John McFarlane

Westpac has announced the results of its investigation into the Anti-Money Laundering and CounterTerrorism Financing (AML/CTF) compliance issues, as well as releasing the Advisory Panel Report into Board Governance of AML/CTF Obligations and the Promontory Assurance letter on management’s accountability review.

Westpac Chairman Mr John McFarlane said, “In line with the Board’s commitment at the 2019 AGM, we are now making public the results of reviews into the Bank’s AML/CTF compliance failings.

“It’s been my experience since joining the Bank that Westpac deeply regrets this matter. Indeed, recognising the seriousness of the issues raised by AUSTRAC, the former CEO stepped down and the former Chairman brought forward his retirement.

“We are all committed to fixing these issues so they don’t happen again.”

The failure concerning International Funds Transfer Instructions (IFTIs) non-reporting occurred due to a mix of technology and human error dating back to 2009.

The failure properly to adhere to AUSTRAC guidance for child exploitation risk in respect of some products occurred due to deficient financial crime processes, compounded by poor individual judgements.

We have identified three primary causes of the AML/CTF compliance failures:

• Some areas of AML/CTF risk were not sufficiently understood within Westpac;
• There were unclear end-to-end accountabilities for managing AML/CTF compliance; and
• There was a lack of sufficient AML/CTF expertise and resourcing.

With regard to Board oversight, the Advisory Panel formed a range of views on financial crime related governance. The Report noted that the way in which the Westpac Board organised its general governance responsibilities was mainstream and fit for purpose. The Report also noted that, with the benefit of hindsight, and noting the Board’s escalating focus in the area, directors could have recognised earlier the systemic nature of some of the financial crime issues Westpac was facing. The Panel also noted that reporting to the Board on financial crime matters was at times unintentionally incomplete and inaccurate.

Westpac CEO, Mr Peter King said the management accountability assessment, conducted with external assistance, looked back over ten years and where fault was identified, appropriate action has been taken.

Consequences that have been applied to individuals include significant remuneration impacts and disciplinary actions. A number of relevant staff had already left the company.

“A range of remuneration consequences were applied to 38 individuals. Consequences applied to prior year awards, including withheld FY19 short term variable reward, totalled approximately $13.2 million1. In addition, cancelled FY20 short term variable reward, including for the CEO and Group Executives, is valued at approximately $6.9 million assuming an outcome of 50% of target opportunity.

“Remuneration and disciplinary actions took into consideration decisions already taken and announced, the level of direct managerial responsibility or accountability for the compliance failures, and the level of culpability for failings.

“While the compliance failures were serious, the problems were faults of omission. There was no evidence of intentional wrongdoing,” Mr King said.

Mr McFarlane said Westpac’s remediation program focused on strengthening all aspects of nonfinancial risk management.

“We accept the recommendations of the Advisory Panel report and we are implementing them as part of the remediation plan, which is already well advanced.

“We have established a new Board Legal, Regulatory & Compliance sub-committee, appointed a deeply experienced executive to a new Executive position directly responsible for financial crime compliance, and made a number of other organisational changes.

“We will have no tolerance for controllable negative events. Our transformation program has begun and will bring deep cultural change,” Mr McFarlane said.

Mr King also acknowledged the need for cultural change within the Bank.

“We recognise we need to change. We completely accept that some important aspects of Westpac’s financial crime risk culture were immature and reactive, and we failed to build sufficient capacity and experience in some important areas,” Mr King said.

“We have learned from this and are absolutely committed to making amends for this event.”

Mr McFarlane said Westpac’s investigations had now concluded and Westpac would continue to engage with AUSTRAC on the legal process, following the submission of its defence and admissions on 15 May 2020.

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