Australia: Westpac accused of multiple legal breaches, allegedly allowing customers to pay for child sexual abuse

The Australian Transaction Reports and Analysis Centre (Austrac) has accused Westpac of multiple legal breaches which allowed its customers to pay for overseas child abuse unchallenged, highlighting the importance of transnational cooperation. Westpac has launched an internal investigation and has "unreservedly" apologised. 

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27 November 2019

Overwhelming external pressure forces senior-level resignations at Westpac over child exploitation scandal

Author: Stephen Bartholomeusz, The Sydney Morning Herald

“For Westpac’s Brian Hartzer, a bitter end to an impressive career”, 26 November 2019

The AUSTRAC affair and the widespread revulsion it has generated has claimed Westpac’s chief executive [(Brian Hartzer)], the chair of its risk and compliance committee [(Ewen Crouch)] and…its chairman [(Lindsay Maxsted)]. Maxsted’s attempt to buy some time to determine where responsibility for Westpac’s multiple breaches of its obligation to know its customers lay was short-lived; overwhelmed by the external demands for heads to roll…, reinforced by the threat that governments and businesses would cease dealing with the bank.

Hartzer has said it was only in mid-October that he learnt that AUSTRAC was concentrating on transactions that might have involved payments by Westpac customers that involved child exploitation. [T]he crux of AUSTRAC's allegations was that [Westpac] didn’t know – it couldn’t know, because its systems weren’t capable of properly identifying transactions that might be related to payments related to child exploitation. [It] could be argued…that they should have been aware – that it was their responsibility to have systems and processes in place to ensure they were aware...

Hartzer, Maxsted and Crouch are decent and diligent people with distinguished careers but they aren’t the first chief executive or directors to fall foul of the anti-money laundering laws and won’t be the last. [It] appears big bank systems, processes and risk management teams aren’t capable of guaranteeing perfect compliance with laws that require them to be able to screen every transaction. [If] you look at the…legislative and regulatory changes that the major banks have had to deal with since the financial crisis, it is perhaps even less surprising that Westpac [was]…caught out by technology and human failures in their anti-money laundering processes.

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26 November 2019

Pressure grows on Westpac board to sack CEO over money laundering & child abuse scandal


“Calls for blood over Westpac money laundering and child exploitation scandal”, 25 November 2019

Westpac is facing growing calls to sack its CEO over allegations it failed to act on customers using its services to purchase child abuse material. [But]…Brian Hartzer is being given the benefit of the doubt by the board…because it currently has no information that shows he knew his bank took 18 months to act on millions of suspicious transactions,…some of which are alleged to be linked to child exploitation in South-East Asia.

…Mr Hartzer said “the issue of personal accountability is absolutely on the table” but said the first time he saw the “specific customer matters that are in the detailed statement of claim” was that morning…“I was utterly horrified…and am absolutely determined to get to the bottom of why…this was allowed to persist…”. The payments are alleged to have been made through Westpac’s LitePay system, which was launched in 2016…

…Mr Maxsted stood by his CEO but flagged he could be shown the door “if there isn’t investor support…”. On Sunday, Westpac announced it would scrap or trim the bonuses of its executive team in response to the allegations.

…Mr Frydenberg [(Treasurer)] said: “History shows you that these issues build a momentum…our position has consistently been, decisions about who are on boards…are matters for boards. That being said, these are very serious issues. There must be accountability”.

Westpac…released a statement outlining its response…to AUSTRAC’s legal action, with Mr Maxsted saying the bank was “determined to urgently fix (the) issues…[w]e accept that we have fallen short of both our own and regulators’ standards and are determined to get all the facts and assess accountability”. Mr Maxsted and Mr Hartzer said the bank’s response would focus on…closing LitePay, lifting standards through priority screening and improving cross-industry data sharing and protecting people by investing in reducing the human impact of financial crime.

Opposition leader Anthony Albanese [said]: “The buck does stop with the CEO and with the board and up to now frankly the response has been completely inadequate” …

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24 November 2019

Westpac accused of legal breaches which allegedly allowed customers to pay for child sexual abuse in Philippines

Author: Carmela Fonbuena, The Guardian

“Westpac scandal: a 12-year-old girl, online sexual exploitation and lax financial risks”, 23 November 2019

…Police barged through the…door of a family home…in Rizal, …Manila, …arrest[ing] a mother who was allegedly sexually exploiting her own 12-year-old daughter. Major Virtudazo of the police Anti-Trafficking in Persons Division…is confident a court inspection of her mobile phone will confirm information they had been given by a specialised police unit…in Australia. [In] poor villages…many are drawn into the lucrative crime that could earn traffickers in one day what they would probably make earning minimum wage jobs for a month. It is why the role of financial institutions is critical. “In the first place, the demand comes from other countries. We can stop production here if they are able to flag suspicious transactions abroad…”, Virtudazo.

The extent of the problem was exposed in a legal action the Australian Transaction Reports and Analysis Centre (Austrac), the government financial intelligence agency, launched against one of the country’s biggest banks, Westpac, accusing it of legal breaches that allowed its customers to pay for child abuse undetected. [Westpac]…appoint[ed]…“independent experts” to investigate who was to blame for the breaches. “The notion that any child has been hurt as a result of any failings by Westpac is deeply distressing and we are truly sorry,” chairman Lindsay Maxsted said in his first public statement…“The board unreservedly apologises”.

AUSTRAC said Westpac failed to carry out appropriate due diligence on customers sending money to the Philippines and Southeast Asia,… intelligence identif[ying] at least six Westpac customers with questionable transactions and a history of travel to the Philippines…“banks and money transfer agencies should be monitoring suspicious transactions related to online sexual exploitation of children,” John Tanagho, [International Justice Mission]. The case highlights the importance of transnational cooperation...

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