Westpac chairman Lindsay Maxsted freezes exec bonuses, promises urgent fix

Chairman releases response plan including doubling of staff fighting financial crime, as bank battles dirty money allegations.

Westpac chairman Lindsay Maxsted. Picture: Hollie Adams

Under-fire Westpac is embarking on an action plan to cut or scrap executive bonuses, close tarnished products and plough funds into child protection, as it seeks to fend off calls for resignations after allegations it broke the law 23 million times.

It marks Westpac’s fourth statement since financial crimes regulator Austrac launched the landmark Federal Court action on Wednesday and the second official response by the bank’s board.

“We are determined to urgently fix these issues and lift our standards to ensure our anti-money laundering and other financial crime processes are industry leading. As a major bank we play a critical role in helping law enforcement agencies prevent criminals from carrying out illegal activity,” Westpac chairman Lindsay Maxsted said in a statement on Sunday.

Mr Maxsted and chief executive Brian Hartzer released Westpac’s response plan which focused on three areas.

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The bank will close its controversial LitePay product and wants to lift standards, including priority screening and improving cross-industry data sharing. The third leg is investments to “reduce the human impact” of financial crime.

Westpac’s board is holding firm on not standing down or sacking executives. On Friday, the board spared Mr Hartzer, despite growing political and shareholder pressure for accountability over the failings.

Westpac’s response also included increasing – by a further 200 – staff numbers in its financial crimes unit, setting up a board financial crime sub-committee to deal with the issues and investing $25m to bolster its cross-border and industry data sharing.

But Mr Maxsted joined Mr Hartzer, though, in hitting back at Austrac’s claim that management were indifferent to the compliance shortcomings.

“Based on its current understanding, the board does not believe that there has

been any indifference by any member of the executive team, including the CEO, but accepts that Westpac has fallen short of its own and regulatory expectations and that a detailed review is required to investigate the facts alleged by Austrac,” the statement said.

“The Westpac board understands the gravity of the issues presented by Austrac and reiterates its deep sorrow for failings by Westpac.”

Austrac started action in the Federal Court over 23 million alleged breaches of the law, including funds transfers that facilitated money laundering and child exploitation.

The allegations included not properly monitoring international funds transfers and shocking claims that the bank failed to properly assess 12 customers with links to child pornography and sexual exploitation in The Philippines and South East Asia.

Sunday’s statement also said accountability would be felt through partial or full bonus cuts for the entire Westpac executive team.

“We accept that we have fallen short of both our own and regulators’ standards and are

determined to get all the facts and assess accountability,” Mr Maxsted added.

“In the interim, the board has determined that either all or part of the grant of the 2019

Short Term Variable Reward will be withheld for the full executive team and several

members of the general management team subject to the assessment of accountability.

“We recognise the seriousness of these events and that is why we will appoint an

external expert to provide independent oversight of the process. We will make the recommendations public.”

The independent experts will oversee a “multi-layered” review of what occurred, and on Friday the bank said investors could expect an update in coming days.

Mr Maxsted said that over the past two years Westpac had “recognised the need for uplift” in its surveillance of financial and other serious crimes.

Completed actions over that time included correcting the international funds transfer instructions issue and consolidating different financial crime systems into a single technology system.

He noted that the bank had doubled resourcing dedicated to financial crime to around 750 people and planned in the 2020 year to add a further 200 positions.

The statement also said the bank had developed a Financial Crime Strategic Plan, which was shared with Austrac and made changes – including several external hires – to the leadership of Westpac’s risk and financial crime areas.

Westpac’s Sunday statement comes after Treasurer Josh Frydenberg flagged the prospect of the bank’s executives being disqualified by the Australian Prudential Regulation Authority and the imposition of hefty financial penalties.

He also warned that there was a lack of “trust and confidence” among the public towards leading financial institutions and stressed the importance of accountability for compliance failings.

Mr Frydenberg confirmed that he had already spoken to Westpac chief executive, Brian Hartzer, as well as Westpac chair, Lindsay Maxsted, saying he “made very clear the seriousness of these issues”.

Prime Minister Scott Morrison last week made repeated pleas to Westpac’s board to take action over the Austrac scandal, stopping only just short of calling for heads to roll.

“They have got to take the calls that I think reassure people’s confidence in the bank’s systems and the processes they have, and that there is accountability that is at work in these institutions,” he said on Friday.

Austrac’s statement of claim included the damning accusation that the issues were “the result of systemic failures in its control environment, indifference by senior management and inadequate oversight by the board”.

Fund managers and analysts are factoring in the possibility of a penalty that could top $1bn and spur higher spending on compliance. The bank has to front investors at an annual general meeting on December 12, in what is expected to be a fiery affair.

The action plan released by Westpac included ploughing funds into child protection agencies.

Among those, the bank said it will match International Justice Mission’s current level of funding, investing $18 million over three years to tackle Online Sexual Exploitation of Children (OSEC) in the Philippines.