would have charged a facility fee just like any bank would, so the
customer would have paid that fee.
Senator O'NEILL: How much is that likely to be, Mr Cohen? What is the facility fee for that sort
of amount? Is there a sliding scale or is there a common amount?
Mr Cohen : No, it is a commercial matter between the parties. In this case, it was 0.045 per cent
of the facility amount. That is not an unusual amount at all. It does depend on the institution and
it is a commercial negotiation between the parties. But that amount of fee as a facility fee is not
an unusual amount. I think you would find it would be in that range or thereabouts for most
banks.
Senator O'NEILL: Does it go us as the company looks like it is getting into more trouble or does
it go down?
Mr Cohen : It does not at all.
Senator O'NEILL: Which one?
Mr Cohen : It does not go up just because a company is facing difficulty, for the very reason I
think Senator Fawcett was alluding tonamely, if a company is in difficulty, charging it more is
not going to help it unless it has a sustainable plan to get through.
Senator O'NEILL: But in that commercial decision-making moment you could actually reduce
the amount to keep the facility going.
Mr Cohen : Yes, that is absolutely possible. The assessment is made at the time on the basis of
the customer's financial circumstances.
Mr VAN MANEN: I would like to move back to valuations, which seems to be a favourite topic
today. Say you have a new client in 2010 and their facility and assets are valued, and then in
2016 they get themselves into some difficulties so you revalue their assets and their business to
see where you are at. Is there a capacity in the valuation methodology to actually report those

two valuations side by side so that customers can clearly see the assumptions that were used in
the initial valuation report and the assumptions that were used in the new valuation report, so that
you are able to clearly explain it to the customer, so that they can see what has changed and so
that there to be a discussion around that? That seems to be a significant part of the issue, from
what I have seen and heard. There is little understanding or correlation in that valuation
methodology from when you do the initial valuation to subsequent valuation when a business or
client is facing difficulties.
Mr Cohen : I would say that the greater the transparency, the better the opportunity of avoiding
misunderstanding. I agree with you entirely. I think a little towards our conversation earlier
today, that is a matter that we think is a benefit going forward. Of course, the longer the time
period between the initial valuation and a subsequent valuation, the more there will be difference
in terms of value, potentially. But that is just a market force issue. As for the actual assumptions
going in, which I think you are referring to, I think there is a benefit in greater transparency
around those.
Mr VAN MANEN: But would it be fair to say in any of these cases we are looking at here,
which you have provided a response to in terms of question on noticewhether it is CC or any
of the othersthat they are very significant loan facilities in the majority where they would have
had business relationship managers that would have been responsible for those clients and their
relationship? In the ordinary course of eventsand certainly in my time in the bankwhen you
met with customers you discussed what was going on in their business, economic conditions,
issues they are facing, et cetera. I would have thought that in these situations, given the size of
these loan facilities, that would have been a very regular discussion between the responsible
relationship manager and the client to try to forestall some of these issues long before they
became a problem.
Mr De Luca : Certainly in my experience, during these times the frequency of the conversation
increases. Obviously, post-GFC the market was moving quite significantly, so some of the views
of what was actually going to happen were unknown.
Mr VAN MANEN: If you had a set of valuation metrics that you used to write the business in
the first place, is there ever, in those review discussions as the relationship proceeds, a reference
back to those valuation metrics to say to the client: 'We are 18 months down the track. We have
had a global financial crisis and there are a number of issues as a result of that. This is the basis
on which we first lent you the money. What has now changed in relation to those metrics? What
issues do we see?' What, if any, of those discussions were had and, if they were had, what was
the outcome? How did that affect what happened down the track?
Mr De Luca : I think in some of the responses we have provided we have outlined the ongoing
conversations with a number of customers during that period. Obviously, they would have to be
on a case-by-case basis. The facilities, as we have outlined, have changed as well during those
periods based on the impacts of valuations and also the impacts of the financial performance of
the business. They would be the discussions and, as David alluded to earlier, generally across a
number of these they were long-term discussions from the start of the crisis till subsequent
events.

