AUSTRAC, Australia’s anti-money-laundering regulator and financial intelligence unit, has applied to the Federal Court of Australia for civil penalty orders against Westpac Banking Corporation for allegedly contravening the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 on 23 million occasions.

The civil penalty orders that AUSTRAC has prepared relate to "systemic non-compliance" with Act and are the result of a detailed investigation.

Westpac allegedly failed to oversee the banking and designated services provided through its correspondent banking relationships properly. It also stands accused of not overseeing its "AML/CTF Programme" to a satisfactory degree. AUSTRAC says that these failures resulted in "serious and systemic non-compliance with the Act."

AUSTRAC, the applicant, claims in its originating application that Westpac, the respondent, contravened s98(1) of the Act on 47 occasions by failing to regularly assess the risks it may reasonably face that 16 of its correspondent banking relationships might facilitate money laundering. It also claims that Westpac contravened s98(2) on 47 occasions by failing to regularly assess various things in order to satisfy rules 3.1.4(1), 3.1.2(1), 3.1.2(6), 3.1.4(3) and 3.1.4(4) of the Anti-Money-Laundering and Counter Terrorism Financing Rules Instrument 2007 (No 1) with respect to 16 of its correspondent banking relationships.

Chapter 3 of those rules is entitled "Correspondent Banking Due Diligence." Rule 3.1.2, which lies within it, calls on every financial institution with a correspondent relationship to assess the nature of the other financial institution’s business, including its product mix and customer base, its domicile, the domicile of its parent company, if different, the existence and quality of any AML regulations in that country (or those countries) of domicile, and the adequacy of its controls and internal AML compliance practices. AUSTRAC was concerned with the first and last of these observable items.

Rule 3.1.2 also, incidentally, calls on every firm to look at the ownership, control and management structures of the other institution, with a special eye on PEPs (politically exposed persons) among the shareholders or on the board, and also instructs it to look at its financial position, its reputation and history, the reputation of its parent and whether it has ever been the subject of an investigation or any civil or criminal proceedings relating to money laundering or terrorist finance.

Rule 3.1.4, meanwhile, urges each firm to keep an eye on the nature of its continuing business relationship with the other firm, any changes to it, and the type of transactions involved.

AUSTRAC is also accusing Westpac of the following.

• It failed to report more than 19.5 million International Funds Transfer Instructions (IFTIs) to it over nearly five years for transfers both into and out of Australia. The late incoming IFTIs received from four correspondent banks alone represent over 72% of all incoming IFTIs received by Westpac in the period between November 2013 and September 2018 and amounts to more than A$11 billion. IFTIs are a major source of financial intelligence.
• It failed to pass on information about the sources of funds to other banks in the transfer chain, thereby frustrating their own efforts to offset their own AML risks.
• It did not keep records relating to the origin of some of these international fund transfers.
• It was not, to borrow an ugly Basel Committee term, “customer duly diligent" enough when dealing with transactions involving payments from Australia to the Philippines and South East Asia. AUSTRAC finds these countries suspect because they “have known financial indicators relating to potential child exploitation risks.” Westpac, it alleges, failed to come up with the right ways of detecting child exploitation, even though AUSTRAC has provided guidelines on the subject.

The statement of claim alleges: "From 2016, Customer 12 held accounts with Westpac and...had a prior conviction for child exploitation offences. On 3 June 2019 Westpac became aware that Customer 12 was transferring money to the Philippines from one account. The transactions were indicative of child exploitation. On 7 June 2019 Westpac became aware of Customer 12's conviction. Westpac was required [by rule 15.9(1)] to conduct enhanced customer due diligence. Westpac did not...

"From 10 June to 19 August 2019, Customer 12 continued to send 10 low-value transfers to the Philippines totalling A$2,612.20 through another account. The transfers were consistent with child exploitation typologies. These transfers were not subject to automated monitoring for these known risks."