The Reserve Bank of New Zealand said it is working closely with its offshore counterparts after Australian authorities alleged that Westpac Australia had breached anti-money laundering and counter terrorism financing laws.

AUSTRAC - the Australian Government agency that 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 Westpac Banking Corp in Australia.

The civil penalty orders related to what AUSTRAC said was systemic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 in Australia.

The Reserve Bank of NZ's deputy governor and head of financial stability Geoff Bascand said the central bank was made aware of AUSTRAC's actions and was in close contact with counterparts across the Tasman in relation to this issue.

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"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.

A Westpac New Zealand spokesperson said: "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."

In a statement, AUSTRAC alleged that Westpac contravened the AML/CTF Act on over 23 million occasions.

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AUSTRAC chief executive officer, Nicole Rose, said the authority'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," AUSTRAC said.

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

Dual-listed Westpac shares dropped by 57c on the NZX to $27.58 on the back of the news.

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.

In August, AUSTRAC's Rose was reported as saying it was likely to take more such actions against Australia's top financial institutions after been flooded with reports of potential breaches in the wake of the CBA case.

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.

- With BusinessDesk