Westpac Banking Corp is to pay a record A$1.3 billion (US$916 million) fine to settle Australia’s biggest breach of money laundering laws, capping a saga that shredded the bank’s reputation and cost former CEO Brian Hartzer his job.
The fine, the largest levied against an Australian company, is more than the A$900 million Westpac had set aside for a potential penalty, and almost double the A$700 million that rival Commonwealth Bank of Australia paid to settle its own money-laundering breaches in 2018.
In reaching the agreement, Westpac admitted to about 76,000 additional breaches on top of the 23 million contraventions in the original suit, the Australian Transaction Reports and Analysis Centre (AUSTRAC) said in a statement yesterday.
Photo: EPA-EFE
These included failing to monitor customers for transactions related to possible child abuse, or conducting adequate risk assessment of overseas banks.
The settlement closes a sorry 10-month chapter in the history of Australia’s oldest bank. In the immediate aftermath of the suit, intense investor pressure led to Hartzer’s resignation and the early retirement of Lindsay Maxsted as chairman.
An investigation excoriated the lender for an “immature and reactive” risk culture, and found staff lacked the skills, expertise and experience to effectively manage risk.
The agreement comes with the global financial industry again falling under the spotlight after a cache of leaked documents showed years of transactions handled by the world’s largest banks linked to money laundering, corruption and fraud.
Westpac’s settlement “sends a strong message that AUSTRAC will take action to ensure our financial system remains strong so it can’t be exploited by criminals,” AUSTRAC chief executive Nicole Rose said in a statement. “Our role is to harden the financial system against serious crime and terrorism financing and this penalty reflects the serious and systemic nature of Westpac’s non-compliance.”
Westpac closed little changed after falling as much as 2.4 percent in early Sydney trade. The stock is down 32.4 percent this year, making it the worst performer among Australia’s big four banks.
“Westpac has underinvested in its technology platform for years and the AUSTRAC breach was the inevitable outcome of this,” said Sean Fenton, chief investment officer at Sage Capital in Sydney. “The settlement agreed today will not change anything in the bank’s culture, but there are undoubtedly moves being made in the wake of this, breaches by other banks and the impact of the Royal Commission findings to improve culture within the bank.”
The fine is equal to the bank’s first-half cash profit. It would take a further A$404 million provision to account for the higher penalty, and pay AUSTRAC’s legal costs of A$3.75 million.
While the penalty is manageable, “it comes at a time when Australian bank profitability is facing intensified pressure from higher loan-loss charges as a result of COVID-19, weak credit growth, and margin compression from ultra-low interest rates and intense competition,” Moody’s Investors Service analysts said.
Westpac CEO Peter King again apologized for the bank’s failings.
“We are committed to fixing the issues to ensure that these mistakes do not happen again,” he said in a statement. “This has been my number one priority. We have also closed down relevant products and reported all relevant historical transactions.”
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