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Federal Court imposes Australia's highest civil penalty over bank's 23 million breaches of compliance obligations

  • Legal Development 07 December 2020 07 December 2020
  • Asia Pacific

  • Insurance & Reinsurance

A recent decision by Beach J in the Federal Court approved the imposition of a AUD1.3 billion fine, following Westpac's admissions of over 23 million breaches of its compliance obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).[1] This fine is the highest civil penalty to date in Australia and reflects the seriousness of Westpac's breaches of the Act.

Under the Act, AUSTRAC monitors business activity arising from certain designated services, primarily in the financial, bullion and gambling sectors, for their compliance with their obligations under the Act which included reporting on activities and transactions, keeping reports, and maintaining a compliant AML/CTF program. The Act serves to help the government detect any possible criminal activities arising in cross-border transfers of funds. Westpac failed to comply with the Act and report on over 23 million international funds transfers into and out of Australia or to keep proper records of those transactions, and some of those transactions involved banks in high risk jurisdictions. A further problem was the failure by the Bank to detect suspicious activities on a number of customer accounts detection of which ought to have alerted to Bank to possible child exploitation activities.

AUSTRAC commenced proceedings against Westpac in November 2019, alleging it had failed to comply with its obligations under the Act to monitor its international correspondent banking transactions, which obligations included record keeping, reporting within the requisite timeframes to AUSTRAC, and passing on transaction information to other banks with which it was transferring funds. The proceeding also involved allegations of inadequate ML/TF compliance monitoring and non-compliant customer due diligence. Notably this proceeding followed not long after AUSTRAC had pursued CBA for its contraventions of the Act and compliance and reporting failures, where the Bank's deposit machines had been used to launder proceeds of crime. In that case, CBA agreed to the imposition of a AUD700 million fine.[2]

In September 2020, AUSTRAC and Westpac resolved the matter and filed a statement of agreed facts in which Westpac admitted contraventions. Just before settlement was reached, AUSTRAC amended its claim to add yet more allegations of breach of reporting obligations and of due diligence on customer accounts. The parties filed joint submissions in support of the AUD1.3 billion penalty, which Beach J approved. His Honour made declarations that Westpac:

  • contravened s45(2) by failing to give reports to AUSTRAC of international funds transfer instructions within the requisite 10 day timeframe;
  • contravened s45(2) by failing to give AUSTRAC IFTIs that had payer names;
  • contravened s64(7)(f) by failing to pass on transfer information to another institution regarding IFTIs that Westpac transmitted out of Australia;
  • contravened s64(6) by failing to pass on payer information to another institution;
  • contravened s115(2) by failing to retain records for seven years the records of the transfer information that had been passed on to Westpac;
  • contravened s98(1) by its inadequate risk and due diligence assessments of its correspondent banking relationships;
  • contravened s81(1) where Westpac's program did not at all times meet the requirements in the AML/CTF Rules;
  • contravened s36(1) by failing to conduct appropriate ongoing customer due diligence in relation to 262 customers.

It is useful to observe how His Honour set out how the total AUD1.3 billion pecuniary penalty was comprised relative to the breaches that Westpac had admitted, as follows:[3]

Contravention

Number

Penalty

s 45(2) – late IFTI reports

19,502,841

AUD270 million

s 45(2) – IFTI reports
without payer name

76,144

AUD20 million

s 64(7)(f) and (6) – electronic funds transfer instruction failures

10,540

AUD3 million

s 115 – record keeping failures

3,516,238

AUD7 million

s 98 – correspondent banking preliminary risk assessment and due diligence assessment failures

96

AUD300 million

s 81 – AML/CTF program

Innumerable

AUD400 million

s 36 – ongoing customer due diligence

262 customers

AUD300 million

In his reasons, His Honour considered the relevant factors and said he accepted the AUD1.3 billion penalty would have appropriate specific and general deterrence effects, having regard to the conduct, the totality principle and proportionality. He also noted that there was no deliberate intention on the part of Westpac to breach the Act, but said a significant penalty was appropriate, consistent with the approach by Yeates J in AUSTRAC v CBA. He also observed that Westpac had made significant investment in its financial crime compliance, enhanced its processes and procedures and dedicated additional resources and investments specifically its AML/CTF compliance.

The outcome of this case against Westpac by AUSTRAC reflects greater vigilance than ever by another Australian regulator, in tandem with increasing efforts to give reporting entities greater guidance as to their obligations under the Act, particularly in relation to reporting, ML/TF risk assessments, and financial crime. Time will tell if this leads to improved compliance, more enforcement litigation, or both.

 


1. Chief Executive Officer of the Australian Transaction Reports and Analysis Centre v Westpac Banking Corporation [2020] FCA 1538

2. Chief Executive Officer of the Australian Transaction Reports and Analysis Centre v Commonwealth Bank of Australia Limited [2018] FCA 930.

3. Chief Executive Officer of the Australian Transaction Reports and Analysis Centre v Westpac Banking Corporation [2020] FCA 1538 at [191].

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