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In June 2018 Commonwealth Bank (ASX: CBA) paid the largest settlement of its kind in Australian corporate history after being taken to court by AUSTRAC over anti-money laundering charges.
Today, Westpac (ASX: WBC) finds itself in a similar position.
The bank this morning received a statement of claim from AUSTRAC, commencing civil proceedings in relation to alleged contraventions of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).
AUSTRAC alleges Westpac contravened the AML/CTF Act on over 23 million occasions.
Specifically the watchdog claims that Westpac failed to:
- Monitor money laundering and terrorism financing risks;
- Report over 19.5 million international funds transfer instructions (IFTIs) to AUSTRAC over nearly five years;
- Pass on information about the source of funds to other banks in the transfer chain;
- Keep records relating to the origin of some of these international funds transfers;
- and carry out due diligence on transactions in the Philippines and South East Asia that have known financial indicators relating to potential child exploitation risks.
"These AML/CTF laws are in place to protect Australia's financial system, businesses and the community from criminal exploitation. Serious and systemic non-compliance leaves our financial system open to being exploited by criminals," says AUSTRAC chief executive officer Nicole Rose.
"The failure to pass on information about IFTIs to AUSTRAC undermines the integrity of Australia's financial system and hinders AUSTRAC's ability to track down the origins of financial transactions, when required to support police investigations."
In a statement to the ASX Westpac CEO Brian Hartzer says the bank is currently reviewing AUSTRAC's statement of claim and will work with AUSTRAC to "resolve the matter".
"We recognise these are very serious and important issues," says Hartzer.
"We are committed to assisting AUSTRAC and law enforcement agencies to stop financial crime."
"These issues should never have occurred and should have been identified and rectified sooner. It is disappointing that we have not met our own standards as well as regulatory expectations and requirements."
Hartzer says the bank has been investing heavily in programs to bolster the management of financial crime risks including strengthening the bank's policies, data feeding systems, processes and controls.
"As part of this we are also taking very seriously AUSTRAC's concerns around appropriate customer due diligence on transactions to the Philippines and South East Asia, including reviewing relevant processes."
"In relation to IFTIs, we have closed the ACM product and reorted all the relevant transactions to AUSTRAC. The majority of the payments for which the reports were not generated were recurring, low value payments made by foreign government pension funds to people living in Australia."
The situation holds similarities to Commonwealth Bank's clash with AUSTRAC, which resulted in the banking giant paying $700 million in civil penalties, the largest settlement of its kind in Australian corporate history.
The initial claim detailed how CBA failed to notify AUSTRAC of more than 53,000 transactions at its network of so-called 'intelligent' automated cash deposit machines (IDMs), with a total transaction value of $624 million.
AUSTRAC also found the bank did not adequately monitor the use of its IDM's or assess the risk of money laundering or terrorism finance through their use. The conduct was labelled a 'serious' and systemic breach.
The scandal led to Ian Narev's departure as chief executive and he was replaced in April by Matt Comyn, who says the bank did not deliberately breach the law by failing to provide the regulator with timely notification of potentially suspicious transactions.
Westpac is not the only financial institution currently in hot water with AUSTRAC; buy-now pay-later (BNPL) group Afterpay (ASX: APT) is currently under audit by the watchdog.
The financial intelligence agency has appointed an external auditor to examine whether Afterpay's operations meet the standards of the Anti-Money Laundering and Counter-Terrorism Financing Act.
The audit will examine the BNPL company's governance and oversight of decisions in relation to AML/CTF, the identification and verification of customers and suspicious matter reporting obligations.
The final report from AUSTRAC into Afterpay is expected to be released later this month.
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