Westpac braces for record fine over AUSTRAC scandal

Westpac is setting aside enough money to cover what would be the biggest fine in Australian corporate history over a money laundering scandal that saw the country's oldest bank lose its chief executive and chairman.

The bank on Tuesday said it had provisioned $900 million for its "potential liability" over the lawsuit launched last year by the financial intelligence agency, AUSTRAC.

Westpac has taken a $900 million provision to cover the fine it will face over a money laundering scandal.Credit: Nine

The actual fine paid by Westpac will be set by the Federal Court, and Westpac said there was "considerable uncertainty" as to how the court would determine a penalty. The case is still before the court, and Westpac said there was the possibility it would agree on a fine with AUSTRAC.

But if the fine does end up being $900 million, which is roughly in line with analyst estimates, it would be a new record corporate fine in Australia, surpassing Commonwealth Bank's $700 million settlement, also with AUSTRAC, in 2018.

In its case against Westpac last year, AUSTRAC accused the bank of 23 million breaches of anti-money laundering and counter-terrorism finance laws, including failing to properly vet thousands of transactions that could be linked to child exploitation and live child sex shows in the Philippines and other parts of south-east Asia.

Westpac revealed the provision on Tuesday as it said upcoming profits would also be hit by refund payments to customers and a "significant" increase in its provisions for bad debts as a result of the coronavirus pandemic.

On top of the $900 million provision for a fine, the bank is also setting aside $160 million for its response plan to the scandal, which includes beefing up its financial crimes detection and funding for organisations that work to eliminate child exploitation.

Chief executive Peter King said he would aim to fix the problems that triggered AUSTRAC's lawsuit, and re-iterated that accountability within the bank would be a key focus while he was in charge.

"In addition to closing relevant products and recruiting an additional 200 people in financial crime and compliance, I am putting in place a clearer accountability regime that will speed up decision making, improve implementation and more clearly define responsibility and its associated risk management," Mr King said in a statement.

AUSTRAC's case against Westpac was one of the biggest crises to rock the bank in its more than 200-year history. Within days of being filed, the lawsuit triggered a shareholder backlash that led to former chief executive Brian Hartzer resigning, to be replaced by Mr King, the former chief financial officer.

Former chairman Lindsay Maxsted also stepped down early in response to the crisis — he was replaced by new chairman John McFarlane, a former CEO of ANZ Bank.