Westpac, Austrac argue over who’s to blame, delaying scandal settlement

Arguments over where responsibility for the child exploitation scandal rests is delaying any settlement.

Westpac CFO Peter King was appointed acting chief executive officer in November after CEO Brian Hartzer resigned. Picture: Jane Dempster

A looming settlement between Westpac and the anti-money laundering regulator is being delayed by arguments between the bank and Austrac over whether responsibility for the child exploitation scandal rests with the company’s board and senior executives or its middle management, a court has heard.

At the first case management hearing for Austrac’s explosive lawsuit against the nation’s oldest bank, Westpac said it would not fight a large degree of the millions of alleged breaches of law levelled against it, paving the way for a potential settlement analysts believe could be as high as $1bn.

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The regulator’s barrister, Simon White SC, also said there was a strong chance the financial intelligence agency and Westpac would produce an agreed statement of facts by late February.

Last month, Austrac accused Westpac of 23 million breaches of anti-money laundering legislation, including allegations it failed to act when it was facilitating thousands of child exploitation payments to The Philippines and Southeast Asia, among claims it failed to properly monitor billions of dollars in international money transfers, known as IFTIs, or report those transactions to regulators.

Westpac is also bracing itself for a second-strike and a potential spilling of its board directors at its annual general meeting on Thursday as shareholders look to vent their anger at the scandal.

Mr White said the government solicitor and Westpac were “attempting to narrow significantly” the areas of Austrac’s statement of claim which are in dispute.

In its statement of claim, Austrac slammed “indifference by senior management and inadequate oversight” of the bank’s compliance regime as a factor in its alleged noncompliance with anti-money laundering laws. Picture: Getty Images

“I am confident in saying there will be a significant degree of commonality,” Mr White said. “There will only be a small number of disputes by February, if any. A large number of matters that are set out in the claim will be agreed. If there are any matters in dispute, there is a good chance they will be agreed by February. We will then be asking for relief, by way of penalty,” he said.

Westpac’s solicitor, Ruth Higgins SC, of Banco Chambers, said the resolving matters that were in dispute were “progressed expeditiously” and asked that the next hearing be slated for the last week of February, which could be the trigger point for penalty proceedings.

Federal Court Chief Justice James Allsop raised the prospect the court may have to hold an “important consideration of the role of executive and non-executive directors” in the law, and noted that the “subject of middle management and senior management” and the “operating structure of a large financial institution” in its compliance would be “at the centre of the debate”.

In its statement of claim, Austrac slammed “indifference by senior management and inadequate oversight” of the bank’s compliance regime as a factor in its alleged noncompliance with anti-money laundering laws.

Last month, The Australian revealed internal Westpac breach memos had warned management they were failed to take responsibility for “monitoring and overseeing” the reporting of international transfers and that the-to-end” process for reporting transactions to the regulator was “not clearly understood” by senior bankers.

Westpac has also been hit by claims that it demoted the compliance officer who raised the issue inside the company.

Chief executive Brian Hartzer (right) resigned from the company and chairman Lindsay Maxsted flagged his early retirement. Picture: Colin Murty

Chief executive Brian Hartzer resigned from the company late last month and chairman Lindsay Maxsted has flagged his early retirement. Board director Ewen Crouch, a member of the Westpac risk and compliance committee, has also resigned.

The Australian Prudential Regulation Authority has raised the prospect it could disqualify Westpac directors and executives if they breached the executive accountability regime, while the Australian Securities & Investments Commission has confirmed it is investigating Westpac over “possible breaches of legislation”, including disclosure obligations and directors’ duties relating to the Austrac lawsuit.

In 2017, Commonwealth Bank was sued in the Federal Court by Austrac over 50,000 instances where it broke the law, ultimately leading to a record-breaking $700m fine. Mr White acted for Austrac in its case against CBA, while Ms Higgins advised CBA. John Sheahan, QC, who represented CBA, has also been hired by Westpac. Both Ms Higgins and Mr Sheahan advised Westpac during the royal commission.

Law firm Phi Finney McDonald also said it is investigating Westpac, as it mulls whether to file a shareholder class action lawsuit.