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ELIZABETH:

From Schwartz Media. I’m Elizabeth Kulas. This is 7am.

As the fallout from the Westpac scandal continues, attempts are already underway to limit corporate responsibility. Michael West on how the story broke and what happens next.

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ELIZABETH:

Michael, it's been all over the news, of course, Westpac has been outed for this 11 billion dollars of anti money laundering breaches. What’s happened over the last ten days or so?

MICHAEL:

It has been a very dramatic week and the numbers are absolutely mind boggling. CBA, the Commonwealth Bank got pinged last year by AUSTRAC, the money laundering peak body or rather regulator. That was 53,000 breaches or thereabouts. This is 23 million breaches. As you say, 11 billion dollars in value.

ELIZABETH:

Michael West is a Walkley Award-winning journalist and founder of Michael West media. He wrote about Westpac in the latest issue of The Saturday Paper.

MICHAEL:

It wasn't until the 20th of November, when AUSTRAC filed publicly its statement of claim, their civil proceedings, not criminal proceedings. But then all hell broke loose.

Archival Tape -- Unidentified reporter:

“Westpac has been accused of some of the most horrible crimes a bank can commit”

Archival Tape -- Unidentified reporter:

“Drug lords, human traffickers, terrorists, pedophiles all may have been using Westpac to launder their dirty cash”

MICHAEL:

Westpac had to respond. They had to go to the stock exchange under the disclosure laws . And they had to say, look, we've received this lawsuit and this is our response.

Archival Tape -- Westpac:

“Well first I want to say that I deeply regret what happened. It’s deeply distressing to think that anyone, especially a child, might have been hurt by our mistake or an oversight…”

MICHAEL:

And then, of course, since then, great corporate drama has unfolded because Westpac was right in the middle of a capital raising, they were raising two and a half billion dollars from their shareholders.

Archival Tape -- Unidentified person:

“I’m disgusted at the bank’s arrogance and hubris and the lack of accountability…”

MICHAEL:

So you can imagine the shareholders are promised, you know, some of these big pension funds overseas probably promised to buy 200 million dollars worth of Westpac stock. They probably signed up already. And then suddenly they find that the regulator is pinging Westpac with the largest money laundering suit in Australian history.

Archival Tape -- Unidentified reporter:

“The crisis at Westpac is deepening with a third government agency investigating the bank’s money laundering scandal. It comes as westpac’s share price continues to dive, with mounting pressure on its CEO and chairman. “

MICHAEL:

A few days later, Brian Hartzer was gone...

Archival Tape -- Unidentified reporter:

“The CEO Brian Hartzer. gone. Head of Risk and Compliance committee Ewen Crouch, gone. Chairman Lindsey Maxstead, for five years Australia’s most respected director, gone.”

Archival Tape -- Unidentified reporter:

“To add insult to injury for long-suffering customers, Brian Hartzer leaves with almost $3m as the door slams behind him.”

ELIZABETH:

Quite the week for Westpac.

MICHAEL:

The week the week from hell.

ELIZABETH:

So how long do we know that this activity’s been going on, or is that not clear yet?

MICHAEL:

Well, it ramped up in 2013. A lot of the transactions may may be in before that, but it really got moving in the last five years, so it's a five year amount of data that they're looking at.

Then you've got to ask the question, why at this time? Why is this suddenly come out? Why is this very news, high news value financing pedophile or facilitating pedophilia, PR disaster emerged right now? And one of the reasons may be that the Paris-based Financial Action Task Force, which is the global body for cracking down on money laundering and terrorism financing, they were due to come to Australia for a meeting around about now. And they were going to do a review of Australia and how we're complying internationally with money laundering laws. And their review was going to be damning. And it was gonna be a terrible PR thing for Peter Dutton's office, Home Affairs covers AUSTRAC and that Australia was worse than Pakistan in complying with these anti-terror and terror financing laws.

ELIZABETH:

Hmm.

MICHAEL:

And then suddenly the next day after FATF said they weren't going to review, they're going to walk away the next day the Westpac story broke publicly with the pedophilia allegations. So the timing is very interesting.

ELIZABETH:

So you've read through the affidavit that while AUSTRAC has issued against Westpac. What did you learn going through the document?

