Westpac accused of more than 23m breaches of anti-money laundering laws

Australia’s financial intelligence agency has launched legal action against one of the country’s biggest banks, Westpac, accusing it of more than 23m breaches of anti-money laundering and counter-terrorism finance laws involving $11bn in transactions, including transfers potentially linked to child exploitation.

In a statement filed with the federal court, Austrac said Westpac had failed to “carry out appropriate due diligence on customers sending money to the Philippines and South East Asia for known child exploitation risks”.

Austrac said Westpac had been aware of the child exploitation risks relating to low-value payments made through one of its systems, LitePay, since 2013 but had not fixed them until June 2018.

“Westpac still has not implemented appropriate automated detection scenarios to monitor for the known child exploitation risks through other channels,” Austrac told the court. “As a result, Westpac has failed to detect activity on its customers’ accounts that is indicative of child exploitation.”

Westpac also failed to properly deal with a customer who “opened a number of Westpac accounts after serving a custodial sentence for child exploitation offences”, Austrac said.

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“Westpac promptly identified activity on one account that was indicative of child exploitation, but failed to promptly review activity on other accounts.

“This customer continued to send frequent low value payments to the Philippines through channels that were not being monitored appropriately.”

The customer was among 12 on whom Austrac claims Westpac failed to carry out appropriate due diligence checks “with a view to identifying, mitigating and managing known child exploitation risks”.

“Over a number of years, there were repeated patterns of frequent low value transactions on accounts held by each of these 12 customers that were indicative of child exploitation risks,” the regulator told the court.

Austrac also accused Westpac of failing to properly assess the risk in dealing with correspondent banks with which it did business.

“This is in spite of a number of correspondent banks disclosing higher ML/TF (money laundering and terror finance) risks, such as themselves having correspondent banking relationships with high risk or sanctioned countries including Iraq, Lebanon, Ukraine, Zimbabwe, and Democratic Republic of Congo,” Austrac said.

“Some correspondent banks who had disclosed such relationships had been fined by overseas regulators for sanctions or AML/CTF breaches resulting from inadequate controls.

“The risk posed to Westpac was that these high risk or sanctioned countries may have been able to access the Australian payment system through these nested arrangements, unbeknownst to Westpac.”

Austrac also said that between November 2013 and September 2018, Westpac failed to give it reports within the 10 days required by law about almost three-quarters of the incoming fund transfers it received from overseas banks – some 19.5m transactions totalling more than $11bn.

In addition, the bank failed to file timely reports about more than 12,000 outbound transactions, including more than 2,300 sent through LitePay where “Westpac has never given Austrac a report of each of these instructions”, Austrac said.

Westpac faces a theoretical maximum fine of between $391tn and $483tn, but if the breaches are found by the court it is unlikely to be ordered to pay anywhere near that amount.

However, based on Austrac’s recent track record, any penalty would be likely to be extremely large.

Last year, rival big four bank CBA agreed to pay Austrac $700m to settle a similar action against it in which the regulator alleged more than 53,000 breaches of AML-CTF laws.

Westpac revealed it was under investigation by Austrac in November last year.

“The group has recently self-reported to Austrac a failure to report a large number of international funds transfer instructions,” the bank said in its 2018 annual report.

“No provision has been raised for this matter including in relation to any potential regulatory action.”

In a statement to the stock exchange on Wednesday morning, Westpac said it was “reviewing Austrac’s statement of claim and will issue a further statement to the ASX once it has been assessed”.

The prime minister, Scott Morrison, said he was “appalled” by the allegations but the lawsuit proved Austrac was doing its job.

The bank is expected to make a further statement later on Wednesday.

Westpac shares fell 2.15% to $25.98 on Wednesday morning.