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Westpac accused of enabling illegal offences

Westpac accused of enabling illegal offences

In amongst all of the COVID-19 news and updates, it seems we’ve been distracted from a lot of other important social issues.

Climate change and domestic violence, for example, as well as the fact that Westpac is being investigated over allegations that it’s banking systems enabled child sexual offenders to access child abuse material via international transfers without raising any red flags.

In November last year, the Australian Transactions Reports and Analysis Centre – or AUSTRAC – accused the banking giant of facilitating transactions that enabled child exploitation in the Philippines.

AUSTRAC is a federal agency established to monitor financial transactions in order to identify money laundering, organised crime, tax evasion, welfare fraud and terrorism.

Failure to report

AUSTRAC alleges that Westpac unlawfully failed to notify it of 23 million international transactions that breached anti-money laundering and counter-terrorism finance laws. It has accused the bank of failing to comply with laws which required it to report more than 19.5 million international fund transfers over a five year period, valued at $11 billion.

Criminal Investigation

Investigations by the Australian Federal Police (AFP), the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority ensued have resulted in proceedings that are before the Federal Court.

The scandal has led to the resignation of Westpac Chairman Lindsay Maxsted and CEO Brian Hartzer, although Mr Hartzer was officially paid out his multi-million dollar severence.

Hypocrisy

Ironically, at the time the transactions were occurring, Westpac hosted a lavish business function with US-based human trafficking expert Christine Dolan as the guest speaker. This, along with the present allegations, has led to accusations of hypocrisy and shareholders abandoning the organisation.

One high profile customer, child protection advocacy group Bravehearts, said:

“Child sexual assault and exploitation happens in the darkest of corners and Westpac had an opportunity to shine a light on it. Instead they showed an unbelievable and inhumane disinterest.”

The bank could be fined as much as $900m – the highest fine ever given to an Australian  bank. CBA currently holds the record at $700m – paid to AUSTRAC in 2018 for systemically failing to report around 54,000 suspicious transactions made through its “intelligent deposit machines”.

In its statement of claim, AUSTRAC outlined 12 customer cases where repeated suspicious payments were made to the Philippines in a pattern that should have raised red flags about potential child abuse.

How did it happen?

These customers were using Westpac’s LitePay – a low-cost overseas transfer option for sending money to Britain, the eurozone, India and the Philippines. There are regulations in place that banks are supposed to adhere to – careful monitoring of all overseas transactions. Anything suspicious – that could potentially be money laundering or financing a crime or terrorism – needs to be reported to Australian authorities for further investigation.

Transfers to the Philippines should have been checked, primarily because the Philippines is well-known as a child-sex offending hot spot. In fact, according to reports, in December 2016 AUSTRAC provided banks, including Westpac, with a briefing outlining the typical financial profile of someone engaged in child exploitation that should sound the alarm in automated detection systems.

Banks were told to be alert for people with no obvious family links to the Philippines or South-East Asia, who were sending small sums of money to lots of different people, often over a short period of time. Banks were also specifically told to report such transactions to regulators. In some cases, Westpac customers who made these transactions also travelled to the Philippines which the bank would also have been aware of because of activity on their accounts.

But it was not until mid-way through 2018 that Westpac finally implemented a detection system that functioned correctly, allowing it to effectively monitor these transactions.

What about a bank’s duty to protect personal privacy?

While your bank does have a duty to protect the information it holds on current and former customers, each bank has its own privacy policy which outlines the circumstances in which your information will be given to a third party – one of these circumstances is when the banks are compelled by law to do so.

What will be the consequences?

Aside from the lack of reporting around suspicious transactions that should have raised child abuse red flags, AUSTRAC says the bank did not report around 19.5 million international funds transfers, plus numerous other alleged breaches of the law.

In total AUSTRAC alleges 23 million breaches of the law. Each of these carries a maximum penalty of $17 to $21million, which means that theoretically the bank’s liability would end up amounting to trillions of dollars which it would never be able to pay.

The more likely outcome is a settlement or court-determined penalty.

Westpac’s directors and senior managers face potential bans from the banking industry as a result of investigations too.  But the sad fact is that as a result of its lack of oversight and adequate detection systems, many vulnerable children endured something preventable.

What Westpac ends up paying, or how many of its senior people end up having to find new careers won’t make up for the unimaginable human suffering.

Written by Sonia Hickey. Republished with permission of Sydney Criminal Lawyers.