ASIC confirms Westpac investigation over Austrac claims

Corporate watchdog ASIC has joined the ranks of regulators wanting to put Westpac under the microscope.

ASIC chairman James Shipton. Picture: Getty Images

The corporate watchdog has confirmed it is investigating Westpac over its alleged 23 million breaches of anti-money-laundering and counter-terrorism financing laws.

An Australian Securities & Investments Commission representative told The Australian on Monday an investigation had commenced “concerning possible breaches of legislation it administers arising from Austrac’s actions in relation to Westpac”.

The confirmation comes after The Australian revealed the regulator was examining whether to take legal action against Westpac.

Any action taken would likely centre on whether Westpac directors breached their duties, including the best interests duty, and ­whether they breached section 912A of the Corporations Act 2001, which deals with general obligations to act “effici­ently, honestly and fairly”.

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ASIC may also look at Westpac’s $2 billion capital raising earlier this month and assess whether it breached its disclosure obligations.

The ASIC investigation comes after banking regulator APRA also confirmed it was investigating Westpac over governance issues.

“The Australian Prudential Regulation Authority is considering whether the alleged breaches (and any potential penalties) have implications under BEAR, or raise other prudential concerns that require a response from APRA,” a spokesman told The Australian.

Austrac last week launched legal action in the Federal Court against Westpac over 23 million alleged breaches of anti-money laundering and counter-terrorism financing laws. The allegations ­include funds transfers that facilitated child exploitation.

The scandal wiped more than $6.5bn off the bank’s market capitalisation last week and analysts say its share price will remain under pressure in the absence of a leadership change.

The shares were down a further 1.33 per cent in afternoon trade on Monday.

Bigger hit

Investors are bracing for Westpac to be hit with an even greater penalty than the $700m fine handed down to CBA mid-last year over its own anti-money laundering law breaches, in what is likely to be the biggest fine in corporate Australia’s history.

“Twenty three million (breaches) by $20m a pop, and Westpac ceases to exist. That is not what the penalty will be. The whole idea of a civil penalty is to extract something, cause a little bit of pain and make sure the industry knows that you don’t do this again … I would think now, after (Attorney-General) Christian Porter is involved, the base level of what is deemed acceptable by society is a number greater than $700m,” Jefferies banking analyst Brian Johnson said.

Meanwhile ratings agency Moody’s warned Westpac’s alleged legal breaches, and uncertainties around potential fines, could see its credit rating take a hit.

“The allegations are credit negative because of the damage to the bank’s reputation and the adverse financial impact from potential fines and costs related to remedial actions,” Moody’s said in a note to clients.

“Compliance problems of this nature also highlight the corporate governance challenges of maintaining tight controls at large and complex institutions, and the negative spillover effects for the banks’ reputations,” the credit ratings agency said.