Westpac Banking Corp. has been accused of the biggest breach of money-laundering and terrorism financing laws in Australian history, including failing to detect payments that may have been used to facilitate child exploitation.
All up, the bank has been accused of systemically breaching money-laundering laws more than 23 million times, and failing to report more than A$11 billion ($7.5 billion) in international transfers, Australia’s financial crimes agency said in a court filing Wednesday. The bank’s shares fell.
The allegations dwarf Commonwealth Bank of Australia’s 53,000 infractions that led to a record A$700 million fine and the departure of Chief Executive Officer Ian Narev.
The suit is another blow to Westpac CEO Brian Hartzer after the bank earlier this month reported its worst earnings since the financial crisis. It caps a horror year for Australia’s banking industry, kicked-off by a damming report into years of misconduct and punctuated by executive departures, mounting bills to compensate customers for wrongdoing and falling profits.
Westpac’s senior management were specifically warned the bank’s low-cost international transactions system could be used to facilitate child exploitation payments, but failed to implement an appropriate detection system for two years, the Australian Transaction Reports and Analysis Centre said in the court filing.
“These contraventions are the result of systemic failures in its control environment, indifference by senior management and inadequate oversight by the board,” Austrac said in the court filing. “They have occurred because Westpac adopted an ad-hoc approach to money laundering and terrorism financing risk management and compliance.”
In its court filing, Austrac said Westpac failed to carry out appropriate due diligence on 12 customers whose accounts showed repeated patterns of frequent low value transactions, including to the Philippines and South East Asia, even though it knew since 2013 that these patterns were indicative of child exploitation risks.
In one case, when a customer who had served jail time for child exploitation offenses opened a number of Westpac accounts, only one was identified and acted on immediately, with the customer continuing to send frequent low-value payments to the Philippines through channels that were not being monitored appropriately, Austrac said.
What Bloomberg Opinion Says:
“It’s astonishing that, at a time when the behavior of Australia’s banking sector was under unprecedented scrutiny, Westpac should have failed to implement controls on transactions with high-risk correspondent banks and do proper child exploitation due diligence on its own customers.”
The breaches, which occurred between November 2013 and June 2019, each carry a maximum fine of A$21 million.
“We recognize these are very serious and important issues,” Hartzer, who has led the bank since February 2015, said in a statement. “These issues should never have occurred and should have been identified and rectified sooner. It is disappointing that we have not met our own standards as well as regulatory expectations and requirements.”
The lender’s shares fell 3.3% as of 3:17 p.m. in Sydney trading, slicing about A$3.1 billion off its market value.
Banks around the world have been strengthening their defenses against money laundering after a series of high-profile scandals. Danske Bank A/S is the target of criminal probes in Denmark, Estonia and France after claims it was involved in a scheme to funnel dirty money from Russia and other former Soviet states to the West. HSBC Holdings Plc was fined $1.9 billion by the U.S. Justice Department and bank regulators in 2012 for failing to do enough to monitor money laundering in its global operations.
Westpac earlier this month raised A$2 billion of capital in an institutional share sale, saying the funds created flexibility for potential litigation or regulatory action. In testimony to a parliamentary committee Nov. 8, Hartzer said it was too early to speculate on any penalty it may receive after self-reporting some violations to Austrac.
“The Westpac case appears to be more serious than the CBA one,” said Mark Humphery-Jenner, associate professor of finance at University of New South Wales business school in Sydney. “That’s in part because of the sheer number of alleged breaches and in part because of the simple ways in which Westpac could have potentially picked up these alleged breaches.”