Heads are rolling at another big Australian Bank
Australia's scandal-plagued financial industry was set reeling yet again after regulators accused Westpac Banking Corp. of the biggest violation of moneylaundering laws in the country's history.
Allegations that some of the transfers went to child pornographers in the Philippines triggered a furor that cost the bank's chief executive his job and precipitated the chairman's early departure. An official report in February had lambasted senior banking executives across the industry for tolerating a culture of greed, leading to a litany of misbehavior. Nine months later, the financial crime agency's court filing sounded a similar note, calling the breaches at Westpac systemic and the result of "indifference by senior management and inadequate oversight by the board."
The Australian Transaction Reports and Analysis Centre announced a lawsuit on Nov. 20 accusing it of breaching money-laundering laws more than 23 million times. It alleges that between 2013 and 2019, the bank failed to report more than A$11 billion ($7.5 billion) in payments into and out of Australia, mostly using a bank-to-bank system originally designed to help facilitate pension transfers. The most serious allegations relate to a separate consumer product known as LitePay, which is meant to make it easier for people to send small amounts of money to each other. The agency says Westpac failed to carry out proper due diligence on 12 customers whose accounts showed repeated, small payments to Southeast Asia, even though it knew such transactions were a red flag. In one case, a customer transferred money to a person in the Philippines who was later arrested for child trafficking and exploitation involving live streaming of sex involving minors.
Chief Executive Officer Brian Hartzer's resignation was announced within days. (He will be paid out A$2.7 million in salary, but will forfeit all bonuses.) Chairman Lindsay Maxsted said he would retire early, and director Ewen Crouch, who heads the risk committee, said he wouldn't seek re-election to the board. Proxy adviser Institutional Shareholder Services Inc., which has about 2,000 clients globally, is recommending a vote against the re-election of directors Nerida Caesar and Peter Marriott and against the bank's pay report at Westpac's annual general meeting on Dec. 12.
Unlike some of their peers in the U.S. and Europe, Australia's four biggest banks, responsible for 80% of the nation's loans, made it through the global financial crisis relatively unscathed, thanks to an economy propped up by a mining boom and more conservative mortgage lending standards. But then came a series of scandals in which they were variously accused of giving poor financial advice, failing to honor insurance claims or mistreating small business owners. Some also faced court action over allegedly trying to manipulate benchmark interest rates. Commonwealth Bank of Australia was accused of 53,000 money-laundering infractions, the most until the Westpac case. (Commonwealth Bank's CEO Ian Narev resigned over that scandal and the bank settled in 2018, agreeing to pay a record A$700 million fine.) Amid public pressure to tackle misconduct, the government in 2017 announced a wide-ranging, yearlong public inquiry known as a Royal Commission.
The inquiry uncovered misdeeds including charging for services that were never provided, forging loan documents, lying to regulators and pushing customers into bad investments to meet bonus targets. The Royal Commission's final report also described regulators as ineffective and urged them to toughen enforcement and curb the bonus culture that fueled decades of wrongdoing.
It recommended the abolition of "money for nothing" commissions on loans and referred 24 cases of alleged bad behavior for possible legal action. However, it stopped short of mandating that "one-stop-shop" financial firms be broken up or that lending rules be tightened, actions that could have threatened bank profits.