Westpac hit with shareholder class action over Austrac child exploitation scandal

Institutional investors join from ‘across the world’, outraged by allegations of money laundering and child abuse links.

The Austrac case alleges the bank breached anti-money laundering regulation 23 million times. Picture: Getty Images

Westpac has been hit by its first shareholder class action over the child exploitation scandal engulfing the nation’s second largest bank.

Meanwhile, analysts are warning the lender will suffer at the hands of the newly launched prudential inquiry into the company.

Phi Finney McDonald filed its action against Westpac in the Federal Court on Monday evening and the law firm’s director Tim Finney said the group had been approached by institutional investors “across the world” who were outraged by the millions of allegations of anti-money laundering breaches facing the bank.

“The governance issues raised in this case are extremely serious, and the losses caused to our clients are substantial,” Mr Finney said.

The lawsuit, which covers shareholders who bought shares between December 2013 and November 2019, claims Westpac did not properly assess its money laundering and terrorism financing risks, that the bank did not conduct proper due diligence on its customers who authorities claim were using the lender to finance child exploitation material, that the bank did not report transactions to the regulator Austrac and had deficient systems to comply with the law.

Woodford Litigation Funding is financing the class action.

The news of the impending class action came after Westpac copped a fresh blow on Tuesday as the Australian Prudential Regulation Authority whacked a new capital charge on the bank and started its first compliance probe under a new regime that could see executives and managers banned and the bank hit with further fines.

APRA’s probe includes an in-depth review of what happened at Westpac and of its culture, governance and accountability, and it is also formally assessing the role of individuals under the Banking Executive Accountability Regime (BEAR) for the first time.

Global ratings agency Fitch said APRA’s actions will “further challenge the bank” in the short term.

“Adverse findings by APRA are likely to require further remediation on top of an already extensive remediation program and increase the bank’s costs,” Fitch director Jack Do said. “This could lead to a downgrade of the bank’s ratings if its earnings and profitability significantly weaken relative to that of peers,” he said.

Bell Potter analyst TS Lim said the APRA probe would increase the level of distracted management over the next year to 18 months. Mr Lim said Westpac’s earnings would likely fall by 2 per cent as a result of the further probe.

He said Westpac was staring down a potential $1.25bn penalty from the Austrac case, which as alleged the bank breached anti-money laundering regulation 23 million times, including instances where the lender failed to clamp down on child exploitation payments to Southeast Asia it ought to have known about.

The Austrac legal action has already claimed the job of Westpac chief executive Brian Hartzer, while chairman Lindsay Maxsted has brought forward his retirement. The Australian Securities and Investments Commission is also investigating the bank over the scandal.

Phi Finney McDonald is also running a class action against AMP over its fees-for-no-service scandal and against the Commonwealth Bank over its own Austrac scandal, which resulted in a $700m penalty.