Westpac accused of 23 million breaches by money laundering watchdog

Westpac has been accused by a powerful regulator of breaching Australia’s anti-money laundering and counter-terrorism finance laws 23 million times, 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.

Austrac said the breaches included a failure to "carry out appropriate customer due diligence on transactions to the Philippines and south-east Asia that have known financial indicators relating to potential child exploitation risks".Credit: Wayne Taylor

The financial intelligence agency AUSTRAC on Wednesday launched legal action against the bank alleging "systemic non-compliance" with the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act.

Breaches of the AML/CTF attract hefty penalties, with the Commonwealth Bank previously copping a $700 million fine, the biggest in Australian corporate history, for a mass breach of the Act. Westpac is accused of a far greater number of breaches than CBA.

"Westpac contravened the Act on over 23 million occasions. These contraventions are the result of systemic failures in its control environment, indifference by senior management and inadequate oversight by the board,” AUSTRAC said in a statement of claim filed with the Federal Court.

These breaches covered $11 billion of transactions and allegedly included not properly monitoring or not having proper systems in place to detect money laundering, counter-terrorism financing and child exploitation. Westpac said the majority of the transactions were pension payments from foreign governments to people living in Australia.

AUSTRAC alleges that Westpac's systems were used by 12 individuals to conduct almost 3000 transactions that were indicative of the patterns employed by people suspected to be involved in child exploitation. Included in this cohort was a customer with a prior conviction for child exploitation offences. One of the 12 Westpac customers allegedly made transfers totalling $132,000 including to a person in the Philippines who "was later arrested in November 2015 for child trafficking and child exploitation involving live streaming of child sex shows and offering children for sex".

Westpac still has not implemented appropriate automated detection scenarios to monitor for the known child exploitation risks through other channels. As a result, Westpac has failed to detect activity on its customers’ accounts that is indicative of child exploitation.

AUSTRAC

Other customers allegedly transferred large sums in manners which were allegedly indicative of child exploitation - including $75,000 for one customer, $62,000 for another.

All up, AUSTRAC alleges 2944 transactions totalling $480,000 that were indicative of child exploitation payments made by the 12 Westpac customers.

The agency has notified the police.

AUSTRAC is alleging major failings in Westpac’s dealings with foreign banks to which it offered banking services – known as "correspondent banks". The agency said the bank failed to properly report millions of money transfers coming into Australia through correspondent banks, as it is required to.

Shares in Westpac, which had previously told investors it was talking to AUSTRAC about large breaches involving international money transfers, closed down 3.3 per cent at $25.67.

Prime Minister Scott Morrison weighed in on the allegations, saying he was "absolutely appalled".

Chief executive Brian Hartzer on a media call on Wednesday afternoon dug in over his tenure at the bank amid a barrage of questions suggesting he ought to resign.

"Like everyone who has read the statement of claim, I am personally disgusted and appalled by the subject matter of some of these transactions. I deeply regret that this has occurred and I will get to the bottom of it and fix it," he said.

'Highly suspicious' payments

AUSTRACc alleges senior management within the bank were in 2016 briefed on the risks of sending payments to child exploitation hotspots via a low-cost international payment service, known as LitePay, but the bank did not introduce a system of detecting suspicious transactions on LitePay until mid-2018.

"Westpac still has not implemented appropriate automated detection scenarios to monitor for the known child exploitation risks through other channels,” AUSTRAC said. "As a result, Westpac has failed to detect activity on its customers’ accounts that is indicative of child exploitation.”

Austrac chief executive Nicole Rose said in a statement the "AML/CTF laws are in place to protect Australia’s financial system, businesses and the community from criminal exploitation. Serious and systemic non-compliance leaves our financial system open to being exploited by criminals."

AUSTRAC's statement said that each of the 23 million alleged contraventions attracted a civil penalty of between $17 million and $21 million.

The regulator noted that Westpac had disclosed the failures in its reporting, had co-operated with investigations and was improving its controls for anti-money laundering compliance. Ms Rose said in Canberra that the penalties were a matter for the courts.