Austrac alleges Westpac engaged in widespread, systemic and frequent Anti-Money Laundering and Counter-Terrorism Financing failures. Photo / 123RF
Austrac alleges Westpac engaged in widespread, systemic and frequent Anti-Money Laundering and Counter-Terrorism Financing failures. Photo / 123RF
The Reserve Bank said it was working closely with its offshore regulatory counterparts following allegations from financial crimes regulator that Westpac Australia had breached anti-money laundering and counter terrorism financing rules more than 23 million times and had failed to monitor transactions that may have involved child exploitation.
The regulatoracross the Tasman, Austrac, alleged that Westpac had engaged in widespread, systemic and frequent failures to adhere to laws combating money laundering and terrorism financing.
The agency, which uses financial intelligence and regulation to disrupt money laundering, terrorism financing and other serious crime - said it had applied to the Federal Court of Australia for civil penalty orders against the bank.
They relate to alleged systemic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 in Australia.
Westpac's dual-listed shares dropped by 74c on the NZX to $27.41 on the back of the news.
The Reserve Bank of NZ's deputy governor and head of financial stability, Geoff Bascand, said the RBNZ was made aware of Austrac's actions and was in close contact with counterparts across the Tasman over the issue.
"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," he said in a statement.
In a separate statement, Westpac New Zealand said: "The Austrac proceedings relate to Westpac Banking Corporation and Australian AML/CTF laws."
"We regularly engage with the Reserve Bank of New Zealand about AML/CFT obligations and will continue to do so," it said.
Austrac, in its statement of claim, said that since at least 2013, Westpac was aware of the heightened child exploitation risks associated with frequent low value payments to the Philippines and South East Asia, both from Austrac guidance and its own risk assessments.
Reserve Bank of NZ deputy governor and head of financial stability, Geoff Bascand. Photo / File
In June 2016, senior management within Westpac was specifically briefed on these risks with respect to the LitePay channel," the statement of claim said.
"It was not until June 2018 that Westpac implemented an appropriate automated detection scenario to monitor for known child exploitation risks through its LitePay platform. Westpac still has not implemented appropriate automated detection scenarios to monitor for the known child exploitation risks through other channels," it said.
Austrac's action follows a damning report from the Royal Commission into banking, headed up by Kenneth Hayne, released in February.
In New Zealand, the Reserve Bank has made a case for the local banks - most of them subsidiaries of the Australian banks - to hold more capital, which has been met with stiff resistance.
Last year, ASB Bank's Australian parent, Commonwealth Bank of Australia, was fined A$700 million for similar breaches of the same laws, the largest penalty ever imposed in that country. ASB bank, which uses different systems, wasn't implicated in its parent's breaches.
National Australia Bank, which owns Bank of New Zealand, said in its annual report published last week that it too is facing an Austrac investigation that could result in serious penalties.
Independent economist and former bank economist Cameron Bagrie said in broad terms the banks' problems were symptomatic of their failure to invest enough in core systems, people and procedures.
"Banks have driven down costs too far, which has been great for profits in the near term. But we are now seeing the effects of underinvesting with regulators finding holes and deficiencies in multiple areas," he told the Herald.
Fitch Ratings said tonight the proceedings were ''credit negative'' but will not have an immediate impact on Westpac's ratings.
''Fitch believes the allegations reflect a wider range of weaknesses in internal controls and reporting systems, which we have already factored into Westpac's negative outlook.''
