Westpac to pay $1.3bn fine over Austrac breaches

Westpac has agreed to pay a huge $1.3bn fine to settle its case with Austrac, which says the bank’s delays hindered law enforcement.

Picture: Jono Searle

Westpac’s failure to identify all its money laundering and counter-terrorist financing risks from international payment flows had a cascading impact on law enforcement, according to a statement of agreed facts and admissions drafted with financial crime agency Austrac.

The SOFA, which will be presented to the Federal Court for approval of a proposed $1.3bn penalty, says Westpac’s conduct means opportunities have been lost to disrupt possible unlawful activity, including child exploitation, money laundering, terrorism financing and tax offences.

“Westpac failed to identify activity potentially indicative of child exploitation risks by failing to implement appropriate transaction monitoring detection scenarios,” it says.

“Three of the customers the subject of these proceedings had prior convictions relating to child exploitation offences.

“Austrac advises that one of these customers has been arrested in relation to further child exploitation offences since the commencement of these proceedings.

“Austrac advises that other customers are being assessed further for possible investigations.”

The SOFA says 5.7m late international funds transfer instructions involving $2.9bn fell outside the Tax Office’s statutory limits in relation to corrective action against taxpayers who have lodged tax returns.

Westpac’s failure to lodge complete and timely IFTI reports might have undermined the tax system, according to Austrac.

Transparency was also compromised when the bank failed to pass on information about the origin of funds transferred to other institutions, potentially affecting their ability to manage money-laundering risk.

Westpac announced on Thursday it had agreed to pay a huge $1.3bn fine, dwarfing Commonwealth Bank’s $700m settlement with Austrac in 2017.

Westpac shares fell 1.8 per cent to $16.09 in early trading on Thursday following the news.

The case, which has battered Westpac’s reputation, involves 23 million breaches of anti-money laundering legislation.

Austrac initiated the action against Westpac last November, with the revelations leading to the departure of CEO Brian Hartzer and early exit of chairman Lindsay Maxsted.

Westpac said on Wednesday that as part of the agreement reached with Austrac, it had admitted to additional contraventions outlined in an amended statement of claim.

The additional contraventions added to the penalty, it said.

Chief executive Peter King apologised for the bank’s failings.

“We are committed to fixing the issues to ensure that these mistakes do not happen again. This has been my number one priority. We have also closed down relevant products and reported all relevant historical transactions,” Mr King said in a statement.

“This agreement is an important step in the court process. It provides more certainty to all our stakeholders as we continue to implement the measures in our Response Plan and complete the implementation of recommendations from the reviews that have been conducted.”

While Austrac was highly critical of the bank’s management and board oversight in its original statement of claim, the SOFA is less strident, saying senior management and the board sought “at all times” to ensure that Westpac complied with its obligations.

However, Westpac now conceded that its risk management and compliance “lacked completeness and sufficient oversight”.

Some key areas of risk were “insufficiently understood”, and there was a “lack of sufficient speed” in addressing areas where Westpac was operating outside its risk parameters.

Also, compliance and risk functions were not adequately resourced.

The SOFA says Westpac has spent $632m on financial crime compliance since 2014.

Austrac’s chief executive officer, Nicole Rose said the settlement sent a strong message to industry that Austrac would take action to ensure the financial system remained strong so it could not be exploited by criminals.

“Our role is to harden the financial system against serious crime and terrorism financing and this penalty reflects the serious and systemic nature of Westpac’s non-compliance,” Ms Rose said.

Any settlement between the parties will ultimately have to be signed off by Attorney-General Christian Porter.

While huge, the agreed fine is less than the $1.5bn that Austrac is thought to have been seeking, but significantly larger than the $900m provision that Westpac had made for the matter in its accounts.

Westpac will increase the provision in its accounts for the year ending 30 September 2020 by a further $404 million to account for the higher estimated penalty and for additional costs, including Austrac’s legal costs of $3.75 million.

Austrac’s Ms Rose said such a large number of breaches over several years was unacceptable and could have been avoided with better assurance and oversight processes to identify ongoing reporting failures.

“Westpac’s failure to implement effective transaction monitoring programs, and its failure to submit (International Funds Transfer Instructions) reports to Austrac and apply enhanced customer due diligence in relation to suspicious transactions, meant Austrac and law enforcement were missing critical intelligence to support police investigations.”

Mr King said Westpac was taking action to address the areas where we have failed and are implementing all the recommendations of the Advisory Panel Report on governance and accountability.

He said the bank has made substantial investments to strengthen its systems, processes, and controls to detect and report suspicious transactions, including recruiting about 200 financial crime people to the group

“We have also undertaken a reassessment of our culture, governance and accountability and are embarking on a comprehensive, multi-year program to strengthen how we manage non-financial risk across the group. This includes a significant investment in training to support our people to better identify, assess and manage risks”.

“We are determined to continually lift our financial crime standards, comply with our obligations and uphold our customer, community, and regulatory expectations,” Mr King said.