MICHAEL:

Well, it was a very horrible read, it was extremely full of jargon. So I went through it with a top banking and tax lawyer contact of mine, and we made sense of it together. We sort of pieced together what we think is the the bigger narrative here, the pedophilia has grabbed the attention. Indeed, the paedophile allegations, they're probably more worried about in the short term because these are a terrible stain on the reputation of what is Australia's oldest bank. Part of this involves money going out to the Philippines. It involves 12 people. Customers of the bank and the dollar figure is one million dollars or roughly thereabouts.

But of course, behind the scenes, which is the point of this story, we're looking at a vastly bigger set of numbers. The rest of the 11 billion are other transactions, some of them very large, a hundred million dollars or more. The dollar figures of these breaches of the money laundering laws are just enormous.

ELIZABETH:

Do we know anything about who’s involved in these other transactions and how those transactions operate?

MICHAEL:

The AUSTRAC, the statement of it gives names, you know Bank A, Bank B, bank C down the Bank P. And it mentions two multinationals, but not by name. And what kind of transactions they were. Now, we're talking about offshore deals here, money coming in and out of the country. So this is transnational dealings and it's all done below the radar of SWIFT, which is the monitoring system, this is a technology which Westpac appears to have deliberately subverted, and that's how they created this sort of invisible banking regime. So all the transactions couldn’t be picked up by AUSTRAC.

Now, the next thing is who else is interested in this stuff? When you have large amounts of money moving between different countries and different banks, which is what most of these transactions are, you have corresponding banks overseas and you had Westpac here. When you're shifting money around like this invisibly, under the radar of AUSTRAC etc, you could imagine that the Australian Taxation Office might be very interested because part of multinational tax avoidance is subterfuge. It's a very, very large part of it. Not showing your hand, not giving a reason why this money moved, not having any transparency. In this in this case, eleven billion dollars. Zero transparency.

ELIZABETH:

We’ll be right back.

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ELIZABETH:

Michael, the AUSTRAC affidavits details the activity of a number of banks and their dealings with Westpac, though those banks have been de-identified in the filing. Let’s talk about one example that’s referred to as Bank B.

MICHAEL:

Ok, the foreign correspondent bank is a bank with which Westpac has a relationship, transactional relationship in another country. Bank B is is where some of the really big transactions occur.

Between 2013 and 2019 there were 36,000 incoming transfers from Bank B, that's transfers coming into Australia from this correspondent bank overseas somewhere. We don't know the identity, all we know is that money is invisibly passing through the system into Westpac and then 11,000 outgoing transactions from Australia relating to the Bank B relationship total more than 700 million.

Now, to get to the counter-terrorism financing issues here, we know that in 2014, Bank B disclosed to Westpac that it had relationships with other banks in high-risk or sanctioned countries, including the Congo, Iraq, Lebanon, Libya, Ukraine and Zimbabwe. Westpac discontinued dealings involving those countries in 2017, but it was dealing with them leaving quite a window, you would speculate, of risk for terrorism financing.

ELIZABETH:

So what is Westpac’s relationship with Bank B?

MICHAEL:

Well, it's a special arrangement. And, you know, one of the terms that's mentioned in the jargon of the statement of claim from AUSTRAC is “payable through.” And it seems that the payable through arrangement is an arrangement whereby another bank is used directly by a third party to transact business on its own behalf. This is also described as the ability to log on directly and use the foreign correspondent’s banking system.

This is a really important point. If you Elizabeth, want to do a banking transaction. You either go to the bank or you go into your online system and you ask them to do a transaction. In this case, it appears that a multinational company somewhere offshore has been given a log on into the foreign correspondent bank, that is Bank B. In other words, they've been allowed to go into the bank’s system and transmit and transact as though they are the bank. A virtual BSB, you might say.

ELIZABETH:

In other words, they’re anonymised because they appear as the administrator. They’re making transactions and that appears as though Bank B is making those transactions, not me, Elizabeth, sending 100 million dollars to you Michael West.

