Austrac probed Westpac about payments earlier

Austrac probed Westpac about customers and transactions linked to child exploitation payments six weeks before going to court.

The bank had warned investors in its November 4 annual report that the bank could be subject to a “significant financial penalty”. Picture: Getty Images.

Austrac probed Westpac for specific information about customers and transactions that were later revealed to be linked to child exploitation payments at least six weeks before the regulator filed its lawsuit in the Federal Court.

The final compulsory information request from the anti-money laundering regulator, made weeks before it sued the bank over 23 million alleged breaches of the law, included specific requests for information relating to transactions by 12 individual customers who sent almost $500,000 in thousands of small payments to individuals in The Philippines.

According to Austrac’s statement of claim, not one transaction triggered an action from Westpac, despite the bank being aware the pattern of behaviour evidenced in the transactions was probably linked to child exploitation.

Westpac has claimed it remained unaware of the specific allegations relating to financing child exploitation until the claims were made public by Austrac on Wednesday, November 20.

The bank had warned investors in its November 4 annual report that the bank could be subject to a “significant financial penalty” after it failed to self-report a “large number” of international transfers in line with its legal requirements.

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Its final formal request for information from Westpac is understood to have taken place from October 7 to 11, when Austrac signalled to the bank it was close to finalising its investigation. Austrac was not completely aware some of the millions of unreported international transactions were linked to child exploitation payments until it examined packages of the failed IFTI reports.

It was at this point, late in Austrac’s investigation, that the regulator asked the bank to clarify details relating to a small number of customer accounts, the nature of payment histories, and Westpac’s monitoring of those accounts in a compulsory request for information.

Under section 167 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, Austrac has the power to obtain documents from Westpac.

As part of its request, Austrac told the bank it had “reasonable grounds” to believe Westpac had “information and documents that are relevant to the operation” of anti-money laundering laws.

Westpac compliance staff were given just four weeks’ notice under threat of imprisonment for six months and a fine of more than $6000 if it failed to comply, in line with usual Austrac procedures.

Outgoing chairman Lindsay Maxsted on Thursday said Westpac would set up a panel of independent experts to advise the company whether more board directors should be forced out of the business, following his resignation this week and that of chief executive Brian Hartzer and director Ewen Crouch.

“Westpac is determined to urgently address the issues that have given rise to the Austrac statement of claim,” Mr Maxsted said. “We are genuinely remorseful for any hurt caused by the shortcomings in our systems and processes and understand we need to find the root causes and ensure accountability,” he said.

The review has been launched to determine what was known at the highest ranks of the company and when, and where responsibility for the alleged failures rests.

On Thursday, Westpac said retail investors who bought shares as part of the bank’s current capital raising, announced a week before the Austrac revelations, now had the option to pull out of the scheme.

Westpac on November 4 announced a $2.5bn capital raising alongside its full year results and the warning that its “failure” to provide Austrac with transaction reports could result in a large fine. The raising consisted of a $2bn share placement with institutional investors and a $500m share purchase plan for retail shareholders.

John Abernethy, chairman of Clime Capital, said the “consequences of a capital raising in an uninformed market is significant”.

“It would become a contentious legal issue if ASIC finds that it was a not fully informed market because of the Austrac issues. Then Westpac will be of a world of pain,” Mr Abernethy said.

Since Austrac lodged its case in the Federal Court, Westpac shares have lost about $7bn in value. The Australian Securities & Investments Commission in recent days held discussions with Westpac outlining its concerns for retail shareholders who bought into the purchase plan before the scandal went public.

Among the 12 Westpac customers mentioned in Austrac’s statement of claim was one with a conviction for child sex offences. Six of the dozen customers also had accounts allegedly showing evidence of them travelling to The Philippines and other Southeast Asian countries.

One customer was able to transfer $32,000 over the 18 months after the bank first identified the activity as “indicative of child exploitation typologies” in March 2018. That customer also is alleged to have travelled to The Philippines since that first red flag appeared.

The AFP last week confirmed it has been working with Austrac.

Additional reporting: Bridget Carter