One of Australia’s big four banks is going to court for not stopping the misuse of its online money transfer service.
Australian money laundering regulator, AUSTRAC, has applied for civil penalty orders against Westpac for not complying with the Anti-Money Laundering and Counter-Terrorism Financing Act.
Among other allegations, AUSTRAC says that Westpac did not appropriate address risks of its LitePay service being used for child exploitation.
LitePay is a way of transferring money overseas through online banking.
“Since at least 2013, Westpac was aware of the heightened child exploitation risks associated with frequent low value payments to the Philippines and South East Asia, both from AUSTRAC guidance and its own risk assessments,” AUSTRAC said.
“In June 2016, senior management within Westpac was specifically briefed on these risks with respect to the LitePay channel.
“Automated solutions are available to ‘red flag’ suspicious patterns of frequent low value transactions to these jurisdictions.
“However, it was not until June 2018 that Westpac implemented an appropriate automated detection scenario to monitor for known child exploitation risks through its LitePay platform.
“As a result, Westpac has failed to detect activity on its customers’ accounts that is indicative of child exploitation.”
In one instance, AUSTRAC alleges that a Westpac customer opened several accounts after having been released from prison for offences relating to child exploitation.
Although the bank identified one of the customer’s accounts, it did not stop the others from being used in this manner.
“This customer continued to send frequent low value payments to the Philippines through channels that were not being monitored appropriately,” AUSTRAC said.
Slew of charges
Westpac contravened the Anti-Money Laundering and Counter Terrorism Act on over 23 million occasions.
The bank failed to report 19.5 million International Funds Transfer Instructions (IFTIs) – adding up to $11 billion in unreported transfers.
In some cases, the bank also failed to record the origin of bank transfers.
AUSTRAC CEO, Nicole Rose, said Westpac’s non-compliance was reckless.
“These [anti-money laundering and counter terrorism) laws are in place to protect Australia’s financial system, businesses and the community from criminal exploitation,” Rose said.
“Serious and systemic non-compliance leaves our financial system open to being exploited by criminals.
“The failure to pass on information about IFTIs to AUSTRAC undermines the integrity of Australia’s financial system and hinders AUSTRAC’s ability to track down the origins of financial transactions, when required to support police investigations.”
Westpac could face fines up to $21 million.
Its share price took a three per cent hit on Wednesday's trading.
Westpac CEO, Brian Hartzer, recognised the seriousness of AUSTRAC's allegations.
“These issues should never have occurred and should have been identified and rectified sooner," he said.
"It is disappointing that we have not met our own standards as well as regulatory expectations and requirements."
Hartzer said the bank was "taking very seriously AUSTRAC’s concerns around appropriate customer due diligence on transactions to the Philippines and South East Asia".
Poor timing for Westpac
AUSTRAC’s announcement came just one day after Westbank announced a partnership with Microsoft to incorporate cloud-based AI and data analytics in its apps.
Westpac wants to better leverage the 750 data points it has on each of its customers.
Westpac CIO, Craig Bright, told the Australian Financial Review that the new platform will be able to tailor customer’s banking by monitoring their data.
“Fundamentally, this comes down to us being able to offer products to clients, service clients, and protect clients in a way that reflects their individual preferences and circumstances,” Bright said.
“It also becomes a really powerful way for us to actually strengthen trust.”