Westpac Announces Response Plan

Media
Release

24 NOVEMBER 2019

WESTPAC ANNOUNCES RESPONSE PLAN

Westpac’s Chairman Lindsay Maxsted today provided an update on Westpac’s
response to the issues raised by AUSTRAC in its Statement of Claim.

“We understand the gravity of the issues presented by AUSTRAC and reiterate our
deep sorrow for failings by Westpac,” Mr Maxsted said.

“We are determined to urgently fix these issues and lift our standards to ensure our
anti-money laundering and other financial crime processes are industry leading. As a
major bank we play a critical role in helping law enforcement agencies prevent
criminals from carrying out illegal activity.”

Mr Maxsted and Westpac Chief Executive, Brian Hartzer, today rel eased Westpac’s
Response Plan (the Plan), which includes a comprehensive set of actions across three
areas:

• Immediate fixes, including closing LitePay
• Lifting our standards, including priority screening and improving cross-
industry data sharing
• Protecting people, including investments to reduce the human impact of
financial crime.

A copy of the Plan follows with further background to the AUSTRAC action attached.

Mr Maxsted said that over the past two years Westpac has recognised the need for
uplift and has taken a number of steps to substantially improve its monitoring of
financial crime and other serious crime.

These completed actions include:

• correcting the IFTI non-reporting issue on the relevant product
• consolidating different financial crime systems into a single, Group-wide
technology system
• doubling the resourcing dedicated to financial crime to around 750 people
• development of a Financial Crime Strategic Plan, shared with AUSTRAC
• having made changes to the leadership of Westpac’s risk and financial crime
areas, including making a number of external appointments.

Mr Maxsted said: “However, the allegations indicated that there are still unacceptable
shortcomings in this area and the Board understands the need for action and
accountability.

“We accept that we have fallen short of both our own and regulators’ standards and are
determined to get all the facts and assess accountability.

“In the interim, the Board has determined that either all or part of the grant of the 2019
Short Term Variable Reward will be withheld for the full Executive team and several
members of the general management team subject to the assessment of
accountability.

“We recognise the seriousness of these events and that is why we will appoint an
external expert to provide independent oversight of the process. We will make the
recommendations public.”

Mr Maxsted said Westpac is committed to implementing its initial response plan as a
matter of urgency and will continue to work constructively with AUSTRAC throughout
the process.

“One of our key roles is to help AUSTRAC and government to fight financial crime and
we need to have systems and controls in place to prevent our services being exploited.

“We are currently working through our response to the Statement of Claim and are
commencing the independent review. The Board will continue to provide updates on
these issues, including the findings relating to accountability.”

For further information:
David Lording Andrew Bowden
Media Relations Investor Relations
0419 683 411 0438 284 863
Mary-Louise Dare
Media Relations
0434 699 605

Attachments:
• Westpac’s Response Plan
• Background and context to AUSTRAC’s claims

WESTPAC’S RESPONSE PLAN
Immediate fixes
Lifting our standards
Protecting people
November 2019

Immediate fixes
2
Westpac is taking immediate action to fix the issues raised in AUSTRAC’s Statement of
Claim to ensure these issues cannot happen again.
By whenActions
Complete
Complete
Immediate
Complete
Complete
Complete
2020
Close the relevant Westpac Australasian Cash Management Product:This
was the technology platform at the core of Westpac’s failing to identify and report
on international fund transfer instructions (IFTIs) to AUSTRAC.
Remediate and analyse all unreported IFTIs to AUSTRAC: Westpac has
reconstructed and submitted 99.99% of the historical files, and appointed
regulatory and compliance specialists to conduct a detailed independent review of
all of these transactions, which has been shared with AUSTRAC.
Close the LitePayinternational funds transfer system: This was a technology
platform that facilitated low value international payments.
Implement updated child exploitation filters into screening for the SWIFT
payment channel to additional jurisdictions: This is now complete. Westpac
acknowledges some actions should have been completed sooner.
Lookback screen of customer transactions: Westpac has undertaken a further
review of all child exploitation transaction types for the Philippines over the past
12 months, to identify and report any further suspicious transactions or customers
that warrant investigation.
Review and action highlighted customers: AUSTRAC’s statement of claim
highlights 12 customers who were previously reported by Westpac. All 12 of these
customers have been re-reviewed and Westpac has taken action where
appropriate.
Increase financial crime resourcing: Westpac has more than doubled its
internal resourcing dedicated to financial crime to 750 people over the past three
years. In 2020 we expect to add a further 200 resources to this team.

