Westpac's 23m breaches could be the tip of the iceberg
AUSTRAC crackdown
Adele Ferguson
Investigative journalist and columnist
November 23, 2019 — 12.00am
Friday was the day heads needed to roll. Instead, the Westpac board and chief executive Brian Hartzer spent the day working on a statement where it "unreservedly" apologised for failings that facilitated child exploitation.
The statement talked about everyone on the board being devastated, distressed and sorry. "The notion that any child has been hurt by any failings by Westpac is deeply distressing," the statement by chairman Lindsay Maxsted said.
Westpac chairman Lindsay Maxsted has promised an independent review. Credit:Trevor Collens
He promised an "independent review" of its accountability and said Westpac would work with community groups to fight child exploitation.
But there was no sign of anyone prepared to take ultimate responsibility and resign.
The board is clearly hoping the furore about their ignorance of the many systems failures will be forgotten and they can continue in their roles.
But it isn't that simple. These systems failures have been going on for a long time and they still aren't fixed.
If you think Westpac's 23 million breaches of anti-money laundering ... is bad enough, it could be far worse.
To make it crystal clear if you think Westpac's 23 million breaches of anti-money laundering and counter-terrorism financing laws is bad enough, it could be far worse.
It means the number of paedophiles who set up Westpac accounts and made suspicious financial transactions in the Philippines could be far more involved and more people damaged than outlined in AUSTRAC's statement of claim.
We only have a snapshot of what happened in the past six years due to a statute of limitations. In other words, AUSTRAC could only go back to November 20, 2013 in its action. Anything outside that date was excluded.
We have been made aware of 12 customers, one who had been convicted of child exploitation but was able to open a series of Westpac accounts and made suspicious transactions to the Philippines which indicated child exploitation.
Another customer made 625 transactions between 2013 and 2019, including transferring money to a person in the Philippines who was arrested in 2015 for child trafficking and live streaming of child sex shows and selling child sex.
Westpac CEO Brian Hartzer hangs on after board says sorry. Credit:AAP
Westpac has self-reported failures back to 2009. It could well be longer than that. The most likely scenario is the correct systems were never in place.
What is galling is the Australian Prudential Regulation Authority (APRA) warned the banks back in 2001 about such issues. At a presentation to the Basel Committee on Banking Supervision in October 2001 titled Money laundering, a risk management issue, APRA discussed the importance of banks knowing their customers.
"Sound KYC [know your customers] procedures must be seen as a critical element in the effective management of banking risks," APRA said.
Without proper due diligence, it warned that banks could become subject to reputational, operational, legal and concentration risks, which could result in significant financial cost.
Westpac clearly wasn't paying attention.
It is why Hartzer shouldn't be the only person in the firing line. Westpac chairman Lindsay Maxsted has been on the board since 2008 and chairman since 2011. He is also on the board's risk and compliance committee, which should have been on top of these issues well before it did. Ewen Crouch, the chairman of the board risk and compliance committee, also needs to be accountable.
AUSTRAC didn't mince its words in its statement of claim, alleging that the 23 million breaches were "the result of systemic failures in its control environment, indifference by senior management and inadequate oversight by the board".
Hartzer might argue the toss about senior management but hubris and poor systems have become a hallmark of the big four banks.
Indeed, during the banking royal commission Maxsted was in denial. Despite so many revelations of systemic theft, Maxsted told shareholders in his December 2018 address that Hayne's summation of banks being greedy didn't apply to Westpac.
"We are not an organisation based on greed or short-term profit," he claimed, adding that much of the conduct aired during the royal commission had been "historical, has been previously reported to regulators, and in many cases, had been resolved or is being addressed".
He is lucky he wasn't called to give testimony at the royal commission as his denial may have resulted in a similar fate as National Australia Bank chairman Ken Henry who was forced to resign after failing to show contrition.
Since the AUSTRAC scandal broke on Wednesday, the Westpac board has held at least two board meetings. In between those meetings Prime Minister Scott Morrison has demanded the board show some accountability and the Attorney-General Christian Porter has warned that Westpac could expect a fine in excess of CBA's $700 million settlement with AUSTRAC.
For now, everybody at Westpac is hanging on. Hoping it will go away.
But it won't go away. Overseas authorities are sniffing around and investors are starting to question how much Westpac knew and when it knew given the bank tapped the market for a $2.5 billion equity issue earlier this month, at a price greater than the current share price.
The class action lawyers will be investigating with a view to taking action if they think continuous disclosure laws were breached. So too will the corporate regulator. APRA should also step in and do its own independent report into what went wrong at Westpac.
That it took the board more than two days to make a statement is not near good enough.
If gold medals were being handed out for playing down egregious misconduct, the gong for 2019 should go to Westpac.
Adele Ferguson is a Gold Walkley Award winning investigative journalist. She reports and comments on companies, markets and the economy.
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