Austrac urged to draw line on Westpac claims in child exploitation case

The Federal Court has set out its timeline for the case as Austrac mulls the prospect of additional allegations.

Westpac’s barrister John Sheahan, QC, said the new matters could see the bank providing the regulator with tens of thousands of further documents making an earlier court timeline difficult to meet. Picture: David Clark

Westpac and Austrac won’t square off in the Federal Court over outstanding differences on 23 million alleged legal breaches until 2021, although the presiding judge warned the financial crimes regulator to draw a line under adding to the case.

In a Federal Court case management hearing on Wednesday, Judge Jonathan Beach said he hoped a hearing over liability would be scheduled for the first half of calendar 2021, but noted it should occur “ideally in the first three months of 2021”.

Justice Beach added that there “wasn’t sufficient agreement” to produce a statement of agreed facts between Austrac and Westpac in the legal case brought by the regulator.

“That hasn’t borne terribly much fruit at the moment,” he said, noting that the significant point of contention between the parties was whether Westpac’s anti-money laundering and counter terrorism financing program was sufficient and in place.

Justice Beach was pressing the parties for an earlier detailed hearing this year on their outstanding matters, but both sides took the view it would take time to sift through additional material Austrac was seeking to potentially broaden its case against the bank. That material could span tens of thousands of documents.

Austrac’s initial and damning case against Westpac, lodged in November, alleged 23 million breaches of the law including helping to facilitate payments linked to child exploitation material by 12 customers.

A financial settlement hasn’t been reached as Westpac has set aside $900m for a potential penalty, while Austrac is said to be pushing for $1.5bn.

The case management hearing came hours before Westpac executed a sell down of its remaining 9.5 per cent in ASX-listed fund manager Pendal. The bank said the divestment would boost its core capital position by two basis points and result in a post-tax accounting gain of $32m in the six months ended September 30.

The financial crimes case took a twist last week when Westpac disclosed that Austrac was considering amending its initial claim to include further transactions that were deemed suspicious, reported late or went unreported.

Those additional matters include payments by as many as 272 customers that are potentially linked to paedophile activity.

Westpac’s barrister John Sheahan, QC, said the new matters could see the bank providing the regulator with tens of thousands of further documents, making an earlier court timeline difficult to meet.

“Complying with the timetable that is proposed in the orders will be, I think, challenging but it’s not a bad idea to set a challenging timetable,” he added.

“There has to come a point where new issues stop being loaded into this existing proceeding.”

Justice Beach agreed that Austrac had to draw a line under continuing to add to the initial legal claim.

“We do need to guillotine it at some stage so that we can formulate the boundaries and content of a short trial on liability... and then the penalty phase,” he said.

Austrac’s barrister Wendy Harris, QC, was arguing the Westpac matter be heard next year to allow time to sift through and examine the additional material.

“There is a real prospect that the Austrac CEO will complete an investigation and say ‘we need to put forward some additional allegations’ within that suite,” she said, noting that hearing the case this year could be counter-productive. “It’s likely to be the short cut that ends up being the long way home... we need this time to explore.”

Justice Beach also told Mr Sheahan it was his responsibility to inform the court of any subsequent legal action against Westpac by the corporate regulator or Australian Prudential Regulation Authority.

Following his comments, APRA released a statement on Wednesday noting it had delegated “certain enforcement powers” to the Australian Securities and Investments Commission in connection with its Westpac investigations. APRA started a Westpac probe in December and ASIC continues to investigate the chain of events that led to the court action and the bank’s disclosures around a capital raising late last year.

Earlier this month, The Australian revealed ASIC had hit Westpac executives and managers embroiled in the scandal with compulsory examination orders which compelled them to attend in-depth interviews with the regulator.

After Austrac’s November case was lodged, new transactions were self-reported by Westpac after further review, that related to suspicious matter reports being identified for as many as 272 customers. There were also threshold transaction reports above $10,000 – that were not submitted to Austrac – disclosed in Westpac's half-year results. The accounts showed Westpac was late in reporting 17,870 threshold transaction reports and as many as 90,000 that were not reported to the regulator at all.

The Federal Court on Wednesday also heard of an affidavit lodged by Austrac’s national manager for legal and policy Kathryn Haigh dated June 15. It related to a range of issues including the new transactions in question.

An amended statement of claim is due to be filed with the court on August 14, and the next case management hearing is scheduled for September 18.

While the parties prepare for the next phase, it also appears that mediation hasn’t completely ceased.

“I don’t think it has formally come to an end,” Ms Harris said.

Westpac’s Mr Sheahan pointed out, though, that Austrac had not responded to the bank’s version of an agreed statement of facts lodged with the regulator’s legal team in May. He also expressed hope the mediation process could be “re-enlivened down the track”.