$900m money-laundering penalty likely for major bank

By Grace Ormsby

April 15 2020
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A big four bank considers itself “well placed” to pay up on a $900 million penalty for the more than 23 million alleged anti-money laundering breaches that came to light last year.

In an announcement to shareholders detailing items affecting the bank’s 1H20 results, Westpac Group has highlighted a billion-dollar hit to its cash earnings – all related to AUSTRAC’s filing of a civil claim in November 2019.

Of that, $900 million has been allocated for the “potential penalty” related to the proceedings.

A statement from the bank said: “Westpac had considered the available information and expects to make a provision of $900 million for its potential liability.”

It went on to note that this provision would be taken in circumstances where there remains considerable uncertainty on the approach the court would take to assessing the appropriate penalty and where there remains a prospect of agreeing to a penalty which could be recommended on a joint basis by both parties.

The actual penalty paid by Westpac following either a settlement and joint submission on a penalty, or a hearing, “may be materially higher or lower than the provision”, it was conceded.

Noting the half-year’s raising of $2.8 billion of capital, Westpac CEO Peter King said: “Having spent much of the last decade strengthening our capital, we are well placed to respond to the unfolding environment.”

nestegg first reported on the AUSTRAC proceedings in November last year, when it was revealed that the anti-terrorism regulator was seeking civil penalty orders for more than 23 million alleged breaches of Australian anti-money laundering laws.

The decision to commence civil penalty orders related to systemic non-compliance of the bank with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 followed a detailed investigation into Westpac’s non-compliance.

It alleged that Westpac’s oversight of the banking and designated services provided through its correspondent banking relationships was deficient.

AUSTRAC also alleged that the bank’s oversight of its own program intended to identify, mitigate and manage the money laundering and terrorism financing risks of its designated services was also deficient.

According to the regulator, the big four bank was also alleged to have failed to introduce appropriate detection scenarios to detect known child exploitation typologies - ie. it did not carry out appropriate due diligence on transactions to the Philippines and south-east Asia where there are known financial indicators linked to potential child exploitation risks.

In addition to the potential penalty, Westpac has outlined that it expects a further $130 million hit to cash earnings, due to the costs linked to its AUSTRAC response plan, first announced 25 November 2019.

The CEO has stated that he is committed to fixing the processes that led to the proceedings: “In addition to closing relevant products and recruiting an additional 200 people in financial crime and compliance, I am putting in place a clearer accountability regime that will speed up decision making, improve implementation and more clearly define responsibility and its associated risk management.”

A further $360 million cash earnings impact is also expected for the bank, which incorporates additional provisions for customer refunds, payments and associated costs and litigation for matters unrelated to the AUSTRAC proceedings.

Amid the fallout of COVID-19, nestegg has previously queried whether banks should still be providing dividends to shareholders – especially in light of an APRA letter erring against it for the short term.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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