WBCCD Westpac Banking Corporation

By Robb M. Stewart and Rachel Pannett 

Australia's second-largest bank has been accused of the biggest breach of the country's money laundering and terrorism financing laws in history, including failing to detect transfers that may have been used to facilitate child exploitation in Asia.

Westpac Banking Corp. allegedly breached money laundering laws more than 23 million times, including failing to report in a timely way about $7.5 billion in international transfers, Australia's financial-intelligence agency said in a court filing Wednesday.

Each individual breach could attract a fine of up to $21 million Australian dollars (US$15.7 million).

Australia's banks once held a reputation for being among the world's safest and most profitable for investors, but a series of scandals in recent years has rocked the country's top financial institutions. The country's biggest lender, Commonwealth Bank of Australia Ltd., last year settled a case involving more than 53,800 money laundering contraventions for A$700 million plus legal costs, the largest corporate civil penalty ever paid in Australia. It could have faced penalties of more than A$1 trillion.

Westpac Chief Executive Brian Hartzer said in a statement Wednesday that the issues "should never have occurred and should have been identified and rectified sooner." The lender is reviewing the civil claim and will be working with the government agency to resolve the matter, he said. The bank had self reported to the agency what it said was a failure to report a large number of international fund transfers.

The alleged infractions, which occurred between 2013 and 2019, were "the result of systemic failures in its control environment, indifference by senior management and inadequate oversight by the board," the Australian Transaction Reports and Analysis Centre, or Austrac, said in court documents. "They have occurred because Westpac adopted an ad-hoc approach to money laundering and terrorism financing risk management and compliance."

That led to a failure to properly assess and monitor the risks in moving money in and out of the country and to carry out appropriate due diligence on customers--who were known for child-exploitation risks--sending money to the Philippines and elsewhere in Southeast Asia.

The regulator is alleging Westpac failed to carry out due diligence on 12 of its customers to manage known child-exploitation risks. In one case, when a customer who had served jail time for child exploitation opened a number of Westpac accounts, only one was promptly identified as indicative of child exploitation. The customer continued to send frequent low-value payments to the Philippines through accounts that weren't being monitored appropriately, Austrac said.

Australia's Prime Minister Scott Morrison said he was "absolutely appalled" by the allegations, calling on the country's banks to "lift their game."

Westpac shares fell 3.3% to A$25.67 on Wednesday, underperforming the broader market and the other major banks. The lender this month reported its first decline in annual profit in four years, dented by a sharp rise in provisions for customer refunds and lawsuits.

Mr. Hartzer, who has been Westpac's CEO since early 2015, said the bank had invested heavily to improve the management of financial crime risks, including enhancing automatic detection systems. "We are also taking very seriously Austrac's concerns around appropriate customer due diligence on transactions to the Philippines and South-East Asia, including reviewing relevant processes," he said.

New Zealand's central bank said Wednesday it was looking closely at the Australian financial-intelligence agency's claims to see if they were relevant to Westpac's subsidiary in New Zealand.

Recent scandals have rocked Australia's big lenders, leading to a number of executive departures and a judicial probe last year that revealed a string of issues including inappropriate lending, collecting fees from dead customers for financial advice and lying to regulators.

Write to Robb M. Stewart at robb.stewart@wsj.com and Rachel Pannett at rachel.pannett@wsj.com

(END) Dow Jones Newswires

November 20, 2019 00:43 ET (05:43 GMT)

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