Australia’s first bank, Westpac, is alleged to have contravened the Anti-Money Laundering Counter Terrorism Financing Act 2006 (Cth) (AML/CTF Act) on tens of millions of occasions.
The Australian Transaction Reports and Analysis Centre (AUSTRAC), Australia’s financial intelligence agency and regulator, made the allegations against Westpac in November following an investigation where it was identified that the oversight of Westpac’s banking and designated services provided through its correspondent banking relationships was deficient. The bank’s oversight of its designated services was also considered to be deficient. Collectively, these failures in oversight were considered by AUSTRAC to result in serious and systematic non-compliance with the AML/CTF Act.
AUSTRAC’s activities as a regulator matured during the reign of CEO Paul Jevtovic APM OAM with his unprecedented enforcement action against Tabcorp and CBA. The case against Westpac suggests that Nicole Rose PSM, who took over as CEO of AUSTRAC in 2017, is at least as ambitious an enforcer as her predecessor.
Westpac’s alleged failures in oversight
Importantly, AUSTRAC is not alleging that Westpac, or its employees, were themselves complicit in money laundering. Rather, it is alleged that the bank had deficient processes in relation to its anti-money laundering (or preventative) measures.
More specifically, Westpac’s alleged failures in oversight may be broken into five areas:
- The major bank 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.
- Westpac failed to report over 19.5 million International Funds Transfer Instructions (IFTIs) to AUSTRAC over nearly five years for transfers both into and out of Australia.
- In addition, the big four bank failed to keep records relating to the origin of some of these international funds transfers.
- Another failing by Westpac was that it did not pass on information about the source of funds to other banks in the transfer chain, which deprived the recipient bank of information they then needed to understand the source of funds.
- Finally, Westpac failed to 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. Westpac failed to introduce appropriate detection scenarios to detect known child exploitation typologies (consistent with AUSTRAC guidance and the bank’s own risk assessments).
How AUSTRAC responded
On 20 November 2019, AUSTRAC commenced civil penalty proceedings in the Federal Court against Westpac. Civil penalty proceedings, as the name suggests, are civil in nature. They do not result in a criminal conviction and the standard of proof in civil penalty proceedings is on the balance of probabilities (ss 175 and 179 AML/CTF Act; s 140 Evidence Act 1995 (Cth)). As noted above, they are civil penalties for failing to have anti-money laundering and counter-terrorism financing measures or controls in place rather than for actually laundering money (or being knowingly concerned in the laundering of money). Criminal offences for money laundering are contained elsewhere in the AML/CTF Act, the Financial Transactions Reports Act 1988 (Cth) and the Schedule to the Criminal Code Act 1995 (Cth) (Criminal Code). In other words, AUSTRAC is alleging that Westpac’s anti-money laundering controls were deficient in certain specific and systemic respects and as a result there were some odd 23 million civil penalty contraventions of the AML/CTF Act.
Recapping the aftermath
In response to the allegations, Westpac’s CEO, Brian Hartzer resigned. It is also understood that Chairman Lindsay Maxstead will step down early. In addition, Westpac released a response plan to the allegations. It states that Westpac is taking immediate action to fix the issues raised by the documents AUSTRAC has filed in court to ensure that these issues cannot happen again. Westpac is also undertaking a series of immediate actions and investments to reduce the human impact of financial crime. The first response in Westpac’s response plan in particular is likely to constitute an admission and it may be inferred from that response that Westpac will not be defending the matter.
How could this have happened?
It is difficult to understand how such an established organisation with its enormous turnover could be so remiss as to its obligations under the AML/CTF Act. The five general categories of contraventions identified above relate to elementary, fundamental AML/CTF processes. Obviously, AUSTRAC’s enforcement action against Tabcorp and CBA didn’t deter Westpac either.
Complying with the AML/CTF Act and Rules
Money laundering and terrorism financing countermeasures prescribed by the AML/CTF Act are readily ascertainable via the AML/CTF Act and Rules as well as the various AUSTRAC publications and secondary resources available. Reporting entities under the AML/CTF Act, including banks, however, need to set the tone at the top to support and facilitate the AML/CTF processes being adopted, updated and/or enforced. Finally, regimes like the one created by the AML/CTF Act are not arbitrarily motivated and, apart from complying with the law, reporting entities should strive to be good corporate citizens to contribute to the prevention of financial crimes like the funding of child exploitation.
By: Dr Mathew Leighton-Daly
Legal Book Author, Thomson Reuters
Dr Mathew Leighton-Daly is the newly commissioned author of our Financial Crime Control and Anti-Money Laundering on-line publication. Dr Leighton-Daly is an internationally recognised specialist in financial crime control.
The new work incorporates completely revised annotations to the principle Act, together with the Rules and regulatory material previously appearing in the earlier work. This material is complimented with the addition of commentary and legislative excerpts addressing criminal money laundering and civil proceeds of crime legislation.