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Australia's Westpac slapped with 23m money laundering breaches

Westpac CEO Brian Hartzer accepts most of the regulator's assertions. The bank faces - in theory - up to a whopping A$483 trillion in fines.


REGULATORS accused Australia's Westpac Banking Corp of 23 million breaches of anti-money laundering laws, saying the banking giant ignored red flags and for years enabled payments from convicted child sex offenders and "high risk" countries.

The oversight failure at Australia's second-largest bank led to deep systemic non-compliance with anti-money laundering laws, financial crime watchdog Austrac said in a civil court filing on Wednesday.

The regulator is pursuing fines of up to A$21 million (S$19.5 million) for every transaction Westpac failed to monitor adequately or report on time in the country's biggest-ever money laundering scandal. In theory, that could add up to whopping A$483 trillion in fines.

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The lawsuit dwarfs a case Austrac brought against larger Commonwealth Bank of Australia which agreed last year to pay a record A$700 million penalty after admitting to allowing 53,750 payments that violated similar protocols.

It also brings fresh scrutiny to an industry still trying to rebuild community trust after a bruising Royal Commission public inquiry.

"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.

Westpac said it had self-reported the breaches to Austrac and had since shut down the service at the centre of the complaint which let customers and affiliate overseas banks process payments from Australia.

"Like everyone who has read the statement of claim, I am personally disgusted and appalled," Westpac CEO Brian Hartzer said on a call with reporters, adding the bank "should have done better".

Mr Hartzer said he accepted most of the regulator's assertions but "at a senior executive level, for the board, for me personally, in no way have we been indifferent on this."

The lawsuit sent Westpac shares down 3 per cent by the close, outpacing a broader share market decline of 1.4 per cent, as investors began counting the financial and reputational cost of the lawsuit.

Brian Johnson, an analyst at Jefferies, said he expected a "meaningful, painful but not catastrophic civil penalty" in the hundreds of millions of dollars range.

Bank of America Merrill Lynch analysts said they saw downside risks for bank capital persisting until fines, penalties and remediation provisions subside. "This development epitomises the more active enforcement action stance taken by regulators generally in the post Royal Commission era," they added in a note.

The Austrac filing said Westpac knew since 2013 about "heightened child exploitation risks associated with people who made frequent low value payments to the Philippines and South-east Asia" but did not set up an automated detection system until 2018.

The Sydney-based bank had failed to conduct due diligence on 12 customers who had made frequent low-value transactions over several years which suggested involvement in child exploitation, it said.

One customer who had served a prison sentence for child exploitation set up several Westpac accounts. Westpac detected suspicious activity in one account but failed to review the other accounts which were used to send payments to the Philippines, Austrac said.

Westpac, meanwhile, maintained relationships with offshore banks without assessing their business relationships, products, customers or payments, even when those banks disclosed relationships with "high risk or sanctioned countries including Iraq, Lebanon, Ukraine, Zimbabwe, and Democratic Republic of Congo".

"The risk posed to Westpac was that these high risk or sanctioned countries may have been able to access the Australian payment system," Austrac said. REUTERS