The Australian
June 18, 2020

A Federal Court affidavit by Austrac’s Kathryn Haigh provides a rare insight into the dealings between the regulator and its latest bank prey: Westpac.

Haigh, Austrac’s national manager of legal and policy, is one of seven that report to three Austrac deputy chiefs who then report to chief executive Nicole Rose.

The Haigh affidavit outlines the back-and-forward communication between the financial crimes regulator and Westpac — and in light of a case management hearing this week, it’s going to be a long and bumpy road for the bank to navigate.

The document references a June 11 letter by the Australian Government Solicitor, on behalf of Austrac, sent to Westpac requesting a long list of documents concerning a new batch of as many as 272 customers that may be linked to purchasing child exploitation material.

The bank must produce those documents by June 25.

Westpac’s barrister John Sheahan told the court on Wednesday that would involve manual processes and tens of thousands of documents.

The affidavit also refers to a Westpac slide presentation to Austrac that highlights how poor Westpac’s systems were. There were over-reported and incorrectly reported threshold transaction reports, and of course those that were not reported to the regulator at all. Austrac lists at least six questions it wants answered from the bank in each specific category.

Westpac’s prior disclosures in that category said it was late in reporting almost 18,000 threshold transaction reports (transactions at $10,000 or more), and as many as 90,000 were not reported at all.

The affidavit shows that Austrac didn’t receive definitive information on these transactions until May, despite Westpac starting its review in December, a month after the explosive court action was lobbed.

“It was not until 1 May 2020 that Westpac provided Austrac with an estimate of the total number of TTRs that it may have failed to report as required by s43 (section 43) of the Act,” the document said.

The regulator wants to get to the bottom of what went wrong, and the affidavit references a June 4 meeting between the adversaries, where Austrac wanted to understand the circumstances around the unreported threshold transaction reports.

“The scale of the estimate provided on 1 May 2020, and the further briefing provided on 4 June 2020, caused Austrac to consider that it was necessary to further investigate the root causes of the unreported TTRs to understand whether there have been systemic failures or failures of oversight.”

Austrac wants more information about the unreported or late reports by no later than July 2.

Wednesday’s case management hearing saw judge Jonathan Beach set a timetable for the battle, with a revised statement of claim due in August ahead of another case management hearing in September. The hearing won’t happen until 2021, that is if mediation and settlement don’t resolve the matter before that.

Wednesday was also notable because Beach put Austrac on notice that there had to be a limit to its case, and the strategy of continuing to add to it wouldn’t fly.

The affidavit referenced a June 12 letter by Austrac to Westpac’s legal team seeking further particulars and documents relating to the bank’s defence filed in May.

The document also details a host of other detailed requests for Westpac.

Austrac wants information on its unreported international transactions. The regulator asks to know which banks Westpac put on a “watching brief” if the bank was performing due diligence on counterparties it was dealing with.

From what this whole scandal reveals about Westpac’s processes and poor technology the bank has a mammoth task ahead to trawl through and submit these documents, while also formulating a defence of its compliance failures.

The battle comes down to the $600m differential between what Austrac wants as a penalty at $1.5bn and Westpac’s estimate of $900m.

Baker’s view

Bendigo and Adelaide Bank chief executive Marnie Baker spoke frankly in a podcast conducted by Blenheim Partners this week about her 30-plus years in banking and the challenges posed by COVID-19.

“There is a long way to go yet. This is a long haul for everyone,” she said, noting the bank was taking a “hands-on approach” to dealing with customers during the challenging period. When asked about the central bank’s and federal government’s response to COVID-19, Baker said she was “really impressed” by how quickly stakeholders mobilised to have robust conversations and then roll out support measures for businesses and the economy.

“I was worried that in these times the old political banter starts, but I think that’s been put on the backburner.”

The focus in Baker’s view should now well and truly move to thinking through the longer-term implications and mapping the best recovery plan to ensure the Australian economy “bounces back as quickly as we can”.

And the business community as well as the banks need to play a role. “We can’t just rely on the government to be solving these issues for us.”

Last month, Bendigo boosted its loan provisioning by setting aside $148.3m for future potential impacts of the pandemic on its lending portfolio.

The podcast also gave insights into Baker’s “bullshit barometer” which she said was formed during her formative years in the country. She had initially wanted to pursue a career in teaching but fell into banking — via accounting — because of a dearth of teaching positions being available.

Article by Joyce Moullakis, Senior Banking Reporter


Contact us