MICHAEL:

Well if you had a hundred million dollars, you could send it to me, I'd like that very much. But no it’s, it's actually what. That the nature of it is, is that obviously this client -- it's got to be a large company you would think or billionaire or something -- has been allowed in there because they trusted so much all because the banks are incredibly lazy, says here, look, we're just gonna get you a logon. You just get somebody to do your transactions yourself and just don't steal anything from us. I mean, we don't know what's happened here, but we do know that all these transactions escaped the purview of the regulator. They're all in this invisible banking system of which Westpac was a part with its corresponding banks. So somebody other than these two banks is carrying on business as if it were a bank. And so it's controlling the flow of funds or at least influencing the flow of funds between banks. And these guys don't have a banking license, they've just been allowed into the system to make these transactions.

ELIZABETH:

So Michael will we ever know which bank we’re talking about when we refer to Bank B?

MICHAEL:

I think if it goes to court these things are going to come out. And no doubt the Australian Tax Office will be all over it like a rash. The ATO is going to want to know the identities of all these people. They will already know it. So there's likely to be actions from them as well to recover, lost tax and so on from these transactions.

So the ripple effect is likely to go on for years and we still don't know what other banks are involved or which multinational companies were involved. Two have been identified but not named in this statement of claim from AUSTRAC. What about the other banks? What about other transactions which still haven't been picked up? The implications are enormous.

But I think the biggest implication here really is for trust in the banking sector and trust in the corporate sector, because we've just come out the back of a royal commission with systemic corruption exposed banks selling products to dead people, all sorts of scams. And now suddenly this thing bobs out, absolutely enormous and global. So they've got real problems Westpac.

ELIZABETH:

So, Michael, am I hearing you say that this AUSTRAC action against Westpac, it's more of a beginning than an ending?

MICHAEL:

Oh absolutely. Extrapolating this whole thing slightly further, this is not a good look for corporate Australia. They're always wanting tax cuts. They’re always wanting a bit a corporate welfare and, you know, they paid the political donations. They've got extreme influence with government. This is not a good look for people at the Business Council. This is corporate Australia behaving very, very badly, 23 million breaches of the law. That's what it is, is 23 million breaches of the law. Now they're trying to paint it in some of the gullible sectors of the press as a coding error I’ve seen the words coding error a couple of times. This is definitely not a coding error. And the detail of AUSTRAC’s statement of claim makes that absolutely clear.

Archival Tape -- Unidentified person:\

“The resignation of a CEO... is not going to calm the horses, solve the systemic cultural issues that we have in the financial services industry. The rot at the heart of our culture in this country that has led to the scandal and so many others, is putting profits first, sales, money money money, that’s what it’s all about. “

MICHAEL:

Now, the banks have had really such a great run in Australian society. They've been allowed this incredible license. There is no other business in Australia that can't go broke that is underpinned by taxpayers. They have a natural oligopoly. They make billions. Their executives pay themselves multi-millions. And so they are just gonna want to bury this, it’s not a good look at all. They won't want any more scandals engulfing the banks because in the end, it goes to systemic stability. And this is what the business press is arguing now. They're running this line. Look, we got to walk away from this stuff. We we really got to let these guys off the hook because the stability of the system is more important than going after people for their crimes. But of course, if they don't go after them because of their crimes, they don't send that signal that we are willing to punish the person that rips off millions of dollars just as strongly as the person that steals a few ice creams from the local store -- then that double standard will persist and that will erode the public's confidence in the system, not only the corporate system, but democracy and the political system as well.

ELIZABETH:

Michael, thank you so much.

MICHAEL:

That’s a pleasure Elizabeth.

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ELIZABETH:

Elsewhere in the news:

In Britain, a knife attack that left three people dead, including the assailant has been thrust into the middle of the country's election campaign. Boris Johnson, the leader has immediately promised people convicted of serious terrorist offences would never be released from prison. Labor leader Jeremy Corbin has called for the parole decision in this case to be reviewed. The attacker Usman Khan had been sentenced to sixteen years in prison in 2012 for his part in a plot to blow up the London stock exchange, he had been released early. He was nineteen when he was first sentenced.

And the Morrison government has pardoned almost 500 million dollars of dodgy debt accrued under the troubled VET fee help program. Much of the debt was accrued by students signed up for loans they didn't know about for below standard courses. In all. the failed vocational loan scheme has now cost the government 7 and a half billion dollars.

This is 7am, I’m elizabeth Kulas, see you Tuesday.