Australia‘s Westpac Banking Corp was accused on Wednesday of 23 million breaches of anti-money laundering rules, with a regulator saying the financial giant enabled payments from “high risk” countries and convicted child sex offenders.
The oversight failure at Australia’s second-largest bank led to “serious and systemic non-compliance” with anti-money laundering laws, the Australian Transaction Reports and Analysis Centre (AUSTRAC) said in a court filing. The regulator is pursuing fines of up to 21 million Australian dollars ($14m) for every transaction Westpac failed to monitor adequately or report on time.
Westpac said it was reviewing AUSTRAC’s claim, adding it had informed the regulator of its failure to report the payments.
In a statement, its chief executive officer, Brian Hartzer said: “We recognise these are very serious and important issues. 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,” he added.
The lawsuit dwarfs a case AUSTRAC brought against larger Commonwealth Bank of Australia, which agreed last year to pay a record 700 million Australian dollar ($477m) penalty after admitting to allowing 53,750 payments that violated similar protocols.
Shares in Westpac fell 2.2 percent, underperforming the wider share market.
Fourth-ranked lender Australia and New Zealand Banking Group declined to comment on whether it was under investigation by AUSTRAC, while National Australia Bank, the third-largest, was not immediately available for comment.
The payments Westpac facilitated without acceptable scrutiny took place from 2013 to late 2018, AUSTRAC said in its court filing.
The filing said Westpac maintained relationships with offshore banks without assessing their business relationships, products, customers or payments, even when those banks disclosed relationships with “high risk or sanctioned countries including Iraq, Lebanon, Ukraine, Zimbabwe, and Democratic Republic of Congo”.
“The risk posed to Westpac was that these high risk or sanctioned countries may have been able to access the Australian payment system,” AUSTRAC said.
The Sydney-based bank had known since 2013 about “heightened child exploitation risks associated with frequent low value payments to the Philippines and South East Asia” but did not set up an automated detection system until 2018, it said.
One customer who had served a prison sentence for child exploitation set up several Westpac accounts. Westpac detected suspicious activity in one account but failed to review the other accounts and “this customer continued to send frequent low value payments to the Philippines through channels that were not being monitored appropriately”, AUSTRAC said.
The AUSTRAC lawsuit comes as Australia’s retail banking system seeks to rebuild its reputation after a stinging public inquiry found it had a culture of widespread profiteering, customer fee-gouging and slipshod regulatory oversight.
The AUSTRAC case was not related to that inquiry.
“Obviously, it’s appalling and distressing,” Prime Minister Scott Morrison told reporters in Brisbane when asked about the Westpac lawsuit.
“It is a fairly damning indictment about some of the processes and procedures they’ve had in place.”