The Westpac Banking Corp (ASX: WBC) share price will be on watch on Thursday after announcing the results of its investigation into the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) compliance issues.
This follows the launching of civil proceedings against Westpac by AUSTRAC on 20 November 2019.
Westpac Chairman John McFarlane explained: “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.”
What did Westpac announce?
Westpac has blamed its International Funds Transfer Instructions (IFTIs) non-reporting failures on a mix of technology and human error dating back to 2009.
Whereas the failure to properly adhere to AUSTRAC guidance for child exploitation risk occurred due to deficient financial crime processes. This was then compounded by poor individual judgements.
All in all, three primary causes of the AML/CTF compliance failures have been identified by Westpac. They are as follows:
- Some areas of AML/CTF risk were not sufficiently understood within Westpac.
- There were unclear end-to-end accountabilities for managing AML/CTF compliance.
- There was a lack of sufficient AML/CTF expertise and resourcing.
Board governance.
Westpac also released the Advisory Panel Report into Board governance of AML/CTF obligations and the promontory assurance letter on management’s accountability review.
The bank advised that the Advisory Panel has formed a range of views on financial crime related governance.
The report notes that the way the Westpac Board organised its general governance responsibilities was mainstream and fit for purpose.
However, with the benefit of hindsight, it feels that directors could have recognised earlier the systemic nature of some of the financial crime issues Westpac was facing. The Panel also noted that the reporting of financial crime matters to the Board was at times unintentionally incomplete and inaccurate.
Westpac’s new CEO, Peter King, advised that the bank has looked back over ten years and where fault was identified, appropriate action has been taken.
He said: “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 million. 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,” he added.
What now?
Mr King has acknowledged the need for cultural change within Westpac.
He commented: “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.”
“We have learned from this and are absolutely committed to making amends for this event,” the CEO concluded.
This brings to an end Westpac’s investigations. It will continue to work with AUSTRAC on the legal process, following the submission of its defence and admissions on 15 May 2020.
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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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