The A$1.3 billion fine that the Federal Court is likely to impose on Westpac for its breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act is only part of the cost the bank faces as a result of its compliance failures.
The work it has undertaken to fix the problems that led to the breaches has cost it more than $600 million so far and there is more to do, according to a document released by the bank and the anti-money laundering regulator Austrac yesterday.
Westpac and Austrac announced that they have reached an agreement to resolve civil proceedings commenced in the Federal Court last November. Westpac has admitted to contraventions of the AML/CTF Act, including additional contraventions outlined in an amended statement of claim.
The parties have filed a statement of agreed facts and admissions and have recommended a $1.3 billion penalty to the court.
The statement of agreed facts and admissions makes it clear that Westpac’s failure was the result of technological failings, management uncertainty as to which arrangements were in place, insufficient post-implementation review to confirm that reporting was taking place, and an absence of appropriate end-to-end review, assurance and oversight.
Throughout the relevant period, from November 2013 to October 2019, Westpac had in place arrangements with a number of correspondent banks. Some of these arrangements allowed the correspondent banks to use Westpac’s infrastructure to process payments for their overseas and domestic customers through Westpac’s direct access to the low value clearing network in Australia and New Zealand.
Correspondent banking involves higher money laundering and terrorism financing risks because of the cross-border movement of funds, jurisdiction risk and risks associated with the transparency of the identity and source of funds of customers of the correspondent banks.
Files sent by correspondent banks through so-called “direct model Australasian cash management arrangements” might contain multiple payment instructions.
The admitted contraventions of the AML/CTF Act concern international funds transfer instructions (IFTIs) received or sent by Westpac. During the period between November 2013 and September 2018 Westpac received around 29.6 million IFTIs. It was required to give Austrac reports about these instructions but it failed to do so in more than 19 million cases.
This included the failure to report any IFTIs sent by two banks. In the end there were more than 23 million contraventions.
The problem goes right back to the bank’s implementation of its AML/CTF system in 2010 and 2011. Various computer systems used by the bank were not properly configured.
It did not have appropriate end-to-end reconciliation, assurance and oversight processes in place to identify the ongoing IFTI reporting failures, according to the agreed statement of facts.
“Westpac proceeded on the misapprehension that the project to report IFTIs… had been successful. Relevant personnel within Westpac at the time incorrectly understood that the IFTI reporting in relation to Bank A had in fact commenced.”
Austrac was in contact with Westpac with queries about its IFTI reporting as early as 2011 but it was not until 2018 that the bank’s group money laundering reporting officer was made aware of the issues.
Once it understood