Westpac to brief APRA on Forum Finance alleged fraud fiasco

Westpac will give APRA a detailed update on its $294m fraud case against Forum Finance, delving into causes and lessons learned.

Forum Finance director Bill Papas.

Westpac is set to provide the banking regulator a detailed update on its $294m fraud case against Forum Finance within weeks, delving into root causes of the issue and lessons learned from the fiasco.

The Australian can reveal Westpac’s executives will within the next four weeks meet with the Australian Prudential Regulation Authority to provide a comprehensive stocktake on how the bank became a victim of the alleged fraud. It will also provide information on how it intends to respond to and fix any system weaknesses.

Westpac has also been liaising with financial crimes regulator Austrac on the fraud matter, given the international flow of funds in and out of equipment leasing group Forum Finance and its related entities.

Sources said Westpac was engaging global law firms to execute the international asset freezing orders against Forum and its boss Bill Papas, which need to be overseen in different jurisdictions. The bank is expected to draw on European Union treaties, and also take legal action against Forum Finance in Greece related to assets there.

Mr Papas has been in Greece for several weeks and his barrister last week presented the court a positive Covid-19 test from July 8, saying it had hindered his return to Australia.

A Westpac spokesman declined to comment on the bank’s engagement with the banking regulator, while an APRA spokesman declined to comment after earlier saying the regulator was monitoring the situation.

Westpac’s original statement to the ASX on July 2 said the bank reported the alleged fraud to relevant regulators, and to the NSW Police.

In an update to court documents, just before 5pm on Monday, Mr Papas filed an affidavit. While the document is not yet available, Federal Court Judge Michael Lee had last week ordered Mr Papas to outline his plans to return from Greece to Australia and disclose his assets.

That was after Mr Papas had failed to comply with earlier court orders, raising the ire of Justice Lee.

Westpac lodged legal action in the Federal Court against Forum Finance and Mr Papas in late June, alleging the company used fake invoices and forged documents to fraudulently secure $294m from the bank across Australia and New Zealand.

While Westpac is due to meet with APRA on the alleged fraud, the bank is separately on a fragile footing with the regulator.

That is given APRA found the bank had an “immature and reactive risk culture, unclear accountabilities” and lax compliance with bank liquidity rules. Westpac entered an enforceable undertaking with APRA to fix its shortcomings and was also forced to hold more capital.

Many of those measures related to Westpac’s failure to comply with its anti-money laundering obligations millions of times, leading to the bank paying a record $1.3bn penalty last year.

French bank Societe Generale and Japan’s SMBC Leasing and Finance have also lodged separate court actions against Forum Finance, with combined exposures topping $400m.

Mr Papas, whose full name is Basile Papadimitriou, is listed as a defendant in the three sets of proceedings, along with Forum Finance director Vincenzo Tesoriero.

Mr Papas was president of Sydney Olympic Football Club until July 2 when the Westpac legal case became public and last year bought Greek soccer team Xanthi FC.

Justice Lee appointed liquidators McGrathNicol to Forum Finance on July 9, while several other entities are in administration via firm Mackay Goodwin.

National Australia Bank is also entangled in the Forum Finance fraud allegations, as the company’s transactional banker and is said to hold the mortgages over the bulk of Mr Papas’s properties.

As the fallout from the fraud legal action escalates, staff in the waste disposal and energy Iugis entity under the Forum umbrella were seeking to be paid as their employment was terminated.

Iugis staff report they have not been paid wages despite a court not freezing accounts that reportedly held $700,000 in wages.

One Iugis employee told The Australian staff were due to be paid on July 9, but were not, after administrators were appointed.

Mackay Goodwin partner Domenic Calabretta was appointed to the Forum Group of companies on July 8.

On July 12, Iugis staff were advised they would not be paid.

Responding to a question on the matter, Mackay Goodwin said wages for Forum Group were paid July 14, after negotiating with NAB to release funds.

There is confusion, though, with some staff being told they would not receive any money until the second meeting of creditors on August 25.

Staff were told in an email from Mackay Goodwin manager Matthew Moldrich the business would likely be liquidated after a second meeting of creditors.

Mackay Goodwin has said there is buyer interest in two Forum entities, which have attracted 95 bidders.

“Iugis was already closed after being found not to be saleable and was never part of the group of companies considered saleable,” a Mackay Goodwin spokeswoman said.

A creditor’s meeting is slated for Tuesday for the entities within the administration.