Don't look now Fools but Commonwealth Bank of Australia (ASX: CBA) may not be the only big bank that's tarred by the money laundering scandal which prompted the Australian Transaction Reports and Analysis Centre (AUSTRAC) investigation.
The investigation uncovered damning evidence of a culture of complacency by Australian's largest listed bank and National Australia Bank Ltd. (ASX: NAB) could be the next to be swept up by a similar scandal.
A report by the Australian Broadcasting Corporation (ABC) alleging that the son of a South Sudanese general used a NAB account to launder money through a purchase of a $1.5 million home should sound alarm bells for the bank's shareholders.
The share price of NAB doesn't appear to be harmed by the news as it gained 0.4% to $28.51 in late Monday trade with management issuing a statement stating it undertakes checks and due diligence on all customers, although the breach does raise serious questions about the bank's processes.
Perhaps the culture of complacency isn't isolated to just CBA? An expert interviewed by the ABC said that NAB should have flagged the account in question as the funds used in the purchase of the property "travelled a circuitous route for which there is no apparent commercial reason".
The report went on to state that more than $1.5 million was transferred in five instalments from Ugandan and Kenyan companies, sometimes going through banks in Dubai, into the NAB business account linked to the general's son.
It is also alleged that some members of the family were on Centrelink benefits and lived in commissioned housing until the $1.5 million property was purchased. Talk about effective retirement planning!
But back to the more serious issue of bank governance, the big banks, which also include Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ), are already under a dark cloud from the Banking Royal Commission into unfair practices.
There is no suggestion that Westpac or ANZ Bank have similar problems with money laundering, but the affair with NAB reminds us that perhaps not all the skeletons in their closets have been found at a time when some analysts are saying that big bank stocks are too cheap to ignore.
Interestingly, CBA is the cheapest from a valuation perspective as the stock is trading at the biggest discount to where it normally trades historically, while NAB is the most expensive.
This means NAB has more room to underperform if investigators can prove that NAB has been asleep behind the wheel when it comes to its anti-money laundering commitments.
I find the valuation argument for the big banks unconvincing and I am expecting these stocks to keep underperforming the S&P/ASX 200 (Index:^AXJO) (ASX:XJO).
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