One of Australia's four largest banks has made a provision of A$900 million (not tax deductible) for a potential penalty related to proceedings initiated in November by AUSTRAC.

Following the proceedings launched by AUSTRAC (Australia's financial intelligence unit and anti-money-laundering regulator) on 20 November last year, Westpac has been trying to broker a Statement of Agreed Facts and Admissions along with a proposed penalty that could be put to a court on a joint basis with AUSTRAC - so far this has failed.  

At a case management hearing on 30 March, a court ordered the parties to send it a Statement of Agreed Facts by 8 May and a defence in relation to the remaining matters by 15 May.

Westpac has made its A$900 million provision in its  "Details of items affecting Westpac’s 1H20 results" because it has no idea what the final penalty will be. Even if the bank and the regulator agree on a sum, the court is not obliged to accept it.

There has also been a provision for approximately A$130 million for the "cash earnings impact of costs linked to the AUSTRAC response plan." To please AUSTRAC, Westpac came up with a plan on 25 November 2019, to improve its efforts against financial crime.

Recompense to customers weighs in at an additional A$260 million cash earnings. Westpac categorises this as "customer remediation" and the "impact of additional provisions for customer refunds, payments and associated costs and litigation." There are two new items that relate to the processing of corporate actions and certain wealth fees. It all breaks down into about A$105 million in net interest income, A$130 million in non-interest income, mostly related to compensation for customers, A$90 million in additional costs for starting up the "remediation programme," which AUSTRAC inexplicably spells the American way, and A$40 million for matters to do with litigation.

Westpac has also, incidentally, written down the value of certain assets (which include some capitalised software costs and some physical assets) because of the bad effects of the Coronavirus on asset values all over the world. The write-downs come to approximately A$70 million. The pre-tax cost is about A$100 million.