Mr VAN MANEN: In relation to the book of business with Bankwestand one of the major
topics of discussion out of the GFC was the issue of securitisationwas any portion of the book
securitised?
Mr De Luca : No, there were no commercial facilities in securitisation at the time of the
acquisition.
Mr VAN MANEN: I asked this question of ANZ earlier. For commercial loan facilities, what are
the capital adequacy requirementsis it 100 per cent, 50 per centof the loan facility?
Mr De Luca : It depends, as I think David alluded to earlier, on the approach taken. When we
moved to Basel II it was a standardised approach, which was consistent across all of the
facilities. Under the current regime it is
Mr Cohen : Off the top of my head, Senator, I cannot recall.
Mr De Luca : I cannot remember off the top of my head. It has been awhile. We could come
back to you on that one. I do not recall.
Mr VAN MANEN: Now that you are under the Commonwealth Bank banner you are under the
advanced
Mr Cohen : Yes, the advanced accreditation.
Mr VAN MANEN: accreditation process. Under that process what are the capital adequacy
requirements on a commercial loan of $100 million?
Mr De Luca : It is done on an individual basis. Basically, the advanced approach is to use your
own models. Depending on the risk rating of the loan, the term of the loan and the industry type,
it is done on an individual basis. Each one is different.
Mr Cohen : The theory behind that is that those organisations that have invested heavily in their
risk assessment processes and risk modelling are better placed to determine how much capital
should be held against each individual loan according to the circumstances of that borrower: the
industry that it sits in, the prospects for that industry and the prospects for that business.
Mr VAN MANEN: So you would then have your own internal metrics? If you increased the risk
profile of a particular customer's loan facility, you would have an internal metric as to whether or
not you are required to hold more capital for that loan. Can that be a value judgment, or is that a
very black and white requirement within your risk management and capital management
processes?
Mr De Luca : If the circumstances change for the customer: if the risk rating changes, if the size
of the facility changes, if the term of it changes or if the purpose of why they are borrowing
changesso if it started off as just commercial property and then expanded into a
businessthen those factors are taken into consideration and thrown into the model, which then
provides you a view of what the provision should be.
Mr VAN MANEN: Is that the basis on which you then apply whatever margin is applicable over
and above your base interest rate margin?

Mr De Luca : That is an input into the pricing.

Mr Cohen : It is one of the factors; that is correct.
Mr RUDDOCK: I mentioned to you earlier that we have received a number of letters putting
other views on some of the matters that we have under discussion. I noted today that we received
a letter from a Mr Sean Butler, who apparently wrote to you on 25 February flagging a number
of questions. Have you brought with you an answer to that letter?
Mr Cohen : No, I have not.
Mr RUDDOCK: He does raise issues in relation to requests for meetings. He said that Mr De
Luca, for instance, had sent him a letter on 11 March stating, 'We met with you in the presence
of an independent person in an attempt to resolve your concerns.' Mr Butler says that that is
untrue. A series of other questions have been addressed to us which go to questions of substantial
differences of view in relation to allegations made. He said that he sent the letter to you by
registered mail. I am just surprised that you have not come prepared to answer the questions.
Mr De Luca : I have got a copy of the letter in my response on 11 March. I have responded to Mr
Butler, and we are happy to provide the committee with all the documents that support it in terms
of the meeting that was held.
Mr RUDDOCK: You believe that you have further responded to the matters he has raised?
Mr De Luca : Yes.
Member of the audience interjecting
CHAIR: Order!
Mr De Luca : We can give the committee our letter of 11 March. It might help.
Senator O'NEILL: Just to clarify: what form of response has been sent to Mr Butler?
Mr De Luca : A letter to his email address.
Senator O'NEILL: Okay. Is it possible for you to provide a copy of that for us now?
Mr Cohen : Yes, definitely. You can have it now.
Senator O'NEILL: Thank you. If I could return once again to matters of culture. I understand that
banks have become increasingly aware of the need to do things in this area. Could you explain to
the committee the sort of work that you are undertaking. I am providing you with an opportunity
to put on the record that you are proactively doing some things, but I want to also expressjust
in the exploration of that one issue with regard to access to valuationsthat there still seems, to
me, to be some considerable gap between the language and the talk around cultural practice
change and the practical realisation of that in a way that would give me more confidence about
what the bank is doing, particularly in light of other matters that are in the media at the moment.
Could you speak to the cultural practices that you are attempting to undertake and give any
indication of the practical application of those in terms of redressing some of the concerns that I
think that you are now very aware are exercising the minds of this committee. That is the first

