‘Sins of Omission’ at Heart of Westpac Laundering Breaches
‘Sins of Omission’ at Heart of Westpac Money-Laundering Breaches
(Bloomberg) -- Westpac Banking Corp.’s board was slow to recognize systemic financial crimes risk, and management lacked the skills and expertise to handle the issues, a probe into Australia’s biggest breach of anti-money laundering laws found.
There was an “immature and reactive” risk culture around anti-money laundering and terrorism financing laws at Australia’s oldest bank, a panel led by former Telstra Corp. Chief Executive Officer Ziggy Switkowski said in the report released Thursday.
The board could have recognized earlier the systemic nature of some of the financial crimes issues, the panel said. However, they stopped short of pinning blame, saying information given to the board was at times unintentionally incomplete and inaccurate.
“This saga reveals that major sins were ones of omission and not of commission,” the report commissioned by the bank said.
The Sydney-based bank in November was accused of the biggest breach of money-laundering and terrorism financing laws in Australian history, leading to the departure of former CEO Brian Hartzer and the early retirement of ex-chairman Lindsay Maxsted. It has set aside A$900 million ($623 million) for a potential settlement, which would be the largest fine levied against an Australian company.
Westpac last month admitted it breached anti-money laundering rules by failing to flag more than 19.4 million so-called International Funds Transfer Instructions on time, and didn’t sufficiently monitor the accounts of a dozen customers linked to suspected child abuse. It also admitted to a further 3.5 million record-keeping breaches.
“We recognize we need to change,” said Peter King, who was appointed as permanent CEO in April. “We completely accept that some important aspects of Westpac’s financial crime risk culture were immature and reactive, and we failed to build sufficient capacity and experience in some important areas.”
| Report’s Key Conclusions | ||
|---|---|---|
| Lack of understanding | Financial crime risk was “not always well understood” across Westpac. The bank “did not sufficiently appreciate the depth of specialist capabilities required.” | |
| Lack of accountability | “Some individuals did not sufficiently understand, at an operational level, where their responsibilities commenced or ended.” | |
| Lack of resources | “Westpac’s financial crime control framework did not have enough employees with sufficient skills, expertise and experience.” |
Westpac’s shares were up 0.5% at 1:25 p.m. in Sydney after earlier climbing as much as 5.4%.
Investors will next be focusing on the outcome of the lawsuit with Australian authorities, according to Karl Goody, a private wealth adviser at Shaw & Partners. “The only downside now is the size of the fine,” he said by phone.
In one reprieve for the bank, the report found the breaches weren’t driven by “greed, self-interest or remuneration incentives,” which have been at the heart of a series of scandals that have rocked Australia’s financial industry in recent years and were the subject of a scathing report into misconduct released last year.
“Westpac people are impressive in their individual and collective drive to ‘do the right thing’,” the report said. “There was genuine and widespread dismay over the child exploitation allegations.”
However, beyond blaming “poor individual judgments,” there was little in the document to explain why and how such operational failures were allowed to happen and why financial crime wasn’t made a priority.
“There are big questions still to be answered,” said John Vaz, senior banking lecturer at Monash University. “The review does not address the operational banking issues that gave rise to such systemic problems.”
Similar to a damning report into Commonwealth Bank of Australia two years ago, the panel suggested that the Australian banking system’s success in navigating the global financial crisis dulled the senses. Banks abroad addressed shortcomings in their management of non-financial risks “much earlier,” it said.
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