Westpac’s internal probe ‘might not succeed’

Westpac’s accountability review could fail because of the period involved, staff turnover and missing documents, experts warn.

Westpac confronts a difficult task in conducting an accountability review for millions of alleged breaches of financial crimes laws because of the period of time involved, turnover of staff and potential scarcity of relevant documents.

That’s the view of industry participants including Gary Gill, head of investigations at boutique professional services firm Sapere Forensic.

His comments come after The Australian revealed Westpac’s lawyers and human resources team had begun trawling through 10 years of emails to get to the bottom of the bank’s spate of compliance failings. The review entangles current and former Westpac executives and staff.

In November, financial crimes regulator Austrac launched legal action against Westpac alleging 23 million breaches of the law, including facilitating payments that were linked to child exploitation and pornography.

The largest number of allegations in Austrac’s statement of claim related to Westpac’s systems not properly reporting international funds transfers from 2013, due to the botched implementation of a technology system. “It was a long time ago when the system was put in,” Mr Gill said. “Things are not always well documented: that is the real challenge they are going to find.”

Mr Gill added that while technology could screen emails, the forensic investigation process still required an element of manual review. He also noted that often decisions and communications in large companies were not properly documented or relevant material may have been destroyed.

“There is no guarantee they will turn up what they are looking for,” Mr Gill said.

Bell Potter banking analyst TS Lim agreed that the Westpac accountability probe and email search would prove challenging.

“It’s not like credit files or banking data where you can go through things forensically,” he said.

“It is very hard to come up with a clear conclusion.”

Mr Lim estimates Westpac will have to pay $1.25bn pre-tax to settle the Austrac court matter. That estimate includes $300m for failing to undertake ongoing customer due diligence, and $250m for not undertaking risk assessments and introducing risk-based controls.

It also takes into account Commonwealth Bank’s $700m settlement in 2018 with Austrac for its breaches of anti-money laundering and counter-terrorism financing laws.

In the action against Westpac, Austrac alleges it made it clear to banks in 2016 there were new guidelines for “key indicators” on the purchase of child exploitation material, through funds transfer, to aid the screening of the activity.

The regulator says it took 18 months for Westpac to implement the change.

On Friday, an Austrac spokeswoman said she couldn’t comment in detail on the Westpac case, but highlighted the agency regularly produced indicators and risk assessments for industry on “typologies and risk indicators of various crime types, including child exploitation”.

“Under the AML/CTF Act, reporting entities have an obligation to understand and manage their own risks,” she said.

“Austrac works with our law enforcement partners in developing and understanding child exploitation-related financial trans­actions.

“Austrac has a comprehensive industry education program in place to support regulated entities to meet their compliance and reporting obligations and understand their risks.”

Austrac’s website shows that in 2013 it released a detailed typologies and case study report, which included case studies on international funds transfers and child exploitation material.

In November, Austrac released an indicators report through a partnership between banks, remittance groups, gaming companies and law enforcement firms known as the Fintel Alliance.

Part of that report included activity indicators for combating the sexual exploitation of children.

“Financial intelligence generates an important part of the overall picture when combined with other information to identify offending,” it said.