AUSTRAC and Westpac face off in court, as historic AML case heads towards trial

by Nathan Lynch, Regulatory Intelligence | Expert Analysis

The Australian financial intelligence agency and Westpac are shaping up for a trial in what could be the first genuine test of the country’s anti-money laundering (AML) laws.

The parties returned to court on Wednesday morning for a case management hearing in Australia’s largest-ever civil claim from a regulator. The Federal Court heard the parties are preparing for a trial in early 2021, though there is still a possibility of further mediation.

Westpac and the Australian Transactions Reports and Analysis Centre (AUSTRAC) returned to the Federal Court on Wednesday after failing to reach a settlement during court-ordered mediation. The parties have reached an impasse over the fundamental aspects of the case, with AUSTRAC continuing to argue that Westpac had a flawed AML/CTF program. The court heard that the parties “partcompany” when it comes to the obligations in s81 and s85 of the AML/CTF Act 2006, which sets out the fundamental obligations to have a compliance program.

The regulator’s legal team has argued Westpac failed to conduct a proper risk assessment, did not put in place an appropriate AML/CTF program and lacked basic controls such as an effective transaction monitoring program. AUSTRAC has alleged that this led to more than 23 million breaches of the AML/CTF Act.

Westpac has said in its defence the errors were technical in nature and reflected the complexity of its AML/CTF program, systems and controls.

Justice Jonathan Beach has taken over as judge in the case, in another indication that the parties may proceed to trial. Justice Beach has overseen several major financial cases, including the Commonwealth Bank money laundering case and Westpac’s bank bill swap rate (BBSW) rigging case with the Australian Securities and Investments Commission (ASIC).

“What seems to be an issue at the moment … is the s81 breach dealing with the absence of a Part A AML/CTF Program as required by sections 81 and 85 of the legislation. The other pleadings seems to be agreed in substance,” Justice Beach said.

“It seems like the s81 and s85 issue is something that may need to proceed to a trial.”

AUSTRAC has appointed new barristers with experience in major financial litigation. Wendy Harris QC is now leading the proceedings for AUSTRAC, creating further speculation that the parties are preparing for trial.

Harris said there was a fundamental difference of opinion on the importance of s81 and s85 admissions from Westpac.

“That’s critical your honour because s81 and s85 allegations go to the Part A program that was in place, the primary purpose of which… is to identify, mitigate and manage the AML/CTF risk. Where we seem to part company is on the meaning of those provisions and
what is enough,” Harris said.

Mexican standoff?

This would be the first time AUSTRAC has taken a civil claim to full trial. Its previous civil actions against Tabcorp and Commonwealth Bank both settled before trial for A$45 million and A$700 million, respectively.

Harris is an experienced commercial barrister and Queen’s Counsel specialising in complex disputes and transactional advice, particularly in the banking and finance, insurance and securities sectors.

She has acted in cases involving major ASX-listed entities, including National Australian Bank (NAB), WorleyParsons, BHP, Newcrest, Murray Goulburn, UGL, and UBS.

“I make it a priority to understand my client’s business and appreciate the commercial, strategic and human considerations which inform the way a matter should be conducted and the client’s perspective on what might represent a good outcome,” Harris said in a statement.

She represented NAB in the Financial Services Royal Commission and in the BBSW litigation brought by ASIC.

Westpac has said it “accepts the gravity of the issues raised by the AUSTRAC claim” and has made a large number of admissions in its legal response. These include the failure to report millions of transactions, recordkeeping failures, continuing customer due diligence failures and correspondent banking breaches.

Nathan Lynch is an experienced writer, public speaker, manager and technology enthusiast in the field of financial regulation and risk management. At Thomson Reuters, Nathan leads a team of experts who provide breaking news, deep analysis and practical guidance to risk practitioners in the global financial services sector.
Nathan manages Thomson Reuters’ award-winning Regulatory Intelligence team across the Asia-Pacific region, tracking developments in financial services law, regulation, financial crime and risk management.
Nathan has been involved in building innovative, tech-based businesses in the financial services “regtech” sector — including Complinet Australia and the Thomson Reuters Risk business.

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