Austrac Westpac allegations aimed at board, CEO Brian Hartzer

Westpac CEO Brian Hartzer. Picture: AAP

Austrac’s court documents in its civil case against Westpac over “systemic” non-compliance with anti-money laundering legislation are absolutely devastating for the bank.

It’s deeply shameful for Westpac to be linked with a failure to carry out appropriate due diligence on 12 of its customers in order to identify and mitigate “known child exploitation risks”, as Austrac alleges.

Since at least 2013, the bank was aware of the risks associated with frequent, low-value transactions, but did not implement automated detection processes for its LitePay channel until June last year, regulators allege.

According to Austrac, some of the undetected transactions involved payments to alleged or suspected child exploitation facilitators.

READ MORE: Westpac sued by Austrac over anti-money laundering rules, child exploitation risks | PM: Banks must lift their game

One customer opened a number of Westpac accounts after serving a custodial sentence or child exploitation offences.

While Westpac identified activity on one account, it allegedly failed to promptly review activity on other accounts, with this customer continuing to send frequent low-value payments to the Philippines through channels that were not appropriately monitored.

Like with Commonwealth Bank’s money laundering crisis in 2017, which led to the imposition of a $700 million penalty, Austrac is giving Westpac a crash course on the practical implications of its apparent indifference to the law.

This is profoundly embarrassing for the bank, but in a technical, governance sense it gets worse.

That’s because Austrac clearly has management and the board in its sights.

Chief executive Brian Hartzer and chairman Lindsay Maxsted are likely to remember paragraph four of Austrac’s summary of important facts, in a similar way to Andrew Thorburn and Ken Henry’s recollection of page 411 of royal commissioner Ken Hayne’s final report.

Hayne sealed the fate of both men by saying that National Australia Bank had not learned the lessons of the past, and there was still a wide gap between NAB’s public face and what it did in practice.

Within a week, Thorburn and Henry had resigned.

In a similar vein, Austrac said Westpac had contravened the Act on more than 23 million occasions, with each transgression attracting a civil penalty of $17m to $21m.

The agency then rolled out its killer lines: “These contraventions are the result of systemic failures in its control environment, indifference by senior management and inadequate oversight by the board.

“They stemmed from Westpac’s failure to properly resource its AML/CTF (anti-money laundering/counter-terrorism financing function), to invest in appropriate IT systems and automated solutions, and to remediate known compliance issues in a timely manner.

“They have occurred because Westpac adopted an ad hoc approach to ML/TF risk management and compliance.”

The future of Westpac’s senior management and board depends very much on their handling of the next few days.

The worst thing they could do is retreat into the bunker and fight a war of attrition with Austrac.

But even with the best will in the world, there are going to be casualties.

It’s just a matter of how far accountability is going to rise up the chain of command.