“Faults of omission” – Westpac publishes results of probe into issues raised by AUSTRAC

Westpac today announced the results of its investigation into the Anti-Money Laundering and Counter- Terrorism Financing (AML/CTF) compliance issues, as well as releasing the Advisory Panel Report into Board Governance of AML/CTF Obligations and the Promontory Assurance letter on management’s accountability review.

The failure concerning International Funds Transfer Instructions (IFTIs) non-reporting was blamed on a mix of technology and human error dating back to 2009.

The failure properly to adhere to AUSTRAC guidance for child exploitation risk in respect of some products was explained through deficient financial crime processes, compounded by poor individual judgements.

Westpac has identified three primary causes of the AML/CTF compliance failures:

• Some areas of AML/CTF risk were not sufficiently understood within Westpac;
• There were unclear end-to-end accountabilities for managing AML/CTF compliance; and
• There was a lack of sufficient AML/CTF expertise and resourcing.

With regard to Board oversight, the Advisory Panel formed a range of views on financial crime related governance. The Report noted that the way in which the Westpac Board organised its general governance responsibilities was mainstream and fit for purpose. The Report also noted that, with the benefit of hindsight, and noting the Board’s escalating focus in the area, directors could have recognised earlier the systemic nature of some of the financial crime issues Westpac was facing. The Panel also noted that reporting to the Board on financial crime matters was at times unintentionally incomplete and inaccurate.

Westpac CEO, Mr Peter King said the management accountability assessment, conducted with external assistance, looked back over ten years and where fault was identified, appropriate action has been taken.

“A range of remuneration consequences were applied to 38 individuals. Consequences applied to prior year awards, including withheld FY19 short term variable reward, totalled approximately $13.2 million. In addition, cancelled FY20 short term variable reward, including for the CEO and Group Executives, is valued at approximately $6.9 million assuming an outcome of 50% of target opportunity”, Mr King said.

“While the compliance failures were serious, the problems were faults of omission. There was no evidence of intentional wrongdoing,” Mr King explains.

Westpac explains that, since the proceedings were filed in November 2019, Westpac and AUSTRAC have worked together to narrow the issues in dispute. To date, the parties have been unable to reach agreement on all issues. On May 15, 2020, Westpac filed a Defence to the AUSTRAC Claim which admitted to a majority of the contraventions alleged by AUSTRAC. These admissions included:

• The non-reporting of IFTIs and associated tracing information failures;
• Record keeping failures;
• Ongoing customer due diligence failures; and
• Failures regarding certain correspondent banking obligations.

A number of areas remain to be resolved in the current legal process. No trial date has yet been set.