Westpac payments scandal: Josh Frydenberg confirms bosses face tough new legal regime
Josh Frydenberg has confirmed the new Bank Executive Accountability Regime can be used in the Westpac paedophile payments scandal, which can lead to industry disqualification and multimillion-dollar fines.
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Treasurer Josh Frydenberg has confirmed the new legal regime that seeks to pin responsibility for bad bank behaviour on executives can be used in the Westpac paedophile payments scandal.
Mr Frydenberg this afternoon told journalists in Canberra that he had been assured by Australian Prudential Regulation Authority (APRA) head Wayne Byres that the Bank Executive Accountability Regime (BEAR) was able to be applied in the Westpac case.
APRA is now investigating Westpac and its executives for possible breaches of the BEAR, which came into place last year.
Austrac last week alleged Westpac had broken anti-money laundering laws 23 million times – including in relation to payments made by paedophiles.
It was initially unclear if the BEAR applied, because the allegations dated back to 2013 and the regime is not retrospective.
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“As you know, the BEAR came in from mid-2018, and he says that it does apply to some elements of these issues, but it’s not retrospective,” Mr Frydenberg said this afternoon. “So he’s working that through with members of his team.”
BEAR imposes tougher obligations on bank executives and board members which can lead to disqualification from the industry. It also forces institutions to defer executive bonuses for four years. Institutions can face fines in the hundreds of millions of dollars.
The Treasurer said the government welcomed Westpac CEO Brian Hartzer’s resignation this morning and the news that chairman Lindsay Maxsted would soon depart.
“The government believes those alleged breaches against Westpac were the most serious in both nature and number,” Mr Frydenberg said. “And there needed to be accountability.”
The departures mean Australia’s second largest bank will respond to the money laundering and child exploitation scandal under new leadership.
Mr Hartzer will step down on Monday and be replaced on an interim basis by chief financial officer Peter King, while Mr Maxsted is no longer seeking re-election at next month’s AGM and will retire in “the first half of 2020”.
The board accepts the gravity of the issues raised by AUSTRAC,” Mr Maxsted said today.
“We sought feedback from all our stakeholders including shareholders and having done so it became clear that board and management changes were in the best interest of the bank.”
Westpac gave Mr Hartzer 12 months’ notice and will still have to pay him his $2.7 million salary, although his bonuses have been forfeited.
Westpac said Mr Maxsted’s departure would allow a new chairman to oversee the appointment of Mr Hartzer’s permanent successor.
Longstanding director and risk and compliance committee chair Ewen Crouch has also decided not to seek re-election at the December 12 AGM, when Westpac faced the possibility of a second strike on executive pay and potential board spill.
Responding to reporters at her National Press Club address, Business Council of Australia CEO Jennifer Westacott said welcomed Mr Hartzer’s decision to step down.
Ms Westacott said banks “have to get their house in order” but warned against a “bank bashing bonanza”.
“The Australian community needs to remember that we do have a strong banking sector,” Ms Westacott said.
“If we don’t have it, those people in the communities who desperately need the credit so they can ramp up, stay in business, do not want the unintended consequence of a bank bashing spree that will make credit harder and make our institutions weaker.”
‘WESTPAC’S BEHAVIOUR NOTHING SHORT OF DISGRACEFUL’: CHALMERS
Investment groups had urged angry shareholders to reject the lender’s remuneration report for a second consecutive year, while Prime Minister Scott Morrison had been among those calling for Westpac’s board to show accountability.
Westpac faces a huge fine and its reputation is in tatters after financial crime watchdog AUSTRAC accused it of 23 million breaches of money laundering laws, and failing to properly monitor payments potentially linked to the streaming of child exploitation.
Federal MPs welcomed Mr Hartzer’s resignation.
“I think it’s welcome, I think it’s appropriate,” cabinet minister Greg Hunt told Sky News.
Shadow treasurer Jim Chalmers told reporters: “The behaviour at Westpac under Brian Hartzer’s leadership was nothing short of disgraceful.”
It comes after Mr Hartzer reportedly told staff that “for people in mainstream Australia … this is not a major issue”, referring to the paedophile money scandal in the Philippines that has rocked the bank.
The Australian reports that in an hour-long, closed door meeting held on Monday morning, Mr Hartzer said the scandal was “no Enron or Lehman Brothers” and that “we don’t need to overcook this” as most Australians would not be overly concerned by the allegations.
“We all read the Fin (The Financial Review) and The Australian, and we all read that and think the world is ending,” he said according to The Australian.
“But actually for people in mainstream Australia going about their daily lives, this is not a major issue so we don’t need to overcook this.”
Mr Hartzer instead encouraged his employees to focus on getting “mortgages going and we’ve got to get NPS (net promoter score) going”, according to The Australian.
Mr Hartzer also said that the bank’s planned Christmas parties would have to be cancelled that year.
“Unfortunately in the heightened media environment it will not look good if we have our staff whooping it up with alcohol,” he said.
Mr. Hartzer notified employees of the decision to cancel the parties in an email that was sent on Monday afternoon.
WHAT WAS UNCOVERED
Financial crime watchdog Austrac alleged that Westpac failed in its duty to properly assess, monitor and record millions of potentially suspicious money transfers to and from international banking partners for at least six years.
Another of AUSTRAC’s findings is that Westpac failed to carry out due diligence on 12 customers who sent money to the Philippines and South East Asia for known child exploitation risks via LitePay, a low-cost international payment service called LitePay, which facilitates low-value international transfers out of Australia, including to ‘higher risk’ jurisdictions.
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AUSTRAC identified 23 million breaches of anti-money laundering and terrorism funding laws between 2013 and 2018, and is pursuing a fine of up to $21 million for each breach.
Meanwhile, Nine Newspapers reports that the corporate watchdog has launched an investigation into Westpac over potential legal breaches linked to the bank’s money laundering compliance scandal, ahead of a series of critical meetings between chairman Lindsay Maxsted and investors.
The Australian Securities and Investments Commission (ASIC) on Monday took the unusual step of publicly confirming it had started looking into possible breaches of laws it administers — most likely a reference to the Corporations Act.
Mr. Hartzer, who has been under pressure to step down, spent Monday morning calling Westpac’s largest customers, pleading with them to stick by the bank in its time of crisis.
The money-laundering scandal has wiped more than $8b off the bank’s market capitalisation and analysts say its share price will remain under pressure in the absence of a leadership change.
In closing Monday morning’s briefing, Mr Hartzer said, “This is not an Enron or Lehman Brothers, we will get through this. What I need you to do more than anything is keep this business going.”
Westpac has lost as much as $8.06 billion from its market capitalisation since AUSTRAC announced last week it was taking the bank to court.
Westpac shares lost another 1.3 per cent on Monday, having hit a fresh 10-month low in the session.
Mr Hartzer’s departure will leave ANZ as the only one of Australia’s big four banks with the same CEO it had before the financial services royal commission was announced in November 2017.
Commonwealth Bank’s Ian Narev left in 2018 shortly before the bank agreed to pay a record $700 million fine for 53,000 breaches on money-laundering laws.
NAB, which has admitted it faces the prospect of a huge fine for multiple possible breaches of the same laws, lost chief executive Andrew Thorburn in February.
Mr Thorburn stepped down after Kenneth Hayne’s final royal commission report expressed serious concerns about his leadership amid failings that included charging fees for no service.
Originally published as Westpac payments scandal: Josh Frydenberg confirms bosses face tough new legal regime
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