From the AFR Porter flags big Westpac penalty James Eyers and...

From the AFR
Porter flags big Westpac penalty
James Eyers and Michael Pelly
Nov 22, 2019 — 12.00am
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Attorney-General Christian Porter said the money laundering breaches levelled against Westpac are "off the charts" and indicated that the bank can expect a fine well over the $700 million slapped on Commonwealth Bank for similar offences.

Mr Porter, who would approve any settlement, said the "unbelievably serious" allegations of millions of money laundering compliance breaches, some related to financing child pornography and exploitation, were of "enormous concern" to the Morrison government.

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AG Christian Porter is keeping a "watching brief" on the AUSTRAC action. Renee Nowytarger

"I think common sense would tell us that if the Commonwealth Bank matter was at the level of utmost seriousness, this looks like it's off the charts," Mr Porter told The Australian Financial Review.

He was speaking a day after the financial crimes regulator AUSTRAC accused Westpac of 23 million breaches of anti-money laundering and counter-terrorism finance laws.

Senior executives at both financial regulators, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority, met on Thursday to consider launching their own investigations as Prime Minister Scott Morrison said the bank's board needed to reflect on the future of chief executive Brian Hartzer.

has been rejected by Mr Hartzer.

The prudential regulator is also considering whether the Bank Executive Accountability Regime, which started in July 2018, might be triggered by AUSTRAC's alleged breaches or whether other prudential concerns are raised.



The BEAR regime is not retrospective and its potential application will therefore hinge on the timing of the alleged offences.

Another action that APRA will consider is a prudential inquiry, which could lead to a capital penalty being imposed on Westpac.

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“I would be astounded if ASIC didn’t investigate this thoroughly,” said one commercial barrister who declined to be named. Sam Mooy

This is what happened with Commonwealth Bank when it faced anti-money laundering action in 2017, which led to additional capital of $1 billion being imposed. The capital required ensured it acted on recommendations in a report delivered by an APRA-appointed panel chaired by former regulator John Laker.

"If we had another case like the CBA, which was being played out in the public domain, then very clearly the public would expect to know what is the regulatory action being taken," APRA chairman Wayne Byres said in April.

First test of the accountability regime
The BEAR regime allows APRA to target individual senior executives, in an attempt to introduce more personal accountability for banking transgressions.

The apparent oversights at Westpac could fall into the responsibility of senior managers in the bank's financial crime function, the chief risk officer, or senior lawyers, sources familiar with the "accountability maps" provided to APRA said.



Elizabeth Sheedy, a risk management expert from Macquarie University, said the principle underlying the BEAR was "if everyone is responsible, no-one is responsible".

She said early signs from enforcement of the UK version of the law, known as the 'senior managers regime', have been encouraging.

“There will be somebody who is responsible for [anti-money laundering] and if they haven’t been actioning matters over the last 18 months since BEAR came in, there could be a case there," she said.


Two corporate lawyers, who spoke anonymously because they work for major banks, said the material in the AUSTRAC statement of claim could also trigger potential breaches of two sections of the Corporations Act.

They are section 912A, which creates a general duty to act "efficiently, honestly and fairly", and section 180, which contains a duty to take the care and diligence expected of a reasonable person.

Both duties are relatively vague and ASIC would need to gather more information than that contained in the AUSTRAC statement of claim before determining whether there had been any breach.

The government recently bolstered the sanctions for breaching section 912A by attaching a new remedy that allows courts to levy penalties of up to $525 million for some companies and $1.05 million for individuals.



“I would be astounded if ASIC didn’t investigate this thoroughly,” said one commercial barrister, who declined to be named.

Whether any action is taken by either regulator will follow a forensic assessment of what senior executives knew about the issues to determine if their responses were adequate.

Questions of timing
Mr Hartzer, in a media call on Wednesday afternoon, provided some detail about when the AUSTRAC reporting problems were identified, and when senior managements found out about the broader failures to do proper due diligence on customers, which would be core issues for any investigation.

Senior management had found about the under-reporting of the "international fund transfer instructions" in July last year, he said, and reported them to the regulator a month later.

This led to AUSTRAC "asking broader questions about our [anti-money laundering and counter-terrorism finance] program, they gave us a bunch of notices to dig into different things," he added.

"The issues on customer due diligence is a relatively new issue. The first time I heard personally anything about it was a month ago, and I heard it at a fairly high level that we were being asked some questions about that.”



Mr Hartzer also said on the call that while he accepts that most of the material in the AUSTRAC statement of claim was an accurate reflection of what had gone wrong at the bank, he challenged the accusation that he and other senior management were "indifferent".

"At a senior executive level, for the board, for me personally, in no way have we been indifferent on this," he said.

ASIC could also investigate the role of the Westpac board in managing anti-money laundering compliance.

In a report issued on October 2 on the oversight of non-financial risks by directors and officers, ASIC said the effectiveness of board risk committees could be improved.

Across seven large financial institutions it examined, ASIC found that "all too often, management was operating outside of board-approved risk appetites for non-financial risks, particularly compliance risk".

"Material information about non-financial risk was often buried in dense, voluminous board packs. It was difficult to identify key non-financial risk issues in information presented to the board," ASIC said.




When the attorney general who devised the CBA fine tells people this is bigger, 1 billion comes into play. Things may change of course as more information becomes available.

I am not saying WBC will crash and burn of course. I am not selling any shares. This is a good opportunity to load up. Question is how low will she go? 20 is optimistic I know, but you can not blame a guy for hoping. And you know once the propaganda machine winds up all logic goes out the window. Every man and his dog will be lining up to sink the boot in. CODB!!

And BOQ is not going great. That is why, as you may remember I sold down my exposure to BOQSWR, etc in the last few months and didn't pick up any @ 8.50. But at 7.70 ish it doesn't sound too bad. The CR mind you has been designed with the institutional investors in mind you, with stuff all left for retail. And the way it was delivered shafted retail holders on multiple fronts. I am not keen on management that shafts retail so openly so I am reluctant to increase my exposure to it. We shall see.