Finance Finance News Banking Westpac braces for $1.03b hit for money-laundering, child exploitation breaches

Westpac braces for $1.03b hit for money-laundering, child exploitation breaches

westpac money laundering fine
The Westpac fine is the largest in Australian corporate history. Photo: AAP
Twitter Facebook Reddit Pinterest Email

Westpac’s child exploitation and money laundering scandal could blow a $1.03 billion hole in its first-half cash profit, with the bank setting aside an eye-watering $900 million for a potential legal penalty.

The figure would eclipse the record $700 million fine Commonwealth Bank copped in 2018 for its own breaches of AUSTRAC laws.

Westpac, which is accused of 23 million breaches of anti-money laundering laws, flagged the hit on Tuesday as part of $1.43 million in expected first-half writedowns and provisions.

AUSTRAC’s claims include the bank knew since 2013 of child exploitation risks associated with frequent small payments to South-East Asia but did not act appropriately until 2018 and still does not monitor all channels for transfers potentially linked to the live-streaming of child abuse.

On top of the expected AUSTRAC fine, the bank said costs related to its financial crime response plan could reach $130 million, partly due to higher legal expenses.

Westpac chief executive Peter King, who was appointed early this month, said 200 people were being hired to prevent financial crime and a clearer accountability regime was being set up.

The big four lender will also book another $260 million in customer remediation related to the royal commission, and a $70 million asset hit from the coronavirus fallout.

The many Australians left unemployed from the pandemic will also have consequences for banks.

Westpac expects many customers will be unable to repay loans and it is factoring in a significant increase in its impairment charge.

The charge will be announced before its first-half results are published on May 4.

A provision of about $70 million has been made relating to changes to group life insurance.

Westpac Life Insurance Services will stop providing group life insurance to BT Super, and the former has written off acquisition costs.

Westpac is also yet to respond to the Australian Prudential Regulation Authority’s advice to banks to consider postponing paying dividends to shareholders.

The bank said a decision on first-half dividends would be announced with its results.

APRA earlier this month asked banks to conserve capital and reduce dividends, given the uncertain economic outlook.

This would ensure banks could continue to lend and underwrite insurance.