Westpac has admitted to breaking the law by failing to monitor whether a dozen customers were making transactions consistent with child exploitation.
The admission is contained in Westpac’s defence to a lawsuit brought by Australia’s financial intelligence agency, Austrac, in which the bank is accused of more than 23m breaches of anti-money laundering laws.
Westpac has set aside $900m to pay fines related to the scandal, which has already cost the chief executive Brian Hartzer and chairman Lindsay Maxsted their jobs.
The scandal has also sparked a federal police investigation and drawn anger from Westpac’s shareholders, who blasted management as “incompetent” at a meeting in December.
In its defence, filed in the federal court on Friday, Westpac also admits to failing to properly report international transactions to Austrac, and failing to take action against overseas banks it did business with that had involvement with countries subject to international sanctions.
However, Westpac said it did do due diligence on the 12 customers and also denied some of Austrac’s other allegations relating to the international money transfers.
It said it would continue to negotiate with Austrac over the court proceedings.
“Westpac and Austrac continue to engage constructively and are discussing a statement of agreed facts and admissions,” a spokesman said.
“Westpac acknowledges that financial crime is a serious threat to society and is determined to continue to lift its standards and meet its anti-money laundering and other financial crime obligations.”
The 12 customers made almost $500,000 in suspect payments between 2014 and last year, and half of them travelled to the Phillipines, where child exploitation is rampant, or other parts of south-east Asia.
One of the customers also had an existing conviction for child exploitation offences.
The vast bulk of the breaches alleged by Austrac relate to Westpac’s handling of international transactions, including its dealings with so-called “correspondent banks”.
These are overseas banks with which Westpac has agreements to process withdrawals and deposits.
Westpac admitted it breached reporting requirements by failing to declare to Austrac 19.4m overseas transactions, worth more than $11bn, between November 2013 and September 2018.
But it said the vast majority of international transfers – more than 97% – were correctly reported.
It said it also failed to properly identify risks posed by correspondent banks, including ones that operated in countries under trade sanction and ones that had “nested” arrangements with other banks.
But it said it did regularly review the risks and Austrac gave it a clean bill of health on the issue in a 2016 review.
