Former CBA IT exec jailed for role in kickback scheme
- 20 December, 2016 12:10
The Commonwealth Bank’s former IT infrastructure and operations chief Keith Hunter has been jailed for a scheme that involved receiving kickbacks in return for helping channel business to a US software company.
Hunter was sentenced today in Sydney District Court on two counts: One count of corruptly receiving a benefit as an agent of his employer, CBA, and one of dishonestly causing a financial disadvantage.
Judge David Arnott sentenced Hunter to three and half years' prison, with a non-parole period of two years and three months.
Hunter had initially pleaded not guilty to the charges, before changing his plea in June.
The charges related to Hunter's role in awarding contracts to US software company ServiceMesh, with the bank’s business helping boost ServiceMesh’s earnings ahead of its acquisition by CSC.
At the heart of the charges against Hunter were allegations that he pushed for CBA to purchase McAfee and Pivotal Cloud Foundry software and services via ServiceMesh.
The purchase contracts were split up, allowing Hunter to approve the purchases without authorisation from a more senior executive.
“Commonwealth Bank referred matters to the NSW Police in early 2015 involving the conduct of two former employees, because we took the view then, as we do now, that is was the right thing to do,” a spokesperson for CBA said.
The court heard that for his role in the scheme Hunter would have received US$750,000 in what the former executive had originally described as “higher compensation” as a result of the software purchases. Hunter hoped to receive up to US$1 million for his role in the scheme, the court heard.
At CBA Hunter was already earning “a very high wage,” the court heard, taking home $1 million a year and with the potential to earn shares on top of that.
Defence argued that there was slightly reduced moral culpability because Hunter believed that CBA would benefit from the ServiceMesh deals.
The prosecution challenged the claim, and in the leadup to Hunter signing off on the McAfee deal he faced internal pushback in the bank, with questions raised about the value of the contract. The bank had previously received the security software as part of a package deal with HP, and McAfee offered to sell directly to CBA.
A CBA commissioned Ernst & Young analysis of the deal found that it was worth 70 per cent of what the bank had paid for it. An analysis of the Pivotal purchase found that it delivered no value to the bank and had been shelved after purchase.
In its submissions the defence also cited good character references for Hunter that indicated it was “quite frankly astounding” that Hunter had engaged in acts of the nature he was charged with. His actions were not in character and described as a “massive aberration”.
Hunter suffers from “severe depression”, the court heard. Custody will be onerous on him given his mental health, his age — 62 — and his isolation from friends and family in the US. Counsel for Hunter also noted that it would be his first time in custody. Hunter is unlikely to reoffend and his rehabilitation prospects are “exceptional,” the court heard.
In handing down his sentence, the judge took into account Hunter’s contrition and his “excellent” prospects of rehabilitation.
CSC acquired ServiceMesh in 2013 for over US$260 million, including US$93 million in cash and an earnout payment of US$98 million. CSC says the earnout payment was based on ServiceMesh revenue generated between 1 January 2013 and 31 January 2014.
“A significant amount of that revenue came from contracts between ServiceMesh and Commonwealth Bank of Australia Ltd,” states a filing by CSC in a US civil case against ServiceMesh founder Eric Pulier, who was allegedly implicated in the scheme.
Hunter was sacked by CBA in December 2014 and arrested in March 2015, along with another former CBA IT exec, Jon Waldron, who is expected to be subject to a committal hearing next year on a number of related allegations.
A US not-for-profit organisation – the Ace Foundation – was allegedly used to channel funds from Pulier to Hunter.
CSC has previously said it paid over US$98 million more than it would have otherwise when acquiring ServishMesh and “resulted in a significant criminal law enforcement investigation in Australia that has caused CSC to incur significant legal and investigative costs.”
Hunter – who is a US citizen - also faces criminal charges in the US, as the result of an FBI investigation of the ServiceMesh-CBA affair. In addition he is the subject of a civil case brought by the United States Securities and Exchange Commission.