part of my question. The second part is: you appear to be awaiting our report. Our report is
hopefully informed by evidence that we receive from all participants, both civic participants and,
in your case, commercial participants. I am also keen to hear from you recommendations that
you may now be aware of, in light of the journey we have been on, that you believe would
enhance the life outcomes of people who have engaged in commercial loans with the bank going
forward.
Mr Cohen : Certainly. I will address the first part of your question first: namely, what is the
Commonwealth Bank group doing around culture? Firstly, in 2014 our CEO kicked off a
process, which we call our vision and values dialogue. We have a vision across the group, which
is focused on enhancing and securing the financial wellbeing of customers, businesses and
communities. Secondly, we have five core values. What we did in 2014 was engage Dr Simon
Longstaff of the St James Ethics Centre here in Sydney, as well as KPMG and a law firm to
carry out across the group a series of focus group discussions and surveys in order to understand
were there any processes or procedures or policies across the group that inhibited an employee
on a day-to-day basis from helping the bank achieve its vision and applying each of our values:
integrity, collaboration, accountability, excellence and service. We carried out in those reviews,
those focus groups and those surveys. With the results of those, we then prepared a report, which
went to be considered by the board and by senior management.
We then embarked on the second part of the exercisethat is, to identify policies and procedures
and processes that our own employees had told us get in the way of us achieving the vision and
applying the values consistently. That has thrown up a range of items that we are addressing at
the moment. The work was carried out in 2015, following the initial work in 2014. We have been
addressing those policies and procedures to try to change them so that our employees are not in a
position where they feel that their effort to, for example, ensure that a customer achieves
financial wellbeing is stymied or hindered or delayed by one of our policies and processes.
Member of the audience interjecting
Mr Cohen : That is the first thing. It is an ongoing piece of work. We are an organisation of
52,000 people. It is not possible to change everything overnight, but we are steadily working our
way through it.
The second thing
Senator O'NEILL: Before you move on to that, how is that integrated with your incentivisation
structures and your financial reward for both individuals and teams? How can the community be
assured on matters of professional integrity, which I think are at the forefront of people's
thinking with regard, sadly, to the Commonwealth Bank. What are you doing to make it happen?
Rather than observations and talking about reporting et cetera, what are the incentives for people
to behave in ways that meet community expectations?
Mr Cohen : It is a process that is embedded within our vision and values work. The issue that
you raised is reflective of something that regulators have been saying toothat is, are people
rewarded not just for speaking up and for raising issues that are of concern but also for
demonstrating the right culture, the right values, the right ethics? That is something we are
currently going through at the moment. From July this year, when we commence our new