Lifting our standards
3
Westpac is reviewing all financial crime systems and processes to pursue best-in -class
global standards.
By whenActions
Complete
Immediate
Immediate
Immediate
Immediate
Priority screening: Where Westpac flags transactions that suggest
potential child exploitation in high risk locations, these transactions are
now prioritised for action and reported to AUSTRAC within 24 hours.
This is faster than regulatory standards require.
Board Financial Crime sub-committee: Westpac will establish a
dedicated Board Financial Crime sub-committee, chaired by a non-
executive Director, to oversee the implementation of our enhanced
financial crime program.
External expert: The Board Financial Crime sub-committee will
commission an external expert to independently review Westpac’s
program including a review of accountability, and report back.
Improving cross-industry data sharing: Data sharing is at the heart of
fighting financial crime. Westpac will invest $25 million to improve cross-
border and cross-industry data sharing and analysis to better support
regulators and authorities to fight financial crime. This will include
seeking partnerships with industry, technology, telecommunication and
government partners.
Elevating the financial crime function to report directly to the Chief
Risk Officer:This role will review ways in which we can accelerate our
ongoing AML / CTF program.

Protecting people
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Westpac is undertaking a series of immediate actions and investments to reduce the human
impact of financial crime
By when
Actions
Over 3 years
Over 6 years
Over 3 years
Funding for the International Justice Mission (IJM): Westpac will
match IJM's current level of funding, investing $18 million over three
years to tackle Online Sexual Exploitation of Children (OSEC) in the
Philippines. This will enable IJM to expand on-the-ground initiatives in
Southeast Asia to help end child exploitation.
Funding for SaferKidsPH: Westpac will match the Australian
Government's (DFAT) current level of funding for its SaferKidsPH
partnership with Save the Children, UNICEF and The Asia Foundation,
investing $6 million over six years to raise awareness of Online Sexual
Exploitation of Children (OSEC) and support programs to protect
children in the Philippines.
Prevention: Westpac will seek the guidance of industry experts,
through the convening of an expert advisory roundtable, to develop a
program of actions to support the prevention of online child exploitation.
Westpac will provide funding of up to $10 million per year for three years
to implement these recommendations.

November 2019
A.Our role in relation to financial crime
• As a major bank, our role is to help AUSTRAC and the Government to fight financial and
other serious crime.
• We need to have systems and controls in place to prevent our services being exploited
for financial crime and other serious crime.
• These processes include:
oAssessing and mitigating money laundering and terrorism financing risks we face
oMonitoring transactions and conducting customer due diligence
oProviding AUSTRAC with information about financial transactions
oTelling AUSTRAC about any suspicious customers or activity
• Financial crime is a serious threat to our society. Our role in supporting AUSTRAC and
law enforcement to fight serious crime is critical.
B.AUSTRAC’s allegations
• AUSTRAC is a financial intelligence agency and a regulator. It has been investigating
aspects of Westpac’s AML/CTF policies, procedures and oversight.
• On Wednesday 20 November, AUSTRAC commenced civil proceedings against
Westpac, alleging contraventions of its obligations under the Anti-Money Laundering and
Counter-Terrorism Financing Act 2006 (Cth).
• AUSTRAC’s allegations fall into six main categories:
oIFTI reporting failures
oAssociated tracing information failures
oRecord keeping failures
oCorrespondent banking due diligence failures
oAML/CTF program failures
oOngoing customer due diligence failures (regarding identifying, mitigating and
managing child exploitation risks)
Background and context to
AUSTRAC claim

