Pressure Grows on Westpac CEO as Board Meets on Laundering
Pressure Grows on Westpac CEO as Board Meets on Laundering Suit
(Bloomberg) -- Pressure is mounting on Westpac Banking Corp. Chief Executive Officer Brian Hartzer, with the bank’s board set to meet Friday to discuss its response to allegations of a massive breach of money-laundering laws, including failing to detect payments linked to child pornography and sexual abuse.
The meeting comes three days after Australia’s second-biggest bank was sued by the financial crimes agency for allegedly breaching money-laundering laws 23 million times, a number that puts it among the worst transgressions reported globally in recent years. The systemic breaches were the result of “indifference by senior management and inadequate oversight by the board,” the agency said.
The bank has since found itself under fire from politicians, investors and shareholder groups. Attorney-General Christian Porter, who would have to approve any agreed settlement, told the Australian Financial Review the alleged offenses were “off the charts.”
Prime Minister Scott Morrison Friday said the board needs to “address the clear weaknesses they had in their systems that have allowed this to take place.” However, he said it was up to the board to decide whether Hartzer should resign.
Among the most serious allegations, the Australian Transaction Reports and Analysis Centre said Westpac failed to carry out appropriate due diligence on 12 customers whose accounts showed repeated low-value transactions to countries in Southeast Asia including the Philippines, even though it knew these patterns were indicative of child exploitation risks.
In one case, a customer in October and November 2014 transferred money to a person in the Philippines who was later arrested for child trafficking and exploitation involving the live streaming of child sex and offering minors for sex.
Investors have started to voice their concerns about Westpac’s handling of the breaches.
“Matters concerning poor company practices and subsequent reputational risk can have a material financial impact,” Ethical Partners Funds Management CEO Matt Nacard and Chief Investment Officer Nathan Parkin said in a statement.
The “allegations clearly indicate there may have been a lack of attention to” human-rights issues “within the corporate culture of Westpac,” they said.
The fund has sold some of its Westpac shares since the allegations were aired, they said.
Westpac shares fell for a third day in Sydney, extending a slide that has wiped A$6.3 billion ($5.7 billion) off the bank’s market value. The stock was trading at A$24.80 at 1:35 p.m. in Sydney, the lowest in almost 10 months.
The other big banks rebounded in afternoon trade, putting the benchmark index on track for its first gain in three days.
Cbus, which manages about A$50 billion in pension savings, also spoke out. “The behavior that has been reported in Westpac’s case is grave and egregious,” Chief Investment Officer Kristian Fok said in a statement.
“Cbus members understand that poor corporate behavior destroys the value of their investments over the long term,” he said. “Our members expect us to engage and vote to protect their interests.”
In off-the-record conversations, other fund managers expressed their horror at the extent of the allegations. They said they were angry at the apparent slowness of management in rectifying the problems and questioned whether the board had the right skills to oversee executives. Most questioned whether Hartzer could survive.
Investor groups have also voiced their concerns. Louise Davidson, the CEO of the Australian Council of Superannuation Investors which advises the nation’s largest pension funds, said investors were looking “very closely” at how the board responds.
‘Horrified’
The Australian Shareholders’ Association, which represents retail investors, said it was “horrified” by the allegations and seeking a response from the board as a matter of urgency.
The suit alleges that between November 2013 and June 2019, Westpac failed to report more than A$11 billion in international transfers in what would be the biggest violation of anti-money laundering and terrorism financing rules in Australian history.
Banks around the world have been caught in a series of high-profile laundering scandals. Danske Bank A/S is the target of criminal probes in Denmark, Estonia and France after claims it was involved in a scheme to funnel dirty money from Russia and other former Soviet states to the West. HSBC Holdings Plc was fined $1.9 billion by the U.S. Justice Department and bank regulators in 2012 for failing to do enough to monitor money laundering in its global operations.
Hartzer on Wednesday said he was determined to stay to lead the clean up, and that he didn’t agree with Austrac’s claim that senior management had been “indifferent” to problems.
However, other local bank CEOs have been brought undone by scandals in the past two years. In August 2017, Ian Narev resigned as Commonwealth Bank of Australia CEO less than two weeks after the lender was sued for more than 53,000 breaches of money-laundering rules. That case was eventually settled with the bank paying a record A$700 million fine.
In February this year, National Australia Bank Ltd. CEO Andrew Thorburn and Chairman Ken Henry quit after being the target of withering criticism in a report into financial industry misconduct, which questioned whether he was capable of leading the lender’s response to a string of scandals, including charging customers for services they never received.
Hartzer joined Westpac as head of its Australian financial services unit in 2012, before being named CEO in early 2015. Prior to joining Westpac, he spent three years in the U.K. as CEO of Royal Bank of Scotland Group’s retail and wealth units; 10 years at ANZ Bank; and 10 years as a financial services consultant in the U.S. and Australia.
To contact the reporter on this story: Emily Cadman in Sydney at ecadman2@bloomberg.net
To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Peter Vercoe, Edward Johnson
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