Australia's Westpac accused of 23 million money laundering breaches

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By Byron Kaye and Nikhil Nainan

(Reuters) – Australia’s Westpac Banking Corp (AX:) was accused on Wednesday of 23 million breaches of anti-money laundering rules, with a regulator saying the financial giant enabled payments from “high risk” countries and convicted child sex offenders.

The oversight failure at Australia’s second-largest bank led to “serious and systemic non-compliance” with anti-money laundering laws, financial crime watchdog AUSTRAC said in a court filing. The regulator is pursuing fines of up to A$21 million ($14 million) for every transaction Westpac failed to monitor adequately or report on time.

The lawsuit dwarfs a case AUSTRAC brought against larger Commonwealth Bank of Australia (AX:) which agreed last year to pay a record A$700 million penalty after admitting to allowing 53,750 payments that violated similar protocols.

Shares in Westpac fell 2.2 percent, under-performing the wider share market.

Fourth-ranked lender Australia and New Zealand Banking Group (AX:) declined to comment on whether it was under investigation by AUSTRAC, while National Australia Bank (AX:), the third largest, was not immediately available for comment.

The payments which Westpac facilitated without acceptable scrutiny took place from 2013 to late 2018, AUSTRAC said in its court filing.

The filing said Westpac maintained relationships with offshore banks without assessing their business relationships, products, customers or payments, even when those banks disclosed relationships with “high risk or sanctioned countries including Iraq, Lebanon, Ukraine, Zimbabwe, and Democratic Republic of Congo”.

“The risk posed to Westpac was that these high risk or sanctioned countries may have been able to access the Australian payment system,” AUSTRAC said.

The Sydney-based bank knew since 2013 about “heightened child exploitation risks associated with frequent low value payments to the Philippines and South East Asia” but did not set up an automated detection system until 2018, it said.

One customer who had served a prison sentence for child exploitation set up several Westpac accounts. Westpac detected suspicious activity in one account, but failed to review the other accounts and “this customer continued to send frequent low value payments to the Philippines through channels that were not being monitored appropriately”, AUSTRAC said.

Westpac said it was reviewing AUSTRAC’s claim, adding it had self-reported its failure to report the payments to AUSTRAC.

The AUSTRAC lawsuit comes as Australia’s retail banking system seeks to rebuild its reputation after a stinging a public inquiry found it had a culture of widespread profiteering, customer fee-gouging and slipshod regulatory oversight.

The AUSTRAC case was not related to that inquiry.

“Obviously it’s appalling and distressing,” Prime Minister Scott Morrison told reporters in Brisbane, when asked about the Westpac lawsuit.

“It is a fairly damning indictment about some of the processes and procedures they’ve had in place.”

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