Terry McCrann: Corporate cop Austrac gets big payday for failure
Both CBA and Westpac were caught cold breaking the law and the penalties were appropriate but why did nobody at Austrac even think of asking what was happening? Now it gets to “bury” its incompetence in multibillion-dollar settlements, writes Terry McCrann.
Terry McCrann
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The CBA paid $700m for its money-laundering stuff-ups. Westpac was always going to pay more — it tried for $900m; it’s had to settle for $1.3bn.
This captures the two big points.
The penalties were entirely appropriate and indeed necessary. Both banks were caught cold breaking the law.
But both banks stuffed-up; they did not set out to deliberately add a money-laundering franchise to their more conventional offerings like writing mortgages and taking deposits.
That is not written entirely in jest. Many international banks, including major household names, have set out over the years — and not just through that “interesting” period from around 1940 to around 1950, but right up to and including the present day — quite deliberately to facilitate money-laundering.
They usually do it, again quite deliberately, with senior management eyes wide open, mixed up with and to facilitate personal and corporate tax avoidance and indeed outright tax evasion.
This was not the case with our down-under duo.
CBA’s — multiple repeated — sins were in failing to report cash deposits through its “special” ATMs of sums greater than the $10,000 reporting trigger.
It was a programming stuff-up; and, no, that was not an elaborate excuse for some deliberate conspiracy to allow money-launderers to bypass the reporting. Just a — very expensive $700m — stuff-up.
Westpac’s stuff-up was worse and came much closer to really facilitating money-laundering; when you include in that term, facilitating transfer of money to people it should not be going to and whom the law authorities should have been told about: paedophiles.
But as Austrac said: “None (my emphasis) of the contraventions was the result of any deliberate intention to breach the AML/CTF legislation.”
Westpac failed to report nearly 20 million international transactions.
The vast, overwhelming — like, 99 per cent-plus-plus — majority of those would have been totally anodyne and even if reported would have sat totally unnoticed or un-monitored by Austrac.
But it was obliged to report them. It failed to do so. It was done cold.
The real core of Westpac’s failure was some 262 customers, who were making suspicious transactions that are often identified with international child abuse, and whose accounts it failed to monitor.
Now, it is important to point out that the failure was as much the failure of Austrac as a regulatory agency as it was of both Westpac and CBA.
In CBA’s case it alone of all the banks allowed customers to make cash deposits into its ATMs of more than the $10k trigger points for mandatory reporting of such a deposit to Austrac.
It put in place software to trigger such a report. The software failed and the reports didn’t go in.
Nobody and I mean nobody at CBA thought that it might just may be a good idea to actually check to see if the reporting was working.
Yes, but equally what about the cop on this particular beat: Austrac?
It knew CBA was allowing these deposits; yet suddenly reports of them stopped coming. Year after year, nobody at Austrac thought of asking CBA what was happening. Indeed, was anyone even awake down there?
Something similar was the case at Westpac. There, Austrac dozed happily through five years of regulatory incompetence until Westpac uncovered its own failings and self-reported to the dozy regulator.
Now Austrac gets to be hailed as the $2bn hero of the regulatory hour.
It’s a bit like doctors who, as the old saying goes, get to bury their mistakes. Austrac gets to “bury” its incompetence in multibillion-dollar settlements.
Treasurer Josh Frydenberg certainly won’t be unhappy. The $2bn won’t cover his — massive — budget deficits. But hey, every little bit helps — especially when the RBA is sending billions in the direction of the banks.
WESTPAC LOSES THE BIG ONE
Westpac was right to fess up and settle this — the only question was the penalty.
But it was just as right to not fess up, and so certainly not settle, in two other big fights with the prime corporate cop, ASIC.
And in those cases it was entirely vindicated with one and largely vindicated with the other — both times in a real court.
The first was the — in my judgment, entirely silly — so-called “wagyu and shiraz” case, where a judge showed the sort of basic awareness of reality that was totally absent at ASIC.
Simply, that when a couple borrow money from a bank to buy a home, they might well trim their spending on luxuries to afford it.
Gee, what an astonishing — and expensive — surprise to ASIC. It not only lost but had to pay Westpac’s multimillion-dollar costs.
The second was more complicated: ASIC’s allegation that all four big banks were engaged in a mammoth James Bond-style conspiracy to rig what’s called the BBSW — a professional market-created interest rate that is used as a base for many high-end rates.
The other three banks settled on ASIC’s dodgy evidence, but by paying essentially trivial penalties. NAB paid $50m which included $20m for ASIC’s costs. Nothing like Thursday’s $1.3bn.
Westpac alone refused to settle and only ended up getting pinged on four points
In my judgment it certainly won in relative terms. Its penalty was only $3.3m and the judge ordered it to pay only half of ASIC’s costs.
All three were on the “watch” of former CEO Brian Hartzer. He was dead right on the first two, but he ended up stone cold — fortunately, only figuratively — dead on the third.
Originally published as Terry McCrann: Corporate cop Austrac gets big payday for failure