Australia’s anti money-laundering and terrorism financing regulator, AUSTRAC, has applied to the Federal Court for civil penalty orders against Westpac.
According to AUSTRAC, the civil penalty orders relate to “systemic non-compliance” with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).
AUSTRAC has alleged that Westpac contravened the act on over 23 million occasions.
These contraventions include some from this year. According to AUSTRAC, from November 2013 to February 2019, Westpac was the sender of 10,771 outgoing international funds transfer instructions (IFTIs) with a total value of over $707 million under the arrangements it had with a correspondent bank.
Westpac failed to give AUSTRAC a report of each of these instructions within 10 business days after each was sent, it said. Westpac did not report these IFTIs until 4 October 2019.
Moreover, AUSTRAC alleged that, from February 2017 to June 2019, Westpac sent 2,314 outgoing through its LitePay platform and has never given AUSTRAC a report of each of these instructions.
‘Systemic failures in its control environment’
It is alleged that Westpac’s oversight of the banking and designated services provided through its correspondent banking relationships was “deficient”.
Westpac’s oversight of its AML/CTF Program, intended to identify, mitigate and manage the money laundering and terrorism financing risks of its designated services, was also deficient, AUSTRAC alleged. These failures in oversight resulted in serious and systemic non-compliance with the AML/CTF Act.
Its statement read: “These contraventions are the result of systemic failures in its control environment, indifference by senior management and inadequate oversight by the board.
“They stemmed from Westpac’s failure to properly resource the AML/CTF function, to invest in appropriate IT systems and automated solutions and to remediate known compliance issues in a timely manner. They have occurred because Westpac adopted an ad hoc approach to ML/TF risk management and compliance.”
According to AUSTRAC, Westpac failed to:
- appropriately assess and monitor the ongoing money laundering and terrorism financing risks associated with the movement of money into and out of Australia through correspondent banking relationships;
- report over 19.5 million IFTIs to AUSTRAC over nearly five years for transfers both into and out of Australia;
- pass on information about the source of funds to other banks in the transfer chain;
- keep records relating to the origin of some of these international funds transfers; and
- carry out appropriate customer due diligence on transactions to the Philippines and south-east Asia that have known financial indicators relating to potential child exploitation risks.
AUSTRAC CEO Nicole Rose has said the regulator’s decision to commence civil penalty proceedings was made following a “detailed investigation into Westpac’s non-compliance”.
“These AML/CTF laws are in place to protect Australia’s financial system, businesses and the community from criminal exploitation. Serious and systemic non-compliance leaves our financial system open to being exploited by criminals,” Ms Rose said.
“The failure to pass on information about IFTIs to AUSTRAC undermines the integrity of Australia’s financial system and hinders AUSTRAC’s ability to track down the origins of financial transactions, when required to support police investigations.”
Ms Rose concluded: “We have been and will continue to work with Westpac during these proceedings to strengthen their AML/CTF processes and frameworks.”
“Westpac disclosed issues with its IFTI reporting, has cooperated with AUSTRAC’s investigation, and has commenced the process of uplifting its AML/CTF controls.”
Westpac has acknowledged AUSTRAC’s action, adding that it is currently reviewing the regulator’s statement of claim and will issue a further statement to the ASX once it has been assessed.
The bank noted that it has previously disclosed that it had self-reported a failure to report a large number of IFTIs to AUSTRAC and that AUSTRAC was also investigating a number of other areas relating to its processes, procedures and oversight.
Westpac Group CEO Brian Hartzer commented: “We recognise these are very serious and important issues. We are committed to assisting AUSTRAC and law enforcement agencies to stop financial crime.
“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.”
Mr Hartzer said the bank has been “heavily investing” in a program of work to bolster the management of financial crime risks, which include strengthening Westpac’s policies, data feeding systems, processes and controls.
“We have implemented a range of additional steps in our processes including enhanced automatic detection systems and we continue to proactively engage with AUSTRAC to close any remaining gaps to meet their requirements as well as our own expectations. We are also an active member of the Fintel Alliance,” he said.
“As part of this we are also taking very seriously AUSTRAC’s concerns around appropriate customer due diligence on transactions to the Philippines and South East Asia, including reviewing relevant processes.”
Mr Hartzer also revealed that in relation to IFTS, Westpac has withdrawn its Australasian Cash Management (ACM) product and has reported all the relevant transactions to AUSTRAC.
“The majority of the payments for which the reports were not generated were recurring, low value payments made by foreign government pension funds to people living in Australia,” he said.
“We will shortly be reporting a small number of remaining IFTIs related to our LitePay product.”
The cost of AML/CTF civil penalties
The AUSTRAC case follows on from a similar one brought against Commonwealth Bank of Australia (CBA) last year, which resulted in the major bank paying a civil penalty of $700 million after admitting to further contraventions of Australia’s AML/CTF Act.
CBA entered into an agreement with AUSTRAC to resolve the civil proceedings commenced by the agency in the Federal Court of Australia on 3 August 2017.
CBA admitted it contravened the AML/CTF Act on 53,750 occasions.
CBA accepted that:
- It failed to carry out an appropriate assessment of the money laundering and terrorism financing (ML/TF) risks of its IDMs prior to October 2017.
- It failed to complete the introduction of appropriate controls to mitigate and manage the ML/TF risks of IDMs prior to April 2018.
- It failed to provide 53,506 threshold transaction reports to AUSTRAC on time for cash transactions of $10,000 or more through IDMs from November 2012 to September 2015, having a total value of about $625 million.
The agreement followed court-ordered mediation between CBA and AUSTRAC and saw the bank pay a civil penalty of $700 million together with AUSTRAC’s legal costs of $2.5 million.