Scandal-hit Westpac executives still in the money

Bosses still eligible for bonuses, undermining efforts to shut down a child-sex payments scandal.

Westpac CEO Brian Hartzer speaks during a hearing of the House Economics Committee at Parliament, November 2019. Picture: AAP

Westpac’s top executives are still in line for millions of dollars in long-term bonuses, undermining the bank’s efforts to shut down a child-sex payments scandal.

The government on Sunday ramped up pressure on the ­nation’s oldest bank, with Josh Frydenberg warning Westpac ­directors and executives could be disqualified.

In a bid to contain the crisis, chairman Lindsay Maxsted unveiled a three-point plan to deal with claims the bank failed to monitor international payments linked to child trafficking and child pornography.

READ MORE: ‘No grounds to sack Hartzer’ | BEAR trap for Westpac execs | Board survival matter for investors | Westpac chairman promises urgent fix | Inquirer: A trail of child exploitation

Mr Maxsted stopped short of offering the board’s full support for embattled chief executive Brian Hartzer.

“There’s always an override on this,” Mr Maxsted told The Australian. “We’re here to act in the best interests of the company, and if there’s no investor support for Brian to be chief executive then it can’t be in the best interests of the company.”

He also declared that short-term bonus payments would be scrapped for Westpac’s full executive team and several members of the general management team “subject to the assessment of ­accountability”.

However, the executives were still in line for long-term share-based payments, which for Mr Hartzer in the 2019 financial year amounted to more than $2.2m.

Westpac was rocked on Wednesday by a 47-page statement of claim from Austrac which alleged that the bank had breached anti-money-laundering and counter-terrorism financing laws on more than 23 million occasions.

It also failed to report more than 19.5 million international fund transfers over nearly five years.

There was uproar, however, over the bank’s failure to carry out proper checks on customer transactions to The Philippines and Southeast Asia.

The Treasurer said there were “very serious issues both in terms of the nature and number of ­alleged breaches by Westpac”.

Mr Frydenberg told the ABC’s Insiders program that he had ­spoken to Mr Maxsted and Mr Hartzer and made clear the seriousness of the issues. “We’re talking about a failure to adequately assess customers with links to child trafficking and child pornography,” he said.

“And we’ve seen from Austrac a statement that there has been indifference by the board; that there’s been a systemic failure by the bank and there’s been inadequate oversight.”

The prudential regulator APRA is preparing for talks with Austrac and Westpac executives this week.

Westpac CEO Brian Hartzer driving into his home in Sydney’s eastern suburbs. Picture: Adam Yip

Mr Frydenberg, however, said APRA could disqualify directors and executives under the Banking Executive Accountability Regime if there was a failure to appropriately enforce and uphold the ­duties under the legislation.

“There must be accountability,” he said. “Austrac have been highly critical in their statement. And now APRA is looking into it.”

APRA, he said, could also apply to the court for fines of up to $500m for organisations, and that every financial institution in the country should “uphold the law”.

Westpac said on Sunday it had filed suspicious matter reports on 12 customers before it received Austrac’s claim on Wednesday, but accepted it should have implemented more robust monitoring.

The bank said it first learnt Austrac had specific concerns in relation to the 12 customers on November 15, and only learnt about specific allegations of child trafficking and child pornography when it received the agency’s statement of claim.

Opposition Leader Anthony Albanese said on Sunday the Westpac CEO and the board “should accept responsibility”.

The fact is that the CEO and the board are responsible for this under the law … There’s been no proper explanation as to how this extraordinary breach of the law has occurred. And they need to fess up,” Mr Albanese said.

Mr Maxsted said in the coming weeks he would be talking to key investors ahead of the bank’s ­December 12 annual meeting, and taking soundings on the position of Mr Hartzer.

As to the daily speculation that it was only a matter of time before Mr Hartzer lost his job, Mr Maxsted said that the board had not asked for his resignation.

Westpac has been rocked by a 47-page statement of claim from Austrac which alleged that the bank had breached anti-money-laundering and counter-terrorism financing laws on more than 23 million occasions.

He said directors didn’t know all the circumstances surrounding the failure of the bank’s systems.

It wasn’t “unreasonable”, however, for Scott Morrison and the Treasurer to call for proper ­accountability.

Accountability would be considered as part of an independent review undertaken by an external expert, with the recommendations to be made public.

This was likely to take “closer to three to four months than three to four weeks”.

He said directors didn’t know all the circumstances surrounding the failure of the bank’s systems. As part of its response, Westpac said it had taken immediate action, including closure of the ­offending product LitePay which facilitated the low-value payments. While LitePay was now regarded as secure and compliant, Westpac had delayed an Austrac-required update in its transaction monitoring scenarios by a critical 18 months until June 2018.

Mr Maxsted said the product was shut down because of the legitimate anger and emotion surrounding its misuse. He also promised to lift the bank’s standards, including priority screening and improving data sharing across the industry, and making investments to reduce the human impact of financial crime.

The bank had doubled the resources dedicated to financial crime to about 750 people, and would add a further 200 people over the next 12 months.

It had also corrected the non-reporting of international funds transfer instructions to Austrac, a problem which generated the lion’s share of the 23 million contraventions of money-laundering laws. The prudential regulator APRA is preparing for talks with Austrac and Westpac executives this week.