How much is 23 million alleged breaches of the Anti-Money Laundering (AML) law worth?

5 October 2020

The Australian Transaction Reports and Analysis Centre (AUSTRAC) announced last week it had reached agreement with Westpac that $1.3 billion is an appropriate civil penalty to settle the regulator’s case against the bank. Once approved by the Federal Court, this will be the biggest fine in Australian corporate history.

The bank admitted it failed to report millions of transactions and conduct proper due diligence on its customers – some of which made transactions indicative of child exploitation in South East Asia.

Is it enough?

 

$1.3 billion is a significant punishment for the bank. It sends a clear message to others that failure to comply will come at a significant cost.  If the Federal Court accepts this as an appropriate punishment, it will be the largest civil penalty in Australian history. It reflects both the number of failures to comply with the Anti-Money Laundering (AML) legislation (there were 19.5 million missing international transaction reports) and the period over which these failures took place (generally over five years).

Compare this with the case of the Commonwealth Bank where there was failure to give AUSTRAC 53,506 cash transaction reports over a period of three years – which, amongst other failures, led to the civil penalty of $700 million in 2018.

Westpac’s failure to detect potential child exploitation, report it to AUSTRAC and conduct enhanced customer due diligence on particular individuals seems also to be reflected in the proposed penalty.

As AUSTRAC’s statement put it, the proposed penalty reflects the serious and systemic nature of Westpac’s non-compliance.

The Court’s final orders may include other compliance action for Westpac to take to remediate its breaches and to satisfy AUSTRAC.

 

Why isn’t anyone going to jail?

 

There is a difference between civil and criminal proceedings, and not just a different standard of proof.  Under the legislation AUSTRAC administers it can take civil proceedings in cases like this for breaches of the regulatory rules, which can result in civil penalties.

Money laundering is a crime under the Criminal Code for which responsibility for investigation lies with the Australian Federal Police (AFP) and prosecution with the Director of Public Prosecutions (DPP).  The AFP would have had access to the information on which AUSTRAC based its civil proceedings, and the DPP could still commence criminal proceedings.  It is difficult to say that criminal charges should be laid against the directors of Westpac because of the significant difference between failure to report or otherwise comply with the regulatory framework, and the crime of money laundering.  There has already been some executive responsibility with the departure of senior figures from Westpac and there might be more repercussions, though the minor drop in Westpac’s share price following the announcement of the penalty last week indicates that institutional shareholders had already made allowance for a large penalty.  Westpac had a capital raising last year to cover potential litigation or regulatory action.  A legislated scheme for executive responsibility in a situation like this is still clearly missing in Australia.

 

Will the penalty stop this kind of behaviour?

 

The proposed civil penalty is large enough to send a message in a rational sense.  But the bigger issue is whether it will contribute to changing the culture in such organisations which led to the failures to which Westpac has admitted (and the Commonwealth Bank before it, and several other parties during the Hayne Royal Commission).  It is an open question as to whether the carrot or the stick, or what combination of each, will change the so called ‘culture of greed’ identified by Hayne.

 

What does this say about AUSTRAC?

 

AUSTRAC is both a regulator and a financial intelligence agency.  In the last few years it has used its regulatory powers more directly to assist law enforcement.  The appearance in the claims against Westpac of failure to detect child exploitation and act on that information is evidence of this.  Similarly, in the Commonwealth Bank case was the evidence of movement of large amounts of cash via ATMs by criminal syndicates.  So, this is not just about failing to lodge millions of reports.  Those missing reports could have given law enforcement the leads to catch criminals.

AUSTRAC may just be starting to get into stride and its financial return to government via civil penalties will give it the resourcing it needs to continue in this vein.  What it needs is law reform to extend the AML net to cover facilitators such as lawyers, accountants and real estate agents and for law enforcement to be able to identify the ultimate beneficial owners of assets.  What is also needed is for the AFP and the DPP to take more seriously the investigation and prosecution of financial crimes.

Listen to Russell Wilson’s interview on ABC Radio National Breakfast

Photo credit: Jonny McKenna on Unsplash

RELATED POST