Westpac CEO Digs In After Bank Hit With Laundering Suit
Westpac CEO Digs In After Bank Hit With Money-Laundering Suit
(Bloomberg) -- Westpac Banking Corp. Chief Executive Officer Brian Hartzer is digging in after the lender was accused of the biggest breach of money-laundering and terrorism financing laws in Australian history, including failing to detect payments linked to child abuse.
“I absolutely accept that there is a need for accountability on all of these matters,” Hartzer said on a media call Wednesday, adding he will personally lead the response. He pledged to “get to the bottom of this and make sure we fix it so it never happens again.”
Australia’s financial crimes agency Wednesday lodged a lawsuit accusing Westpac of systemically breaching money-laundering laws more than 23 million times and failing to report more than A$11 billion ($7.5 billion) in international transfers. The breaches, which occurred between November 2013 and June 2019, each carry a maximum fine of A$21 million.
The bombshell allegations cap a tumultuous period for Australia’s finance industry that has seen two of the big-four bank CEOs resign and lenders savaged after an inquiry uncovered years of misconduct that has led them to set aside billions of dollars to compensate wronged customers.
Westpac shares fell 3.3% at the 4 p.m. close of trading in Sydney, slicing about A$3.1 billion off its market value. The other big banks also fell, dragging down the benchmark index. National Australia Bank Ltd. declined 3.1%, Australia & New Zealand Banking Group Ltd. dropped 2.1% and Commonwealth Bank of Australia slid 1.3%.
On the late afternoon media call, Hartzer dodged repeated questions about whether he had offered to resign, or was best-placed to lead the response, given the breaches occurred on his watch.
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 CEO Andrew Thorburn quit just days after being the target of withering criticism by an inquiry into financial industry misconduct, which questioned whether he was capable of leading the lender’s response to a string of scandals.
Child Abuse
Among the most serious allegations, Austrac said Westpac failed to carry out appropriate due diligence on 12 customers whose accounts showed repeated patterns of frequent low value transactions to countries where they had no apparent family ties -- including the Philippines and South East Asia -- even though it knew since 2013 that these patterns were indicative of child exploitation risks.
In one example set out in the claim, one 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 shows and offering minors for sex.
By the time Westpac identified that the activity on the account was suspicious, the customer had made about 607 transfers totaling around A$132,000.
“Had Westpac been appropriately monitoring for frequent low-value transactions consistent with child exploitation typologies in 2014, these transactions would have come to its attention,” Austrac said.
Hartzer said he was “utterly horrified” by the allegations. “This is a significant matter for the bank, and we accept there will be consequences for Westpac.”
Prime Minister Scott Morrison also criticized Westpac. “I’m appalled, I’m absolutely appalled,” he said Wednesday. “It is a fairly damning indictment about some of the processes and procedures they’ve had in place.”
What Bloomberg Opinion Says:
“Ian Narev announced his departure less than two weeks after news of that bank’s Austrac scandal broke in 2017, and his successor Matt Comyn has spent most of the past two years in an extended and radical cleanup. To remain in the top job at Westpac, Hartzer will have to persuade shareholders and directors that a similar change of heart is finally under way.”
--David Fickling
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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.
The latest scandal to hit Australia’s banks is a further sign the industry has a long way to go to restore customer trust, said Steve Johnson, chief investment officer at Forager Funds, which oversees about A$320 million of assets.
“This is reflective of a culture of growth and product sales over compliance that has been in place for a long time,” Johnson said. “It is going to reiterate that it is a very, very long path to restitution.”
--With assistance from Jason Scott.
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, Russell Ward
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