A man uses an ATM machine outside a branch of the Westpac bank in Sydney on May 7, 2018. The Australian banking giant is facing a massive fine over breaches to money laundering laws. Photo: AFP/Peter Parks

Australian banking giant Westpac faces a massive fine after being accused by regulators Wednesday of “serious and systemic” breaches of money-laundering laws involving more than US$7 billion.

Australia’s financial intelligence agency, AUSTRAC, said it had taken legal action against Westpac for its failure to report more than 19.5 million international fund transfers, including “high-risk transactions” to Southeast Asian nations potentially linked to child exploitation.

Overall, AUSTRAC chief Nicole Rose said, Westpac violated the anti-money laundering and counter-terrorism financing act 23 million times.

She did not comment on the amount of a potential penalty, saying it was a matter for the courts.

But in its submission to the Federal Court, AUSTRAC noted that each of the 23 million breaches attracts a civil penalty of “between A$17 million and $21 million” – theoretically putting the bank on the hook for up to $483 trillion (US$330 trillion) in fines.

The global economy was worth almost US$86 trillion in 2018, according to the World Bank.

Australia’s largest lender, the Commonwealth Bank (CBA), last year faced a theoretical maximum fine of A$1 trillion after AUSTRAC found it had failed to report on 53,500 transactions, a small portion of the alleged breaches by Westpac. The CBA ended up negotiating an A$700 million settlement.

The AUSTRAC action knocked nearly 3% off Westpac shares.

In a statement Tuesday, Westpac CEO Brian Hartzer acknowledged the “serious” nature of the issues raised by AUSTRAC and said the bank was working with the regulator to correct its procedures.

“These issues should never have occurred and should have been identified and rectified sooner,” he said in a statement. “It is disappointing that we have not met our own standards as well as regulatory expectations and requirements.”

But Hartzer also said many of the transfers cited by AUSTRAC as unreported were “recurring, low-value payments” from foreign government pension funds to people living in Australia.

Prime Minister Scott Morrison, who leads a conservative, pro-business government, said he was “appalled” by the allegations against Westpac and said Australia’s banks need to “lift their game.”

Rose told a news conference that Westpac’s failures “resulted in serious and systemic non-compliance” with anti-money laundering and counter-terrorism financing laws.

She said the unreported transactions amounted to more than A$11 billion (US$7 billion) from 2013 to 2018.

Westpac “failed to appropriately assess and monitor the ongoing money-laundering and terrorism financing risks associated with the movement of money into and out of Australia through correspondent banking relationships,” she said.

“This resulted in a significant loss of intelligence to AUSTRAC and our national security and law enforcement partners,” she added.

Rose said the breaches involved more than 19.5 million transactions, including “high-risk transactions to the Philippines and Southeast Asia concerning known financial indicators relating to potential child exploitation risks.”

The AUSTRAC action added to a host of problems challenging Australia’s banking industry, one of the world’s most profitable.

The country’s four biggest banks – CBA, Westpac, National Australia Bank and ANZ – were the target of a royal commission of inquiry that early this year exposed rampant malpractice across the sector.

It found banks had charged fees to dead people and for no services at all, used aggressive selling tactics and provided poor advice that led to significant financial upheaval for clients.

All the banks have reported significant hits to profits as they reimburse hundreds of millions of dollars to wronged customers.


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