Westpac blames IT project mess for money-laundering scandal

A botched IT project was behind Westpac’s money laundering and child exploitation scandal, the bank’s advisory panel report says.

Westpac CEO Peter King. Picture: Nikki Short

A botched IT project lay the groundwork for Westpac’s money laundering and child exploitation scandal that would later claim the scalp of its chief executive and force its chairman into an early retirement.

The “relatively small” IT project, embarked on a decade ago, involved a software upgrade and “complex plumbing” that would connect to other systems. But it was poorly executed and automatic reporting of international money transfers between Westpac and a small number of international banks didn’t work properly.

This compliance failure led to the bank breaching anti-money- laundering laws 23 million times between 2013 and 2018, before it reviewed its systems, discovered the errors and reported them to the financial crimes regulator.

“The ignition event for the international funds transfer instructions breaches occurred in 2010 and the problem persisted for some years until self-reported by Westpac,” an advisory panel report released by the bank on Thursday said.

“A relatively small IT project involving a software upgrade and complex plumbing to connect to other systems was not completed satisfactorily and resulted in regulatory reporting deficiencies, which the bank’s control and reconciliation processes failed to detect for some years,” it noted.

Of the 23 million breaches, more than 19 million were due to the bank failing to report international funds transfers to Austrac. The remaining breaches saw it either fail to properly record the transfers or to report them late.

Westpac on Thursday pointed to a lack of resources in the technology team at the time the international transfer program was being put in place in 2009 as a cause for its failure.

“In 2011-12, there was also a high turnover of staff where a whole team departed to join another organisation. The loss of continuity and specialist knowledge associated with these departures contributed to the implementation errors,” it said.

“For the large majority of the non-reported international funds transfer instructions, failings can be traced back to the international fund transfer instruction implementation program which started in 2009, where resource constraints in the relevant technology team impacted the successful implementation of the project,” Westpac admitted.

The advisory panel of former Telstra chief executive Ziggy Switkowski and corporate veterans Kerry Schott and Colin Carter were tasked with investigating the failures that led to the anti-money-laundering breaches and how the Westpac board handled its obligations. As part of its report the panel also noted the rapid technological changes of the last decade that have led to increased attention on cyber security.

“Heavy continuing investments in IT infrastructure are required. These put upward pressure on costs and downward pressure on margins. Companies have decisions to make in striking the right balance,” the report said.

“A subsidiary question arising from this review is whether the Westpac technology platforms are best practice and what part they played in Westpac’s capacity to deal with anti-money-laundering and counter-terrorism financing obligations?,” the panel asked.