Analysis: Let Westpac’s missteps be a cautionary tale

Harm occurs in many ways, and in the business of compliance, specifically financial crime, we often forget (or worse ignore) the emotional and physical harm caused to families and communities adversely impacted by financial crime. On Friday, Westpac, the oldest bank in Australia, made an announcement to the Australian stock exchange (ASIC) that the Australian money laundering regulator AUSTRAC is further investigating the bank and may expand the original statement of claim. The basis for the announcement and the actions of AUSTRAC are in part related to the discovery and disclosure by Westpac of 272 further accounts suspected to be connected to the exploitation of children.

In a previous defense statement filed with the court May 15, Westpac admitted 11 anti-money laundering (AML) and transaction reporting failures in respect to 11 accounts used by individuals that may have engaged in child exploitation. When this case was first made public in November 2019, Westpac’s board unreservedly apologized for the horrifying material identified by the regulator.

At that time, it was alleged Westpac had operated 12 accounts controlled and/or used by customers who may have been engaged in child exploitation who made payments and allegedly traveled to Asia and assaulted children. Subsequently, some of the customers have been arrested and charged with child sex offenses.

Now, AUSTRAC is looking into 272 further accounts identified by Westpac within a “look back” demanded by the regulator. Westpac has committed to spend significant funds supporting charities that help families and children impacted by sexual exploitation. Meanwhile, the Australian regulator is requesting bank staff be trained in how to recognize accounts operated for and on behalf of those who seek to exploit children, as well as transactions that may be undertaken by those accounts.

Had Westpac not fought the original AUSTRAC statement of claim, this scandal would now be behind it and the number of exploitation-related accounts would not have exceeded 12. It has been reported that the bank disputed the extent of the alleged AML failings and by extension the amount of the penalty proposed by AUSTRAC. Now it is likely AUSTRAC will increase the significance of the proposed penalty, given the substantially increased number of exploitation-related accounts and transactions through these accounts.

All of which poses questions about what motivated the executives at Westpac to deny and defend some of the allegations within the original statement of claim. One could deduce that Westpac became the Australian bank of choice for those looking to exploit children, which is immensely damaging to the reputation of the bank. As a consequence, what was at some point a dispute of the final number of a penalty is now looking at huge numbers attached to the harm caused to children and their families.

Westpac has previously used advertising campaigns that reference a bank working for Australians for 200 years, but now appears to have also been working for those who wish to harm children for a number of years. Some may advise Westpac to stop spending any more money on advertising for the time being, because it will be wasted. Others will challenge the wisdom of decision makers who failed to expediently dispose of the original claim and pay the penalty proposed by AUSTRAC, regardless of the number.

So, what are the considerations that must be debated by executives when faced with such allegations? The considerations extend to a number of parties, including shareholders, customers, staff, and the children of all these parties as well as the children who have been harmed and continue to suffer because of these Westpac failures.

It is difficult to perceive people lining up to open accounts at Westpac right now or for the foreseeable future. In the event this case does go to trial, all of these issues will once again resurface, and the reputation of the bank will suffer further damage. It may be the Australian police will ultimately publish details of the number of victims impacted by these actions. These numbers will inflict further harm and damage to the bank’s reputation.

There is a huge chasm between 12 and 284, which was only revealed when the bank determined not to settle the initial AUSTRAC claim, because the penalty proposed was too high. There is more to this than numbers—there are people, in this instance young people, who have suffered very serious harm. On Friday, we learned the scale of the harm was far higher to these young people than initially perceived, and in a different way, the harm to shareholders of Westpac has also increased significantly.

Some things are worth defending, in particular the innocence of children, whereas the number of failures that have facilitated harm to children may not be.