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Last week, Australia’s anti money-laundering and terrorism financing regulator, AUSTRAC, revealed that it was seeking civil penalty orders against the big four bank over 23 million alleged breaches of anti money-laundering laws.
According to AUSTRAC, the bank failed to appropriately monitor outgoing international funds transfer instructions (IFTIs) of customers, including those which it alleges are “consistent with child exploitation typologies”.
One of the more damning examples in AUSTRAC’s statement of claim are the assertions that one such customer transferred money to a person located in the Philippines who was later arrested in November 2015 for child trafficking and child exploitation involving live streaming of child sex shows.
What Westpac is doing to address the AUSTRAC allegations
Westpac CEO Brian Hartzer has already apologised for any wrongdoing perpetrated by the bank, adding that he is “disgusted and appalled by the subject matter of some of these transactions” and that “the board and executive team of Westpac are taking these issues very seriously [and know] that we have to do better”.
“It’s unacceptable that this breach of Australia’s anti-money laundering laws has occurred. The mistakes should have been identified and rectified much faster,” he said, adding that “he will get to the bottom of this personally and fix it.”
Over the weekend, the bank released more details of its response plan. This includes:
- closing its international payments service, LitePay, effective immediately;
- commissioning an “external expert” to independently review Westpac’s financial crime program, including a review of accountability, and report back;
- reviewing all financial crime systems and processes to pursue best-in-class global standards;
- adding a further 200 “resources” to its financial crime team by 2020;
- establishing a dedicated board financial crime sub-committee, chaired by a non-executive director, to oversee the implementation of its enhanced financial crime program;
- investing $25 million to improve “cross-border and cross-industry data sharing and analysis”;
- having the financial crime function report directly to the chief risk officer; and
- investing $34 million to various projects aimed at tackling the online sexual exploitation of children.
Notably, the bank said that it will also withhold the bonuses of the full executive team either in part or in full.
The board’s chairman, Lindsay Maxsted, stated: “We accept that we have fallen short of both our own and regulators’ standards and are determined to get all the facts and assess accountability.
“In the interim, the board has determined that either all or part of the grant of the 2019 Short Term Variable Reward will be withheld for the full executive team and several members of the general management team subject to the assessment of accountability.”
While these bonuses can be sizeable, not passing on a reward is not the same as a punishment. It is not the same by a long way.
By Westpac’s own admission, the bank has “fallen short” of regulator standards. These standards being: uphold the law.
Mr Maxsted has already stated that the board “understands the gravity of the issues” and set out the board’s “deep sorrow for failings by Westpac”.
The fact that the board is already publicly acknowledging failings, before any court has had its say, suggests something is fundamentally broken.
While the Westpac board has said it “does not believe that there has been any indifference by any member of the executive team, including the CEO”, it has accepted that the bank has “fallen short of its own and regulatory expectations and that a detailed review is required to investigate the facts alleged by AUSTRAC”.
Is it appropriate, then, that the measures taken to address this statement of claim by AUSTRAC involve holding back rewards?
Moreover, should the person who was CEO (and accountable for the actions of the bank over the period in which these AUSTRAC allegations occurred), be “personally involved” in leading the project addressing it?
Is the response plan enough?
What more could (and should) be done?
While the case is ongoing and it’s up to the Federal Court to decide what action needed to be taken, surely heads must roll.
What the powers that be say
Speaking to the ABC over the weekend, Prime Minister Scott Morrison said that while this was “ultimately a judgment for the board of Westpac”, he added that the board and management team “should be taking this very seriously, reflecting on it very deeply, and taking the appropriate decisions for the protection of people’s interests in Australia, their safety”.
He added that the AUSTRAC statement of claim centres on “some very disturbing transactions involving despicable behaviour”.
The Prime Minister also noted that other heads of major banks, such as Andrew Thorburn from NAB and Ian Narev from CBA, both stepped down following their banks’ respective issues following the royal commission, adding that “banks have to be accountable for the decisions they make”.
Indeed, CBA’s former CEO Ian Narev “retired” from his role days after revelations of the bank’s own breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 were revealed.
Treasurer Josh Frydenberg told ABC’s Fran Kelly that “there must be accountability and that will obviously involve decisions that they take about the futures of senior management as well as the board”.
“...[H]istory shows you that these issues build a momentum of their own, and where boards start is not necessarily where boards finish,” he offered.
The Westpac chairman reportedly told mainstream media that Mr Hartzer “could no longer be [Westpac] CEO” should it be found that he did have direct knowledge of the failings identified by AUSTRAC, but that the bank has suggested that it (currently) does not have any evidence to show that he did know of it.
While action should not be taken prematurely or rashly, more is needed to handle this than holding back bonuses. Much, much more.
As a sector, as a society, we cannot turn a blind eye to the severity and number of alleged breaches put forward here. Twenty-three million alleged breaches of laws put in place to stop terrorism and money laundering – with some of these breaches reportedly relating to child exploitation such as trafficking and child pornography.
How these processes enabling this activity were allowed to stand is quite mystifying, to paraphrase Prime Minister Scott Morrison.
But, accountability should not be.
Surely, it is time for the prudential regulator’s big bad BEAR to show its teeth. APRA’s new Banking Executive Accountability Regime was brought in this year specifically to allow the prudential regulator to disqualify boards and to disqualify executives where there is a failure to appropriately enforce and uphold the duties under the legislation. After all, this is precisely the type of situation that these powers were brought into effect to handle. And to handle them quickly and emphatically.
I’m sure shareholders will be looking for scalps at Westpac’s upcoming AGM on 12 December, but, surely, we need some answers – some form of action – before then.