Westpac: Customer 12’s suspicious action that led bank to $1.3bn Austrac fine

If it wasn’t for a single customer acting suspiciously in a branch, the lid may never have blown off a shocking scandal that has cost the bank dearly.

On a June day last year, a Westpac customer walked into his local branch.

He was just one of many who would have popped in to talk about mortgages, deposit the day’s takings or maybe ask about opening a new account.

But to the eagle-eyed teller, something didn’t seem right about the person now referred to as “Customer 12”. Alarm bells were ringing.

Despite all of Westpac’s sophisticated computer systems and its legions of head office staff, it was this teller in a local branch, who was rattled by a single customer’s suspicious behaviour, that led to the discovery of a $11 billion child exploitation network facilitated by the bank.

Even when Westpac uncovered that Customer 12 had a conviction for child exploitation offences and was making transactions that had all the hallmarks of international abuse, he was able to continue to make worrying payments from his account for months.

On Thursday, Westpac was fined $1.3 billion by financial crimes regulator Austrac for failing to stop transactions that funded child sex trafficking.

The country’s second largest bank agreed to pay the largest civil fine in Australian history, after admitting to 23 million breaches of financial crime laws relating to international transfers and transactions that funded terrorism and human trafficking to the tune of $11 billion for years.

Westpac has been fined $1.3bn for facilitating payments that aided in child exploitation. Picture: David Geraghty.

CUSTOMER 12

In the statement of agreed facts it was revealed one Westpac customer had funded $40,000 relating to child exploitation syndicates in the Philippines from 2014 to 2018.

Most of the breaches concerned multiple low value money transfers that the bank paid less attention too. And they were done via Westpac payments systems which required minimal information to be provided by the sender.

In total, 262 paedophiles are thought to have used Westpac accounts to facilitate paedophilia.

But none of the appalling behaviour might have come to light were it not for Customer 12’s trip to his local Westpac bank branch on June 4, 2019.

He had banked with Westpac since 2001 and had been conducting what later investigations deemed to be suspicious transactions since 2016.

“A manual alert was raised by a Westpac staff member who identified potentially suspicious activity through face-to-face interactions with Customer 12,” the facts stated.

“The potentially suspicious activity concerned payments Customer 12 has made to the Philippines.

“As a result of this manual alert being raised, further investigations identified that Customer 12 had a conviction for child exploitation offences.”

It would take a further week for the bank to inform Austrac

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Much of the money was transferred to accounts in the Philippines. Picture: AFP PHOTO / NOEL CELIS.

WESTPAC SLAMMED

Then Westpac’s processes slowed down. It would take more than a month, until July 13, before Westpac decided to “exit the customer”, or close down his bank accounts.

He was sent a letter informing him of that decision on July 17. But the accounts were not actually closed until August 19, two and a half months following the first red flags noted by the teller.

For all that time, Customer 12 was able to transact on the account without any heightened restrictions in place, despite the child exploitation conviction, until it was finally closed down.

“During the period 10 June 2019 to 19 August 2019, Customer 12 made nine, low value transfers through one account which was consistent with (child exploitation).”

The report said that had Westpac paid more attention to Customer 12’s transactions when he first rang alarm bells it might have been more wary of allowing those transfers to take place.

During the Austrac investigation it came to light that 262 other customers had engaged in financial activity that raised concerns of paedophilia.

Yet Westpac’s systems, that were designed to highlight suspicious activity, sometimes failed to do so for years.

In one case, a customer had been sending low value transfers to countries with a history of child sex crimes for more than five years before Westpac alerted AUSTRAC.

One of the 262 customers only had his account closed in July this year.

“Westpac failed to identify activity potentially indicative of child exploitation risks by failing to implement appropriate transaction monitoring detection scenarios,” Austrac said in a statement.

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The $1.3bn fine is the largest in Australian civil history. Picture: Mark Metcalfe/Getty Images.

The bank had originally admitted to about 19 million of the financial crime violations after an internal compliance probe, instead of the 23 million alleged by Austrac.

The breaches were made to four overseas banks, with the processing errors related to a Westpac end-to-end technology system that did not properly record payment information.

Transfer issues also related to the installation of the LitePay payments product within the bank that facilitated overseas money transactions of up to $3000.

Austrac and the Attorney-General’s office have previously warned frequent low value payments to the Philippines could be at risk of being related to child exploitation rings.

The regulator had looked to extract $1.5bn from Westpac, with the bank aiming for a $900 million penalty. Eventually the fine came in at $1.3bn.

Westpac chief executive Peter King apologised for its failings in the bank’s systems.

“We are committed to fixing the issues to ensure that these mistakes do not happen again,” he said.

“This has been my number one priority. We have also closed down relevant products and reported all relevant historical transactions.”

After the revelations by Austrac, Westpac’s then chief executive Brian Hartzer and chairman Lindsay Maxsted were forced to depart the bank.

Westpac’s fine dwarfs the $700 million penalty that Commonwealth Bank was forced to pay in 2018, after Austrac revealed uncapped deposits on ATMs had allowed arms and drug dealers to launder money into bank accounts.

Mr King said the bank was strengthening its abilities to identify suspicious behaviour, recruiting 200 financial crime employees.

“Westpac has made substantial investments to strengthen its systems, processes and

controls to detect and report suspicious transactions,” he said.

“We are determined to continually lift our financial crime standards, comply with our

obligations and uphold our customer, community, and regulatory expectations.”