Australia-based financial institution Westpac is bracing for a record AUD$1.3 billion (U.S. $912.6 million) civil penalty issued by Australia’s financial crime regulator related to a money-laundering scandal and the facilitation of child exploitation in the Philippines and Southeast Asia.
If approved by the Federal Court of Australia, the civil penalty will represent the largest in Australian history, AUSTRAC said. “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,” said AUSTRAC Chief Executive Officer Nicole Rose.
AUSTRAC first announced its statement of claim against Westpac in November 2019 alleging numerous anti-money laundering and counter-terrorism financing (AML/CTF) violations. AUSTRAC’s civil proceedings described a host of compliance and risk management failings by Westpac, including violations under Australia’s international funds transfer instruction (IFTI) reporting rules and many other alleged systemic failings concerning correspondent banking, risk assessments, customer due diligence, transaction monitoring, and recordkeeping.
In reaching the proposed agreement, announced Thursday, Westpac has admitted to violations of Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act 2006 on over 23 million occasions, “exposing Australia’s financial system to criminal exploitation,” AUSTRAC said.
Specifically, Westpac admitted it failed to:
- Properly report over 19.5 million IFTIs amounting to over $11 billion to AUSTRAC;
- Pass on information relating to the origin of some of these international-funds transfers;
- Pass on information regarding the source of funds to other banks in the transfer chain that the banks needed to manage their own AML/CTF risks;
- Keep records relating to the origin of some of these international-funds transfers;
- Appropriately assess and monitor the risks associated with the movement of money into and out of Australia through its correspondent banking relationships, including with known high-risk jurisdictions; and
- Carry out appropriate customer due diligence relating to suspicious transactions associated with possible child exploitation.
In reaching the agreement, Westpac further admitted to approximately 76,000 additional violations, expanding the original statement of claim. The new violations relate to information that came to light after AUSTRAC launched its civil penalty action last year and relate to additional IFTI reporting failures; failures to reasonably monitor customers for transactions related to possible child exploitation; and two further failures to assess the money laundering and terrorism financing risks associated with correspondent banking relationships, AUSTRAC said.
AML compliance enhancements
In a statement, Westpac Group Chief Executive Officer Peter King apologized 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,” he said. “We have also closed down relevant products and reported all relevant historical transactions.”
Among the many AML compliance enhancements it has made, Westpac established a legal, regulatory, and compliance committee, “which is responsible for overseeing, among other matters, financial crime, and succeeds the board financial crime committee established in November 2019,” according to the statement of facts. In May, Westpac also created a new group executive role responsible for financial crime, compliance, and conduct.
In total, Westpac said it has spent AUD$632 million (U.S. $443.5 million) on financial crime compliance (including AML/CFT compliance) and has made improvements to its technology platforms, personnel, processes, and procedures. Westpac said it also has doubled the number of staff dedicated to financial crime in the last three years, with a target of 950 by the end of 2020.
In addition to the cost implications, the misconduct ultimately resulted in the November resignation of Chief Executive Officer Brian Hartzer and the early retirement of Westpac Group Chairman Lindsay Maxsted. On April 2, Westpac announced the appointment of King as its new CEO.
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