* Regulator AUSTRAC seeking $21 mln in fines for each breach
* Illegal payments relate to high-risk countries, sex
offenders
* Shares in Westpac fall 3%, underperform S&P/ASX 200
(Adds detail on total potential fine in par 3, analyst estimate
of fine in par 10)
By Byron Kaye and Paulina Duran
SYDNEY, Nov 20 (Reuters) - Regulators accused Australia's
Westpac Banking Corp WBC.AX of 23 million breaches of
anti-money laundering laws, saying the banking giant ignored red
flags and for years enabled payments from convicted child sex
offenders and "high risk" countries.
The oversight failure at Australia's second-largest bank led
to deep systemic non-compliance with anti-money laundering laws,
financial crime watchdog AUSTRAC said in a civil court filing on
Wednesday.
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 in the country's biggest ever money
laundering scandal. In theory, that could add up to whopping
A$483 trillion in fines.
The lawsuit dwarfs a case AUSTRAC brought against larger
Commonwealth Bank of Australia CBA.AX which agreed last year https://www.reuters.com/article/australia-cba-moneylaundering/australias-commonwealth-bank-to-settle-civil-proceedings-by-austrac-idUSL3N1T50QC
to pay a record A$700 million penalty after admitting to
allowing 53,750 payments that violated similar protocols. It
also brings fresh scrutiny to an industry still trying to
rebuild community trust after a bruising Royal Commission public
inquiry. "These contraventions are the result of systemic failures in
its control environment, indifference by senior management and
inadequate oversight by the Board," AUSTRAC said in the court
filing.
Westpac said it had self-reported the breaches to AUSTRAC
and had since shut down the service at the centre of the
complaint which let customers and affiliate overseas banks
process payments from Australia.
"Like everyone who has read the statement of claim, I am
personally disgusted and appalled," Westpac CEO Brian Hartzer
said on a call with reporters, adding the bank "should have done
better".
Hartzer said he accepted most of the regulator's assertions
but "at a senior executive level, for the board, for me
personally, in no way have we been indifferent on this."
The lawsuit sent Westpac shares down 3% by the close,
outpacing a broader share market decline of 1.4%, as investors
began counting the financial and reputational cost of the
lawsuit.
Brian Johnson, an analyst at Jefferies, said he expected a
"meaningful, painful but not catastrophic civil penalty" in the
hundreds of millions of dollars range.
CHILD EXPLOITATION RISKS
Bank of America Merrill Lynch analysts said they saw
downside risks for bank capital persisting until fines,
penalties and remediation provisions subside.
"This development epitomises the more active enforcement
action stance taken by regulators generally in the post Royal
Commission era," they said in a note.
The AUSTRAC filing said Westpac knew since 2013 about
"heightened child exploitation risks associated with people who
made frequent low value payments to the Philippines and South
East Asia" but did not set up an automated detection system
until 2018.
The Sydney-based bank had failed to conduct due diligence on
12 customers who had made frequent low-value transactions over
several years which suggested involvement in child exploitation,
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 which were used to send payments to the
Philippines, AUSTRAC said.
Westpac meanwhile 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.
Hartzer, the CEO, said he first learned the specifics of the
individual bank accounts on Wednesday and was "utterly horrified
by what I had read and absolutely determined to get to the
bottom of why this was able to persist."
AUSTRAC declined to comment when asked by Reuters if it was
conducting similar investigations on the other two of
Australia's so-called Big Four banks, National Australia Bank
NAB.AX and Australia and New Zealand Banking Group ANZ.AX .
ANZ declined to comment, while NAB referred Reuters to a
Nov. 7 statement that it had reported an unspecified number of
breaches to AUSTRAC and was working with the regulator.
The Reserve Bank of New Zealand, which carries out a similar
function to AUSTRAC in New Zealand, said it was in close contact
with the Australian agency with regards to Westpac. Westpac is
one of New Zealand's biggest lenders.
"Obviously it's appalling and distressing," Australian 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."
($1 = 1.4665 Australian dollars)