The penalty, once approved by the Federal Court, will surpass Commonwealth Bank’s $700 million fine in 2018 after AUSTRAC found CBA’s uncapped cash-deposit ATMs enabled arms and drugs dealers to launder money.
Under the agreement with AUSTRAC, Westpac has admitted it failed to properly report over 19.6 million international transfers amounting to over $11 billion. The bank also failed to keep records and monitor risks associated with money moving into and out of Australia through its correspondent banking relationships, including those institutions in higher risk jurisdictions.
Westpac has also admitted it failed to carry out appropriate due diligence on its customers, with 284 clients making transactions indicative of child exploitation in South East Asian countries.
AUSTRAC chief executive Nicole Rose said the penalty sent a strong message to the financial industry to take compliance seriously.
“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.
Westpac’s failure to comply with anti-money laundering laws meant AUSTRAC and law enforcement were missing critical intelligence needed to support police investigations, Ms Rose said.
AUSTRAC’s bombshell statement of claim had been filed in the Federal Court last November and threw the lender into turmoil. Mounting investor calls for accountability triggered the departure of chief Brian Hartzer and chair Lindsay Maxsted and led to three shareholder class actions.
AUSTRAC flagged an expansion of the statement of claim in June after the bank reported 272 additional customers who made payments indicative of child exploitation. The deadline for AUSTRAC to file its revised statement of claim is Friday, putting further pressure on the parties to settle.
Mr King was set to retire from Westpac this year but instead took over from Mr Hartzer and was officially appointed chief executive in April. Mr King had made it public he intended to settle and told investors on Thursday morning the penalty agreement was 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,” Mr King said.
Westpac released the findings of its own investigation into the compliance breaches in June, with two major investigations blaming technology failures, management misjudgments and poor systems for the breaches.
Mr King said Westpac was taking action to address the “areas where we have failed” and committed to implementing all recommendations put forward in its review.
“We are strengthening our financial crime capability. We acknowledge the important role Westpac must play in protecting the integrity of the financial system.
“Westpac has made substantial investments to strengthen its systems, processes, and controls to detect and report suspicious transactions,” he said.
The bank has recruited around 200 additional staff working in financial crimes detection and created a new group executive position directly responsible for improving financial crime capability.
Westpac has also reassessed its culture, governance and accountability frameworks in an effort to strengthen the bank’s approach to non-financial risk, Mr King said.
“We are determined to continually lift our financial crime standards, comply with our obligations and uphold our customer, community, and regulatory expectations,” he said.
Westpac failed to submit International Funds Transfer Instructions (IFTIs) – forms with six crucial pieces of information about money entering and leaving the country – within the mandated 10-day period for registering such transactions. These failures were the backbone of AUSTRAC’s case against the bank and can be largely traced back to Westpac’s use of the now-closed transfer platform, Litepay, that was cheaper than industry standards.
Westpac had set aside $900 million for the fine in April, with an additional $160 million to improve its technology as well as donations to charities working to eliminate child exploitation.
Mr King was questioned about whether the $900 million provision would be enough at a parliamentary committee hearing on September 11 by Labor Minister Andrew Leigh.
“The only thing surprising about the fine is that Westpac was surprised by it,” Dr Leigh said on Thursday. “The Commonwealth Bank breach didn’t involve child exploitation, it involved significantly fewer breaches and yet they were fined $700 million.”
“It’s in the interest of Westpac shareholders and the broader community that the bank now gets on top of this,” he said.
Westpac has now increased this provision by $404 million to account for the higher penalty and AUSTRAC’s legal costs of $3.75 million.
Charlotte is a reporter for The Age.