Westpac has agreed to pay a civil penalty of $1.3 billion in relation to its contraventions of the anti-money laundering and counter terrorism laws.
As part of the agreement with AUSTRAC, Westpac has admitted to additional contraventions that were outlined in an amended statement of claim.
These new contraventions relate to information that came to light after the civil penalty action was launched last year and relate to additional International Funds Transfer Instructions (IFTIs) 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.
Westpac chief executive Peter King apologised for the bank's failings and said he is committed to fixing the issues to ensure this situation does not arise again.
|Sponsored by BlackRock|
See trends that matter | Global Healthcare
"This has been my number one priority. We have also closed down relevant products and reported all relevant historical transactions," King said.
"This agreement is 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."
In June, Westpac released the findings from an internal review of its compliance issues as well as the advisory panel report on governance and accountability in which King admitted the bank's multiple failings.
"Westpac is taking action to address the areas where we have failed and are implementing all the recommendations of the advisory panel report," King said.
"We are strengthening our financial crime capability. We acknowledge the important role Westpac must play in protecting the integrity of the financial system."
King said the bank is working on improving its end-to-end financial crime risk management processes and has established clearer accountabilities for compliance with the anti-money laundering and counter terrorism laws.
"Westpac has made substantial investments to strengthen its system processes, and controls to detect and report suspicious transactions," he said.
"We have recruited about 200 financial crime people to the group, created a new group executive position directly responsible for improving our financial crime capability, and established a new board legal, regulatory and compliance sub-committee."
In the bank's 1H20 results, it had estimated a penalty charge of around $900 million plus associated costs. Westpac noted that the proceedings were expected to be complex and the ultimate penalty may be higher when determined by the court.
The bank said the penalty of $1.3 billion reflects the outcome of ongoing review and dialogue with AUSTRAC. Westpac said it will increase the provision in its accounts for the year ending 30 September 2020 by a further $404 million to account for the higher estimated penalty and additional costs which will include AUSTRAC's legal costs of $3.75 million.
AUSTRAC said the Federal Court of Australia will consider the proposed settlement and penalty. If the court determines the proposed penalty is appropriate, the order made will represent the largest ever civil penalty in Australian history.
As part of the agreement, Westpac admitted it failed to:
- Properly report over 19.5 million IFTIs amounting to over $11 billion dollars to AUSTRAC.
- Pass on information relating to the origin of some of these international funds transfers, and to pass on information about the source of funds to other banks in the transfer chain, which these banks needed to manage their own ML/TF 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 higher risk jurisdictions.
- Carry out appropriate customer due diligence in relation to suspicious transactions associated with possible child exploitation.
AUSTRAC's chief executive, Nicole Rose said the settlement sends a strong message to industry that AUSTRAC will take action to ensure the financial system remains strong so it cannot be exploited by criminals.
"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," Rose said.
"Westpac's failure to implement effective transaction monitoring programs, and its failure to submit IFTI reports to AUSTRAC and apply enhanced customer due diligence in relation to suspicious transactions, meant AUSTRAC and law enforcement were missing critical intelligence to support police investigations."
Rose said such a large number of breaches over several years was unacceptable and could have been avoided with better assurance and oversight processes to identify ongoing reporting failures.
"We have been, and will continue to work collaboratively with Westpac and all businesses we regulate to support them to meet their compliance and reporting obligations to ensure this doesn't happen again in the future," she said.
Alan Kirkland, chief executive of CHOICE said the settlement clearly demonstrates that personal executive accountability is still missing in the financial industry.
"No executives or senior management at Westpac have been held to account by either regulators or the courts for this abhorrent failure of management," Kirkland said.
"This underlines the importance of the Federal Government acting on its commitment to pass the Financial Accountability Regime (FAR)."
"Individual executives will not be able to hide behind large corporate pay-outs. This new regime will ensure that executives and senior managers of large financial institutions are subject to large civil penalties, disqualification, or deferred bonuses for breaches of the law."