We explain some of AUSTRAC's allegations below including parts of AUSTRAC’s claims in
relation to IFTI reporting, correspondent banking, and ongoing customer due diligence
(regarding identifying, mitigating and managing child exploitation risks).
IFTIs
AUSTRAC
alleges that
Westpac failed
to report over
19.5 million
IFTIs.
•Westpac is required to report to AUSTRAC all
international funds transfer instructions (or IFTIs) that it
receives or sends.
•When senior management became aware of the failure
to report a large number of IFTIs over a long period of
time, Westpac promptly self-reported this to AUSTRAC
in August 2018 and began to remediate on an urgent
basis.
•Since that time, we have worked with AUSTRAC to
report the missing IFTIs. 99.99% of these IFTIs have
now been reported with a small number of remaining
IFTIs to be reported by the end of November. The
majority of non-reported IFTIs in the claim concern
batch instructions received by Westpac through one
WIB product (called the Australasian Cash
Management product).
•The majority of IFTIs were from two global
correspondent banks, making payments to Australian
beneficiaries on behalf of clients of the correspondent
banks. The majority of the payments were low value
recurring payments made by foreign government
pension funds and corporates, which had a low risk
profile.
•We have closed the relevant ACM product.
•We have addressed the technical root causes of the
non-reporting and uplifted our governance and
processes in relation to IFTI reporting.
Correspondent
banking due
diligence
AUSTRAC
alleges that
Westpac failed
to adequately
assess the risk
of, and conduct
due diligence
into, 16 of its
correspondent
banking
relationships
•We are reviewing the allegations in relation to Westpac’s
correspondent banking due diligence. We have been
working constructively with AUSTRAC for a number of
years in relation to our correspondent banking
arrangements. This has included making changes to our
correspondent banking program to address
recommendations made by AUSTRAC in its 2016
Compliance Assessment Report into Westpac's
correspondent banking controls. We have been and
continue to enhance our Correspondent Banking Standard
and practices as part of a program of work established to
review and uplift our AML/CTF Program.
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Ongoing
customer due
diligence in
relation to
financial
indicators of
potential child
exploitation risk
in relation to
payments to the
Philippines and
South East Asia
AUSTRAC
alleges that
Westpac failed to
carry out
appropriate due
diligence on 12
customers, with a
view to identifying,
mitigating and
managing the
known risks of
child exploitation.
•For a number of years, Westpac has worked closely with
AUSTRAC in addressing the risks of child exploitation and
other serious crime.
•The LitePayproduct was launched in 2016. LitePayis a low
value payments channel (for payments up to $3000) which
was designed to provide customers with a low-cost solution
for transferring money to a range of countries with a fixed fee
of $5 per transfer. The product was introduced for a range of
reasons including to enable customers to send money to
family members living outside Australia. This product was
launched as part of a broader initiative with the Department
of Foreign Affairs and Trade (DFAT) under an MOU to
improve the livelihoods of men and women in the Pacific by
increasing their access to finance.
•The LitePayproduct was launched with detection monitoring
scenarios in August 2016 prepared with regard to industry
guidance issued by AUSTRAC at the time.
•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.
•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 LitePaypayments to the Philippines.
•In October 2019, Westpac extended the revised transaction
scenario to SWIFT channel payments to the Philippines.
•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.
•AUSTRAC's Statement of Claim states that the detection
scenarios we now have in place for LitePay are appropriate
to detect known child exploitation risks involving the
Philippines.
•During the course of its investigation, AUSTRAC has
requested information and documents in relation to a number
of customers. Westpac first learnt AUSTRAC had specific
concerns in relation to the 12 customers on 15 November
2019 and was not provided with any specific allegations until
it received AUSTRAC’s Statement of Claim.
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Westpac accepts responsibility for the issues that have occurred. Westpac has identified the
need to improve financial crime management, based on issues identified by its business,
financial crime and internal audit teams over a number of years. In response, Westpac has
taken many actions to improve its financial crime management, including:
•dealing with and fixing individual issues, including the IFTI non-reporting issues;
•making a significant investment to consolidate different financial crime systems into a
single, Group-wide technology system;
•more than doubling its internal resourcing dedicated to financial crime to 750 people.
Over the next 12 months we expect to add a further 200 people to this area;
•making changes to the management of its financial crime team and establishing a
Board Risk & Compliance Committee approved Financial Crime Strategic Plan in
2019, which has been shared with AUSTRAC;
•establishing a stand-alone executive level Financial Crime Committee, to oversee the
Group’s Financial Crime governance;
•conducting Financial Crime workshops with the Board Risk & Compliance
Committee; and
•engaging various external consultants and advisors to perform assurance reviews
over aspects of the Group’s financial crime processes and to advise on changes to
its program and approach.
The Board, CEO and management team are fully committed to taking all steps necessary to
urgently close any remaining gaps, and to accelerate the completion of the Financial Crime
Strategic Plan. Based on its current understanding, the Board does not believe that there has
been any indifference by any member of the Executive Team, including the CEO, but accepts
that Westpac has fallen short of its own and regulatory expectations and that a detailed review
is required to investigate the facts alleged by AUSTRAC.
The Westpac Board understands the gravity of the issues presented by AUSTRAC and
reiterates its deep sorrow for failings by Westpac.
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