While Westpac continues to defend Austrac’s action against it, at the same time as undertaking mediation to narrow the issues in dispute and reach an agreed penalty for the bank, the bank has released reports on its risk and governance processes in its AML program and the consequences for its directors and executives involved. Background.

Westpac says that while the bank makes a large number of admissions, a number of areas remain to be resolved in the current legal process including the critical AUSTRAC allegation that an AML/CTF program had not been adopted and maintained.

Westpac says that it has identified three primary causes of its AML/CTF compliance failures:

• Some areas of AML/CTF risk were not sufficiently understood within Westpac, that it failed to grasp the scale and systemic nature of the problem;
• There were unclear end-to-end accountabilities for managing AML/CTF compliance, including the three lines of defence; and
• There was a lack of sufficient AML/CTF expertise and resourcing.

Accountability
Separate from an Advisory Panel Report into Board Governance of AML/CTF Obligations, Westpac conducted a management accountability assessment that looked back over ten years.

Westpac concedes that the information provided by management to the Board was sometimes misleading or omitted because management itself did not know it, but says that the issues did not arise from intentional wrongdoing or misconduct at any level.

It says that as a result, 38 individuals have received significant remuneration impacts and disciplinary actions. A number of relevant staff had already left the company.

Following the AUSTRAC Statement of Claim in November 2019, the former CEO and Managing Director stepped down from his role and the Board determined to forfeit all of his unvested equity. The Board Chair retired and the Chairman of the Board Risk & Compliance Committee decided not to seek re-election to the Board.

In April 2020, the Board determined the CEO and the Group Executives will receive no FY20 Short Term Variable Reward to recognise the importance of collective executive accountability.

Further remuneration and disciplinary actions arising from the review took into consideration decisions already taken and announced, the level of direct managerial responsibility or accountability for the compliance failure, and the level of culpability for failings.

Consequences applied to prior year awards, including withheld FY19 short term variable reward, totalled approximately $13.2 million.

Governance
The Advisory Panel made a number of recommendations for improvements to Westpac’s governance relating to financial crime compliance.

Those recommendations include suggestions to improve end-to-end financial crime risk management processes and establish clearer accountabilities for AML/CTF compliance, embedding and clarifying the three lines of defence model’s applicability to financial crime compliance, rebuilding the relationship with AUSTRAC, monitoring AML/CTF compliance, observing and learning from global best practice and accelerating Westpac’s broader Culture, Governance and Accountability work.

In response, Westpac says a Board Legal, Regulatory & Compliance sub-committee has been established, separate from the Board Risk and Compliance Committee which primarily monitors financial risk. The new committee is responsible for overseeing financial crime, regulatory and legal matters, customer remediation, compliance, and conduct management.

A new Group Executive, Financial Crime, Compliance and Conduct has been appointed. This role reports directly to the CEO.

The Report identifies the need to clarify the responsibilities within the Three Lines of Defence for financial crime risk, and to make the model work. It says each line of defence has a role and care should be taken that line one does not delegate its responsibility to line two.

It says this is a bigger risk for those processes which do not have a loud corporate voice and are characterised by non-financial key performance indicators that are not monitored daily as are financial metrics, customer statistics, and the like. Clear accountabilities for AML/CTF compliance and reporting must be developed and enforced.

The Report concludes that the way in which the Board monitors their need to meet AML/CTF obligations should be reviewed. There are three types of monitoring required: monitoring the many financial crime risks facing Westpac, monitoring the risk management framework to ensure it remains appropriate and proportionate to those risks and monitoring the transactions and activities of customers.

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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.