Culture Clash

Westpac released the results of its own investigation into its anti-money laundering (AML) and counter-terrorism financing (CTF) compliance breaches, together with the Advisory Panel Report into Board Governance of AML/CTF obligations, and the Promontory Assurance letter on its accountability review.

 

None of these reports uncovered any intentional wrongdoing by Westpac staff, although they highlighted a number of shortcomings of Westpac’s previous framework, processes and response to identified AML failings. In response to its AML/CTF breaches, Westpac has undertaken a wide-ranging remediation program that has focused on a number of areas across its business.

 

The bank’s dealings with the Australian Transaction Reports and Analysis Centre (AUSTRAC) are ongoing, with both parties unable to reach agreement on all of the issues; however, no trial date has yet been set. Westpac set aside a $900m provision for AUSTRAC in the first half of FY20; we assume this will be topped up by a further $100m in the second half, but we certainly can’t rule out a higher penalty than this.

 

Westpac’s own investigation found its risk culture had been immature and reactive, which resulted in it not giving sufficient priority to some AML/CTF risks. Management engaged Promontory Assurance to provide external assurance that its internal investigation was robust, based on accurate and complete facts, and employed a sound methodology. Subject to several limitations, given it was unable to review all materials due to legal privilege, Promontory concluded: 1) the review design was appropriate for the objectives of the review; 2) the methodology appeared to have been implemented as designed; and 3) “we saw no reason why the methodology, if implemented as designed, should not lead to accurate and appropriate conclusions and recommendations”.

 

We maintain our Hold recommendation and our $16.75 target price.

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