Investigated until Proven Guilty: Westpac’s Latest Scandal

Investigated until Proven Guilty: Westpac’s Latest Scandal

Another week, another bank scandal. This time Westpac got caught out for not screening and reporting customers’ suspicious transactions sufficiently. Theoretically, the fine could amount to $483 trillion according to CNBC.

I am personally disgusted and appalled,’ said Westpac CEO Brian Hartzer. (Although not personally responsible.)

The ABC pointed out something rather interesting about the nature of the incoming fine:

AUSTRAC’s conscise statement of claim outlines the magnitude of the theoretical maximum fine Westpac could face.

“Westpac has contravened the act on over 23 million occasions, each contravention attracting a civil penalty between $17 million and $21 million,” the regulator noted.

Assuming 23 million contraventions at the lower end of those maximum penalties, that amounts to a potential maximum fine of $391 trillion.

As highlighted in the Commonwealth Bank money laundering case, the actual penalty paid is likely to be much smaller — CBA was facing a theoretical maximum penalty of close to $1 trillion, but ended up settling with AUSTRAC for $700 million in penalties for 53,700 breaches.

If CBA got fined $700 million for 53,700 breaches, how much should the fine for 428,305.4 times more breaches at Westpac be?

According to my math, about $300 billion, which is three times the value of Westpac…

Westpac shares were down 3% when I checked the newsfeed, which is hardly -300%. Somehow I don’t think investors have faith in banks getting fined…

Here in the UK, bankers who fail to comply with the corresponding legislation can get into big trouble personally. But in Australia, resignations aren’t even in the news. ‘Executives’ dinner date off as crisis breaks’ reported The Australian when the news broke.

At least the government and journalists asked the key question this time around: How common was the practice? How many transactions were affected?

Nobody ever asked that question when it came to the dodgy lending practices exposed during the Banking Royal Commission. We still don’t know how many people were affected by shameful manipulation of loan documents.

For a simple reason. Manipulation of loan documentation is so common it could sink the banks and trigger a financial crisis. As I explained back in 2014.

Although Westpac is also the bank facing first class action from borrowers on that topic…

But back to this week’s scandal. Because there’s something shifty about it. And, for once, I’m taking the bankers’ side.

That’s rarely a good idea. Especially when they’re accused of covering up paedophiles’ financial transactions. But where you see the word ‘paedophile’, I see the words ‘distraction’ and ‘cover-up’.

Doesn’t that 23 million sound like a lot of contraventions to you? Not 23 million dollars…23 million transactions. That’s a lot of transactions that Westpac failed to monitor and report to the government.

How many paedophiles, money launderers, terrorists, and criminals are there amongst Westpac customers? How much time do they spend on online banking, let alone dubious websites?

Here’s what’s really going on

Under AUSTRAC legislation, banks are required to spy on you. The idea is that money is involved in all illegal activity, so following the money is the easiest way to catch criminals, regardless of the crime.

It’s also the easiest way to convict them, a bit like with Al Capone. A conviction is a lot easier to get if the evidence includes proven financial flows from bank documentation. Proving someone paid or got paid for a crime is often enough. Otherwise prosecutors need witnesses, who are unreliable.

Cash is much more vague and open to interpretation under rules of evidence because it is not traceable. Not to people and not to crimes. Defence lawyers like cash, in more ways than one.

But why are the banks doing the spying? Because the government is of course not competent enough to do the spying themselves. Or they run into cumbersome legal protections citizens have against their government. Something called civil rights and privacy.

There are two solutions to these cumbersome constraints. Ask a friendly foreign government to do the spying on your citizens for you, which I’ve written about before. Or you legislate for the banks to do it for you. Place the burden of catching criminals on those who already have their personal information and thereby don’t need to worry about privacy laws.

The AUSTRAC obligations are quite onerous. And Westpac failed to fulfil those obligations because of costs, in part. To be clear about what this actually means though, they failed to sufficiently spy on you. And so they deserve to be punished. A few hundred trillion dollars is proportionate to the crime of failing to report ordinary customers’ ordinary transactions, right?

Of course, nobody is going to explain it to you like this. Not when AUSTRAC is throwing words like paedophile around in association with what Westpac did. Or, in this case, failed to do.

But take a deeper look into what those contraventions are and you’ll be surprised how much your banker is required to stick their nose into your affairs. It’s not just suspicious transactions.

Here’s an AUSTRAC table to help you:


In other words, rather a lot of information must be kept and reported to the government. Large transfers, payers, payees, incoming transfers, outgoing, sources, international transactions, and anything else you can think of. All this must be handed over to the government.

And the law doesn’t stop at Australia’s borders. Overseas banks must be subjected to due diligence by Westpac!

When I learned about all this for my certification, once in Australia and once in the UK, I couldn’t help wondering just how much information it would create for the regulators. It sounded like a fishing expedition, not investigation.

And so the trouble with all this became obvious. It’s a system of bank spying for the government which gets around a lot of safeguards citizens have from their government. Hard-fought safeguards, some Hong Kongers might say.

AUSTRAC outsources the government’s investigative functions to a place where those safeguards do not exist — banks. And it creates the obligation to report anything suspicious or suspiciously large.

Your banker doesn’t need any sort of permission to check your financial statements in the way a government official does. In fact, the government has charged them with actively monitoring your financial transactions — what Westpac failed to do.

It’s a case of investigated until proven guilty. Continuous monitoring. A surveillance state which outsources its functions to those who are not constrained by privacy law and civil rights.

Now I’m not usually a privacy warrior, unlike many of my colleagues. But here’s an example of why this sort of thing matters.

Did you know that the US authorities confiscated and kept US$20,000 of a Danish man’s money because he tried to buy Cuban cigars from Germany?

You might think this transaction has nothing to do with the US, so how did they even get the money, let alone find out about it, or keep the funds?

The same type of legislation and transaction is what caught him up in the net. The payments went via SWIFT, something Westpac is accused of evading by AUSTRAC.

In the future, if laws are changed, or if you choose to do something illegal, your ability to hide under the radar has been taken from you. Non-compliance, ignoring the law, and civil disobedience are no longer plausible. Your banker is an informant, whether they like it or not.

Good luck out there…

Until next time,

Nick Hubble Signature

Nick Hubble,
For The Daily Reckoning Australia