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Lessons from Westpac — the importance of meeting AML and CFT obligations

05 April, 2020

Disclaimer: This blog post is in no way condemning Westpac Australia but simply providing a breakdown for educational purposes. 

Recently, Westpac Australia allegedly breached the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) over 23 million times. The bank has set aside $900m for the settlement of its breach

While this is a serious problem for Westpac, it serves as a timely reminder to other firms – is your AML/CTF reporting leaving you open to making the same mistake?

What actually happened? 

AUSTRAC highlighted key issues with compliance obligations in their Statement of Claim relating to Westpac’s correspondent banking relationships with financial institutions in other countries. Correspondent relationships carry higher risk due to cross-border movement of funds, operating with banks in high-risk areas and having limited information about the identity, source of funds and customers of these correspondent banks. 

In the Statement of Claim, AUSTRAC said Westpac’s oversight of payment arrangements with correspondent banks simply wasn’t good enough, allegedly failing to:

  • Appropriately assess and monitor the risks associated with correspondent banking relationships and the movement of money into and out of Australia
  • Carry out appropriate due diligence on customers sending money to the Philippines and Southeast Asia for known child exploitation risks
  • Report millions of international funds transfer instructions (IFTIs) to AUSTRAC, including failing to report IFTIs within 10 business days of their receipt.
  • Report instructions received through LitePay (a payment system outside of the standard international payment system most banks use called ‘SWIFT’);
  • Pass on information about the course of funds to other banks in the transfer chain
  • Keep records relating to the origin of some of these international fund transfers 

According to AUSTRAC, these breaches “stemmed from Westpac’s failure to properly resource the AML-CFT function, to invest in appropriate IT systems and automated solutions and to remediate known compliance issues in a timely manner”. 

If these allegations prove true, Westpac will have breached the AML-CFT Act a breathtaking 23 million times. Each breach carries a hefty possible penalty of $17m to $21m. Based on these figures the maximum penalty could be $391 trillion. Of course, Westpac will negotiate for a settlement of much less – an estimated (and still considerable) $900m in penalties. 

How to protect your firm from compliance fines

There are a few things you can to do to ensure your firm is protected against astounding fines Westpac faces:

Take your AML-CFT obligations seriously

AUSTRAC noted that Westpac’s breaches “have occurred because Westpac adopted an ad hoc approach to ML/TF risk management and compliance”. Firms that take their compliance obligations seriously can put in place better processes and policies to protect themselves. 

Get your processes and policies externally reviewed 

An external review can ensure any gaps are closed and legislative requirements are being met to a high standard. First AML has experience conducting reviews and remediation of firms’ compliance processes. Having an expert review your processes is a great way to stay on top of your obligations. 

Find market solutions

The cost of constantly reviewing and reworking your processes will stack up fast. There are several online tools to help your firm meet its obligations. More adaptive and open-minded firms are the most successful at reducing their compliance costs in the long run. These firms also sail through audits and Regulator reviews because the adopted solutions and IT investment mean less stress and fewer breaches.

Photo by NeONBRAND / Unsplash

What this means for the future of banking

AUSTRAC says these breaches “stemmed from Westpac’s failure to properly resource the AML-CFT function, to invest in appropriate IT systems and automated solutions, and to remediate known compliance issues in a timely manner”.

For AML/CFT to make a meaningful impact, all firms need to be getting it right. The common goal is complete compliance, which will help create safer communities and better security for clients. 

Westpac’s mistake is serious and could continue to hurt its finances and reputation long into the future – it’s a reminder to all firms to recognise the significant role compliance should be playing.

 


About First AML

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Making an otherwise complex and manual onboarding process simple for clients and cost effective and compliant for businesses, First AML delivers efficiency and time savings, protecting reputations, and enabling companies to be on the right side of history in the face of global threats.

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