Australian anti-money laundering regulator alleges more than 23 million contraventions of the law by Westpac Banking Corporation with the RBNZ 'looking closely' for any relevance to Westpac NZ

The Reserve Bank of New Zealand (RBNZ) says it will be looking closely at an Australian case where Westpac Banking Corporation is alleged to have contravened anti-money laundering laws more than 23 million times for any relevance for Westpac New Zealand.

AUSTRAC, Australia’s anti money-laundering and terrorism financing regulator, has applied to the Federal Court for civil penalty orders against Westpac Banking Corporation, which is Westpac NZ's parent.

"The civil penalty orders relate to systemic non-compliance with 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. AUSTRAC Chief Executive Officer, Nicole Rose, says that AUSTRAC’s decision to commence civil penalty proceedings was made following a detailed investigation into Westpac’s non-compliance," AUSTRAC says.

AUSTRAC alleges Westpac Banking Corporation’s oversight of the banking and designated services provided through its correspondent banking relationships was deficient. It says the bank's oversight of its AML/CTF programme, intended to identify, mitigate and manage the money laundering and terrorism financing risks of its designated services, was also deficient.

"These failures in oversight resulted in serious and systemic non-compliance with the AML/CTF Act," says AUSTRAC.

Following AUSTRAC's announcement the RBNZ says it's working closely with Australian regulatory counterparts. The RBNZ oversees NZ banks for compliance with the NZ AML/CFT Act.

"The Reserve Bank of New Zealand was made aware of AUSTRAC’s actions and is in close contact with counterparts across the Tasman in relation to this issue," RBNZ Deputy Governor and Head of Financial Stability Geoff Bascand says.

“We have a regular onsite programme with New Zealand banks to ensure compliance with New Zealand’s AML/CFT requirements, and will be looking closely at the Australian findings and if they have relevance for Westpac NZ. The Reserve Bank will not be commenting further at this stage."

For its part the Westpac Banking Corporation says it has previously disclosed, including in its recent annual financial results, that it had self-reported a failure to report a large number of international funds transfer instructions to AUSTRAC and that AUSTRAC was also investigating a number of other areas relating to Westpac's processes, procedures and oversight.

"Westpac is currently reviewing AUSTRAC's statement of claim and will issue a further statement to the ASX once it has been assessed," Westpac Banking Corporation says.

A spokesman for Westpac NZ, meanwhile, says the AUSTRAC proceedings relate to Westpac Banking Corporation and Australian AML/CTF laws.  

"The proceedings do not relate to Westpac New Zealand which is subject to New Zealand AML/CFT laws. We regularly engage with the Reserve Bank of New Zealand about AML/CFT obligations and will continue to do so," the Westpac NZ spokesman says.

'Known financial indicators relating to potential child exploitation risks'

Among AUSTRAC's allegations is that Westpac Banking Corporation; "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. Westpac failed to introduce appropriate detection scenarios to detect known child exploitation typologies, consistent with AUSTRAC guidance and their own risk assessments."

Each of Westpac Banking Corporation's alleged contraventions of the AML/CTF Act faces a potential penalty in the millions of dollars.

In June last year ASB's parent Commonwealth Bank of Australia (CBA) agreed to pay an A$700 million fine to resolve AUSTRAC Federal Court proceedings relating to breaches of AML/CTF laws. After news of that case broke in 2017 the RBNZ quizzed local banks, including ASB, about issues related to their ATMs, which were at the centre of the CBA case.

The recent annual report from BNZ's parent National Australia Bank (NAB) noted NAB has reported a number of AML/CTF compliance breaches to relevant regulators and has responded to a number of requests from regulators requiring the production of documents and information.

"Identified issues include certain weaknesses with the implementation of ‘Know Your Customer’ requirements, other financial crime risks, as well as systems and process issues that impacted transaction monitoring and reporting in some specific areas. NAB continues to keep AUSTRAC, and where applicable, relevant foreign regulators, informed of its progress in resolving these issues, and will continue to cooperate with, and respond to queries from, such regulators. As this work progresses, further issues may be identified and additional uplifting and strengthening may be required. The potential outcome and total costs associated with the investigation and remediation process for specific issues identified to date, and for any issues identified in the future, remain uncertain," NAB said.

AUSTRAC's statement is below. And its statement of claim is here.  

AUSTRAC applies for civil penalty orders against Westpac

20 Nov 2019

AUSTRAC, Australia’s anti money-laundering and terrorism financing regulator, has today applied to the Federal Court of Australia for civil penalty orders against Westpac Banking Corporation (Westpac).

The civil penalty orders relate to systemic non-compliance with 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.

AUSTRAC Chief Executive Officer, Nicole Rose, says that AUSTRAC’s decision to commence civil penalty proceedings was made following a detailed investigation into Westpac’s non-compliance.

It is alleged that Westpac’s oversight of the banking and designated services provided through its correspondent banking relationships was deficient. Westpac’s oversight of its AML/CTF Program, intended to identify, mitigate and manage the money laundering and terrorism financing risks of its designated services, was also deficient. These failures in oversight resulted in serious and systemic non-compliance with the AML/CTF Act.

Westpac failed to: 

1. appropriately assess and monitor the ongoing money laundering and terrorism financing risks associated with the movement of money into and out of Australia through correspondent banking relationships. Westpac has allowed correspondent banks to access its banking environment and the Australian Payments System without conducting appropriate due diligence on those correspondent banks and without appropriate risk assessments and controls on the products and channels offered as part of that relationship.
2. report over 19.5 million International Funds Transfer Instructions (IFTIs) to AUSTRAC over nearly five years for transfers both into and out of Australia. The late incoming IFTIs received from four correspondent banks alone represent over 72% of all incoming IFTIs received by Westpac in the period November 2013 to September 2018 and amounts to over $11 billion dollars. IFTIs are a key source of information from the financial services sector that provides vital information into AUSTRAC’s financial intelligence to protect Australia’s financial system and the community from harm.
3. pass on information about the source of funds to other banks in the transfer chain. This conduct deprived the other banks of information they needed to understand the source of funds to manage their own AML/CTF risks.
4. keep records relating to the origin of some of these international funds transfers.
5. 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. Westpac failed to introduce appropriate detection scenarios to detect known child exploitation typologies, consistent with AUSTRAC guidance and their own risk assessments.

“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,” Ms Rose said.

“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.”

AUSTRAC’s approach to regulation is based on building resilience in the financial system and on educating the financial services sector to ensure they understand, and are able to comply with, their compliance and reporting obligations. Businesses are the first line of defence in protecting the financial system from abuse.

“We have been, and will continue to work with Westpac during these proceedings to strengthen their AML/CTF processes and frameworks,” Ms Rose said.

“Westpac disclosed issues with its IFTI reporting, has cooperated with AUSTRAC’s investigation and has commenced the process of uplifting its AML/CTF controls.”

Westpac is a member of the Fintel Alliance. The Fintel Alliance is a private-public partnership established by AUSTRAC to tackle serious financial crime, including money laundering and terrorism financing.