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Westpac Pays Record Civil Penalty Over AML, CTF Violations

Chris Hamblin, Editor, Compliance Matters , 8 October 2020

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The Australian bank and the country's authorities recently agreed on a record payment to handle breaches of anti-money laundering and counter-terrorism laws, adding to a saga of problems in the nation in its financial services system.

(An earlier version of this article appeared in Compliance Matters, a sister news service to this one.)

Westpac and the Australian Transaction Reports and Analysis Centre, aka AUSTRAC, have recently agreed to an A$1.3 billion ($926 million) payment on the part of the bank to settle accusations that it contravened the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. The settlement has to be sanctioned in a federal court.

The Federal Court of Australia will consider the proposal for a settlement and penalty, which comes after a lengthy period of negotiation between bank and regulator. If it pronounces it appropriate, the resulting penalty order will represent the largest-ever civil penalty in Australian history. Westpac has admitted to contravening the AML/CTF Act on more than 23 million occasions, thereby exposing Australia’s financial system to the depredations of criminals.

The case is another example of a run of compliance failings that have embroiled Australian banks and wealth management institutions in recent years. Late in 2017, the government created a Royal Commission to probe into a raft of problems concerning mis-selling, weak AML controls and lapses, and other shortcomings. Senior figures at a number of banks have resigned and been replaced. (See a collection of stories here.) 

In summary, Westpac admitted that it failed to:

-- properly report to AUSTRAC more than 19.5 million International Funds Transfer Instructions (IFTIs) that amounted to more than A$11 billion dollars;
-- pass on information relating to the origin of some of these international fund transfers;
-- pass on information about the source of funds to other banks in the transfer chain, which these banks needed to manage their own ML/TF risks; 
-- keep records relating to the origin of some of these international funds transfers;
-- appropriately assess and monitor the risks associated with the movement of money into and out of Australia through its correspondent banking relationships, especially to and from risky jurisdictions; and
-- carry out appropriate CDD or customer due diligence in relation to suspicious transactions that it might have associated with child exploitation.

In reaching the agreement, Westpac has also admitted to approximately 76,000 additional contraventions which expand the original statement of claim. These new contraventions relate to information that came to light after the civil penalty action was launched last year and relate to additional IFTI reporting failures, failures to reasonably monitor customers for transactions related to possible child exploitation and two further failures to assess the risks associated with correspondent banking relationships that related to money laundering and terrorist finance.

Late in September, ratings agency Fitch said that Westpac’s resolution of its compliance issues would not affect its ratings. “The risk and governance shortcomings identified as part of the AUSTRAC proceedings had already been factored into our assessment and the A$1.3 billion fine is manageable for WBC,” Fitch said.

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