Mortgage business logo

AUSTRAC scandal cost Westpac millions in capital

Thousands of speculators have pulled their investments in new Westpac shares in response to AUSTRAC’s investigation into the bank’s alleged breaches of anti-money laundering laws.

In early November, Westpac Group’s shares were placed in a trading halt to facilitate a placement worth approximately $2.5 billion in capital.

The capital raising consisted of a fully underwritten $2-billion institutional share placement and a non-underwritten share purchase plan (SPP) targeted at raising $500 million in funds.

According to Westpac, the capital raising was designed to provide an increased buffer above the Australian Prudential Regulation Authority’s “unquestionably strong” common equity tier 1 (CET1) capital ratio benchmark of 10.5 per cent.

The bank added that the raising would also create “flexibility for changes in capital rules” and for “potential litigation or regulatory action”.

Westpac has now announced the completion of its share purchase plan (SPP), from which it has raised approximately $770 million from the provision of around 31.9 million new shares, in addition to $2 billion raised in the first phase.  

The $770 million raised exceeds its initial SPP target of $500 million and takes the total of capital raised to $2.77 billion.  

md discover

The issue price per SPP share was $24.20, which represented a 2 per cent discount to the weighted average price of shares traded on the ASX during the five trading days up to, and including, 2 December.

According to Westpac, the SPP offer was made to approximately 618,300 eligible shareholders, with valid SPP applications received from approximately 40,900 investors. This reflected a participation rate of approximately 7 per cent of eligible shareholders with an average SPP investment of around $18,850.

However, Westpac has revealed that the final amount raised of $770 million excludes approximately $68 million of withdrawal requests accepted from around 3,390 eligible withdrawal applicants.

Late last month, Westpac revealed that following discussions with the Australian Securities and Investments Commission, it would provide investors in its SPP with the opportunity to withdraw their interest, in light of financial crimes regulator AUSTRAC’s action against the bank for alleged breaches of anti-money laundering laws.

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 the regulator, the bank failed to appropriately monitor outgoing international funds transfer instructions of customers, including those which it alleged 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.

The revelations sparked the resignation of former Westpac CEO Brian Hartzer, long-serving board director Ewen Crouch, and the bringing forward of chairman Lindsay Maxsted’s retirement.

CFO Peter King will serve as interim CEO while Westpac searches for a permanent replacement.

The bank also released a response plan to the AUSTRAC issues, and work is ongoing to identify accountability and bolster its AML/CTF work.

AUSTRAC update

Westpac and AUSTRAC appeared in the Federal Court for a case management hearing in relation to the proceedings launched in November.

According to Westpac, the parties jointly told the court that discussions regarding a Statement of Agreed Facts have commenced.

The Federal Court has adjourned the matter to be further listed for a case management hearing to be held in late February or early March 2020.

Westpac stated that it is “determined to resolve this matter with AUSTRAC” and to “urgently fix its issues around financial crime compliance”.

“Westpac needs to have systems and controls in place to prevent its services being exploited for financial and other serious crime, including to monitor and report certain transaction activity,” the bank stated.

“Westpac has made a number of changes to its transaction monitoring and is continuing to review its processes and report to AUSTRAC suspicious matters that are identified.

“Westpac is implementing its Response Plan and is determined to lift its standards and ensure its anti-money laundering and other financial crime processes meet its obligations.”

[Related: Westpac to refund disgruntled investors amid AUSTRAC scandal]

Share this article

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

brokerpulse graph

What are the main barriers to securing a mortgage at the moment?