- Westpac violated anti-money laundering and counter-terrorism laws more than 23 million times in just five years, it's been alleged.
- Austrac, the entity in Australia charged with preventing financial crimes, is now pursuing Westpac through Federal Court for the breaches, which it suggests allowed child exploitation money to flow freely in southeast Asia.
- The gist of the overall case is that Westpac is alleged to have processed billions of dollars in transactions, though it claims that it "did not and does not know where the funds originate" despite laws requiring banks to do their due diligence.
It could be the biggest court case in Australian banking history.
Westpac systemically failed to follow anti-money laundering laws and, in doing so, allowed money suspected to have been funding child exploitation to flow freely, the financial crimes regulator Austrac has alleged on Wednesday.
"Westpac failed to ... carry out appropriate customer due diligence on transactions to the Philippines and South East Asia that have known financial indicators relating to potential child exploitation risks," Austrac said in a statement. "Westpac failed to introduce appropriate detection scenarios to detect known child exploitation typologies, consistent with AUSTRAC guidance and their own risk assessments."
In total, Austrac alleges Westpac violated anti-money laundering and counter-terrorism financing (AML/CTF) laws more than 23 million times. Specifically, a dozen customers have been identified by the regulator as posing "known child exploitation risks".
Despite this, Westpac is alleged to have failed to monitor and prevent suspicious activity from their accounts.
"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. Since at least 2013, Westpac was aware of the heightened child exploitation risks associated with these patterns of transactions," Austrac said in documents filed in the Federal Court of New South Wales.
Despite being aware of this, it took five years for Westpac to take appropriate action, Austrac says, which pulls no punches in its appraisal of the "big-four" bank.
"These contraventions are the result of systemic failures in its control environment, indifference by senior management and inadequate oversight by the Board," Austrac said.
"They stemmed from Westpac’s failure to properly resource the AML/CTF function, to invest in appropriate IT systems and automated solutions and to remediate known compliance issues in a timely manner. They have occurred because Westpac adopted an ad hoc approach to ML/TF risk management and compliance."
Documents say Westpac allowed billions of dollars of overseas money to flow through the Australian system without performing the kind of due diligence required by law, which states that a receipt of each of these transactions is to be provided to Austrac within 10 days. Westpac failed to do so, time and time again, hampering Austrac's ability to do its job, documents say.
In the words of Austrac, "Westpac did not and does not know where the funds originate."
Responding on Wednesday, Westpac said it was taking the accusations seriously.
"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," CEO Brian Hartzer said in a statement provided to Business Insider Australia.
"We have implemented a range of additional steps in our processes including enhanced automatic detection systems... 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."
Each of those 23 million violations carries a civil penalty of between $17 million and $21 million.
That opens the door for Westpac to be whacked with the biggest corporate fine in Australian history -- surpassing even the Commonwealth Bank's $700 million money laundering penalty last year.
Not a record you want to break.