Westpac parent feeling the heat

Eye across Tasman as bank accused of millions of breaches

The Reserve Bank is working closely with offshore counterparts after financial crimes regulator Austrac claimed Westpac Australia breached antimoney laundering and counterterrorism financing rules more than 23 million times and had failed to monitor transactions that may have involved child exploitation.

Austrac alleged Westpac had engaged in widespread, systemic and frequent failures to adhere to laws combating money laundering and terrorism financing.

The agency, which uses financial intelligence and regulation to disrupt money laundering, terrorism financing and other serious crime — said it had applied to the Federal Court of Australia for civil penalty orders against the bank.

They relate to alleged systemic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 in Australia.

Westpac’s dual-listed shares fell by 74c on the NZX to $27.41 on the news.

The Reserve Bank of NZ’s deputy governor and head of financial stability, Geoff Bascand, said the RBNZ was made aware of Austrac’s actions and was in close contact with Australian counterparts over the issue.

“We have a regular onsite programme with New Zealand banks to ensure compliance with New Zealand’s AML/CFT requirements, and will be looking closely at the Australian findings and if they have rele

We . . . will be looking closely at the Australian findings and if they have relevance for Westpac NZ. Geoff Bascand, Reserve Banks

vance for Westpac NZ,” Bascand said.

A Westpac New Zealand statement said: “The Austrac proceedings relate to Westpac Banking Corporation and Australian AML/CTF laws.”

“We regularly engage with the Reserve Bank of New Zealand about AML/CFT obligations and will continue to do so,” it said.

Austrac, in its statement of claim, said that since at least 2013, Westpac was aware of the heightened child exploitation risks associated with frequent low-value payments to the Philippines and Southeast Asia, both from Austrac guidance and its own risk assessments.

In June 2016, senior management within Westpac was specifically briefed on these risks with respect to the LitePay channel, Austrac said.

“It was not until June 2018 that Westpac implemented an appropriate automated detection scenario to monitor for known child-exploitation risks through its LitePay platform.

“Westpac still has not implemented appropriate automated detection scenarios to monitor for the known child exploitation risks through other channels,” it said.

Austrac’s action follows a damning report from the Royal Commission into banking, headed up by Kenneth Hayne, released in February.

In NZ, the Reserve Bank has made a case for the local banks — most of them subsidiaries of the Australian banks — to hold more capital, which has been met with stiff resistance.

Last year, ASB Bank’s Australian parent, Commonwealth Bank of Australia, was fined A$700 million for similar breaches of the same laws, the largest penalty ever imposed in that country. ASB bank, which uses different systems, wasn’t implicated in its parent’s breaches.

National Australia Bank, which owns Bank of New Zealand, said in its annual report last week that it too is facing an Austrac investigation that could result in serious penalties.

Independent economist and former bank economist Cameron Bagrie said that in broad terms the banks’ problems were symptomatic of their failure to invest enough in core systems, people and procedures.

“Banks have driven down costs too far, which has been great for profits in the near term. But we are now seeing the effects of underinvesting with regulators finding holes and deficiencies in multiple areas.”