It is logical that it would impose this high standard upon whoever is chosen to conduct the review of accountability.
The mention of particular individuals does not in any way suggest that they were liable for the AUSTRAC breaches or should be held accountable for what happened. But it is clear the bank’s chairman, Lindsay Maxsted, wants this process to be as comprehensive as possible in order to remove any doubt about the future of chief executive Brian Hartzer and other senior executives.
Start of inquiries
The external expert could start inquiries with the head of institutional banking, Lyn Cobley, who took over from Rob Whitfield in September 2015. Whitfield is now a director of Commonwealth Bank of Australia.
Cobley’s period in charge of the institutional bank covers the disintegration of the bank’s governance of the low-cost money transfer products made available to customers through her division.
The external expert will likely want to interview Whitfield because he was in charge when the bank failed to include information required by AUSTRAC in relation to thousands of international fund transfers. Also, he was in charge when the bank failed to retain records of 3.5 million fund transfers from 2011 onwards.
Also, Whitfield was in charge of the institutional bank in 2013 when Westpac was aware of the heightened child exploitation risks associated with “repeated patterns of frequent low-value transactions on accounts held by 12 customers that were indicative of child exploitation risks”.
A statement released by Westpac at the weekend said: “While Westpac had monitoring processes over the 12 customers prior to the receipt of AUSTRAC’s claim, and had filed suspicious matter reports for each of the 12 customers (either in response to alerts from the detection scenarios in place at the time or from other processes and reviews), Westpac acknowledges it should have implemented more robust transaction monitoring earlier than it did. This would have generated more suspicious matter reports to AUSTRAC.”
But the crux of the external expert’s investigation will be the interactions between executives in Westpac’s financial crime division and AUSTRAC between December 2016 and June 2018. It was during this period that no information found its way to general managers, group executives or the board, according to Maxsted.
‘‘In December 2016, AUSTRAC issued Westpac’s financial crime team with industry guidance regarding key indicators for the purchase of child exploitation material involving international funds transfers to the Philippines and south-east Asia,’’ the bank said on Sunday.
‘‘Westpac continued with its existing detection monitoring standards. Westpac failed to update its detection monitoring scenarios to reflect this revised guidance until June 2018, when it introduced the revised transaction monitoring scenario across LitePay payments to the Philippines.’’
Investigating these failures will prompt the external expert to talk to the current chief risk officer, David Stephen, who started work in October 2018. If the external expert is thorough, he or she will interview Stephen because AUSTRAC said that when it published its statement of claim last week, the bank was ‘‘yet to implement appropriate automated detection scenarios across other international payment channels’’.
Stephen’s predecessor as chief risk officer was Alexandra Holcomb, who was appointed in 2014. Her predecessor was Greg Targett.
Holcomb’s retirement was announced in November 2017 and she left the bank in June 2018. During the several months when there was no chief risk officer while the bank waited for Stephen to join from Royal Bank of Scotland, Westpac’s chief financial officer, Peter King, was the acting chief risk officer.
The heavy turnover of key executives in Westpac’s financial crime division was highlighted by the bank in the statement issued at the weekend.
It said that it had done many things to improve its financial crime management, including ‘‘making changes to the management of its financial crime team and establishing a board risk and compliance committee’’. As of yesterday the bank was yet to appoint a director to head this new committee.
When Holcomb was chief risk officer, the financial crime division was run by Tara Cahill. She was group general manager operational risk, financial crime and assurance from June 2015 until December 2017. She has since joined CBA as executive general manager and chief risk officer, enterprise services.
Another senior executive in the financial crime division who is worth being interviewed by the external expert is Amanda Wood. She joined Westpac in May 2017 from CBA, where she had been head of financial crime compliance from April 2015 until May 2017.
Wood was group money laundering reporting officer. She was responsible for ensuring ongoing risk management and compliance with anti-money laundering and counter-terrorism financing and anti-bribery and corruption policies.
When Stephen took over from Holcomb, he restructured the management oversight of financial crime. He appointed Jamie Kelly as chief compliance officer in October 2016. Stephen also brought in Scott Saunders as global head of financial crime from April this year.
A lot is riding on the outcome of the external expert’s investigation including public perception of the bank’s culture, governance and accountability and the fate of Hartzer.
Hartzer has said he only found out about the bank’s involvement in possible child exploitation on the day AUSTRAC lodged its statement of claim last week.
One of the mysteries of the AUSTRAC legal action against Westpac is that the financial intelligence agency has referred to its interaction with senior management on several occasions.
At one point in its statement of claim, AUSTRAC said: ‘‘In June 2016, senior management within Westpac was specifically briefed on these (child exploitation) risks with respect to the LitePay channel.’’
But the fact there is a need for an external expert to work out accountability for what happened tells you bad news did not travel up the executive reporting chain.
The Westpac board would be well advised to appoint the external expert and an organisation to help him or her to sift through the reams of data that will need to be reviewed to find out who knew what and when.