financial year, we are introducing a new performance management system and a new rating scale
so that people are actually measured not just on their business outcomes, which is part of our
current process, but also on their application of the values. We recognise that it is not just what
you do, it is how you do it. The how you do it is more important than the what you do. So the
new performance management system that is being rolled out across the group from 1 July is
going to measure how each employee actually applies the values of the organisation. The way
they apply those values will reflect in their remuneration that they receive so that is a very
practical step that we are taking.
Allied with that is something that we alluded to earlierthat is, we have a process whereby your
risk behavioursso the behaviours that each individual employee demonstrates when acting
internally, dealing with customers, approving loans, taking actionsactually then get applied to
alter the remuneration. So if somebody has not fully met their risk requirements, then that
reduces their remuneration. If someone has fully met their requirements, then they are free to
proceed to the level whereby they are assessed on their outcomes and the way they have applied
values. We are hopeful that that is going to be a very meaningful thing for people, that (a) we are
applying the values in everything we do, and you get measured according to it, and (b) your risk
behaviours are taken into account and reflect in your remuneration up or down, as does the way
you have demonstrated values. So we agree with you that remuneration is a very important factor
in terms of behaviour and what behaviour it encourages, and that is why we have introduced a
new system to take effect from July.
To the second part of your question: how can we enhance the life outcomes for customers? That
is a very good question. As I said before, we seek to achieve a vision whereby we enhance and
secure the financial wellbeing of customers. We do not pretend that we are perfect at it, and you
have alluded to situations where the media has highlighted and other areas have highlighted
where we have not achieved that mark, and that is true. One of the measures of an organisation
and whether it is seeking to do the right thing is how it responds to those situations, and in a
couple of those situations we have taken a very earnest approach to try to rectify issues.
Going forward in terms of how we deal with our customers to ensure that they do succeed in
their endeavours, we will try to provide the excellence in customer service that we focus on so
much, but applying our values, as I mentioned before, as well. The fact of the matter is, and this
is an unfortunate fact of life, we know that some businesses will not succeed. In those
circumstances, it is incumbent on us to work with customers. We seek to do that and we think we
have demonstrated to you today, and in our submissions, that we do work with customers. It is
not lip-service; we do spend a long time working with customers. Unfortunately, there will be
circumstances where success is not an outcome for the business and we then have to work with
the customer to try to achieve a resolution.
Senator O'NEILL: I suppose it goes again to Mr Ruddock's point: if you know that there are
going to be businesses, in commercial loans in particular but in other a range of other
interactions with your customers, where there are going to be points of failure, then surely it
would be prudent at this point, given what has preceded, to establish an independent resolution
structure that would attend to some of the issues that have really taken up so much time in this
committee hearing?

Mr Cohen : I can repeat what I said before: this is a very different situation in terms of scale and
issues from issues such as Storm Financial or financial planning, and we honestly do believe that
we have tried to address every single issue that has been raised, not only by this committee but
also by customers directly. It is unfortunate, but we acknowledge some customers do not want to
accept our version of events or the facts as we have presented them.
Member of the committee interjecting
Mr Cohen : I understand that
Senator O'NEILL: And they do not have the money to take it to a court, to find that resolution,
and there is no other alternative. I think that is the point we are at today, which is frustrating for
so many people.
Mr Cohen : The facts are there for everybody. We have always said, and we continue to say, that
if a customer comes forward with either new information or evidence of mistreatment, then we
are willing to sit downwe have always have been willing to sit downwith customers and talk
with them.
Member of the audience interjecting
Mr Cohen : We are willing to do that. We have said we are willing to do that, and that remains
the case.
Member of the audience interjecting
CHAIR: Order! If people wish to interrupt, I will ask you to leave or I will suspend the hearing.
Mr Cohen?
Mr Cohen : I have nothing further to say.
Mr RUDDOCK: Thank you very much for the copy of the letter. I do not intend to take it all up,
but obviously Mr Butler has not necessarily agreed with all of the points you have made. I was
interested in the point that was made, that the head of your legal affairs department is alleged to
have said 'sink boots into the customer'.
Member of the audience interjecting
Mr RUDDOCK: When I read the response, you do not deny it. You say:
More recently you have raised a specific allegation (based on handwritten notes
I assume that is what was written by a third party
that, in September 2012, Bankwest's Head of Legal was of the view that Bankwest should take
an aggressive approach
I suppose that is what 'sinking the boots in' is

to dealing with your situation. We have reviewed this allegation and do not agree that
Bankwest's Head of Legal sought to take an aggressive approach to dealing with your financial
situation.
In other words, 'By winding you up and appointing a receiver, we weren't taking an aggressive
approach'.
Mr De Luca : In terms of having reviewed the notes of others who were involved in that meeting,
that is fairly inconsistent with all of the notes that I have reviewed from others. As I stated in the
letter, at that point in time the head of legal was pursuing to actually have a meeting with Mr
Butler and mediate through the process and the matters.
Member of the audience interjecting
Mr RUDDOCK: I simply make the point: I have read what he wrote, I have read your response,
and it seems to me that the issues are contested. My view, and I will repeat it again, is that this
committee is not going to be able to deal with those issuesyou know that and we know
thatbut we are going to have to find a way forward. I am still inviting you to think through
how that might best be done.
CHAIR: The time being after the time allotted for the Commonwealth Bank, I thank you for
attending the hearing and for your evidence today. You have agreed to take a number of
questions on notice. Could you please return that information to the committee by 12 April.