Reserve Bank warns Westpac over anti-money laundering system failures

Wednesday, 11 August 2021

Westpac has had a bad run with the Reserve Bank in recent years. In March the Reserve Bank ordered Westpac to pay for two independent reports into its risk governance processes.

Westpac Banking Corporation has been slapped with a warning from the Reserve Bank for failing to report suspect transactions under anti-money laundering and countering financing of terrorism laws.

The laws require financial institutions like banks to report certain transactions which pose a high money laundering risk, including international wire transfers of $1000 or more, to the Police’s Financial Intelligence Unit

But Westpac Banking Corporation’s anti-money laundering systems were set up in a way which failed to detect and report all eligible international wire transfers, resulting in it failing to report almost 8000 corporate transactions to overseas recipients between July 2018 and February 2019, said Reserve Bank deputy governor and Geoff Bascand.

“This formal warning reflects the importance of the prescribed transaction reporting regime in building an intelligence picture across New Zealand’s financial system, and reiterates the seriousness with which we view non-compliance with the Anti-Money Laundering and Countering Financing of Terrorism Act,” Bascand said.

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The warning was publicised to coincide with the Reserve Bank releasing its survey of banks’ anti-money laundering systems.

Bascand said the survey was launched in the wake of allegations made by Australia’s anti-money laundering regulator Australian Transaction Reports and Analysis Centre against Westpac Banking Corporation in November 2019.

Westpac was hauled over the coals for AML failures , including a small number of payments for child exploitation, which cost the bank A$1.3 billion in fines, and Westpac chief executive Brian Hartzer his job.

This is the second time in a year Geoff Bascand, deputy governor of the Reserve Bank of New Zealand has given Westpac a ticking off.

Based on the survey responses received by the Reserve Bank, all banks surveyed appeared to have adequate processes and controls in relation to correspondent banking due diligence, prescribed transaction reporting and transaction monitoring regarding potential child exploitation, Bascand said.

Westpac Banking Corporation (WBC) is the parent bank of Westpac New Zealand.

Westpac New Zealand and WBC’s anti-money laundering systems were assessed separately by the Reserve Bank’s, and Westpac New Zealand did not have the failings identified at WBC.

But the Reserve Bank said more work was needed as the effectiveness of bank anti-money laundering procedures and controls could not be determined from the survey alone.

Westpac issued a statement saying: “We take these matters very seriously. This issue arose from an inadvertent error with our reporting system which is now fixed. Upon identifying the issue we proactively reported it to the Reserve Bank of New Zealand. We continue to work with the RBNZ on strengthening our systems further.”

The latest warning to Westpac, which is the government's banker, follows the Reserve Bank ordering Westpac to pay for two independent reports into its risk governance processes.

The Reserve Bank, which is tasked with ensuring the stability of the financial system, said the Australian-owned bank needed to take a “close look” at its risk governance practices.

“We have experienced ongoing compliance issues with Westpac NZ over recent years, most recently involving material failures to report liquidity correctly, in line with the Reserve Bank’s liquidity requirements,” Bascand said in March.