Corporation Law Essay: Money Laundering Case of Westpac

Question

Task

Write a corporation law essay on the money laundering case of Westpac in detail using relevant academic sources.

Answer

Introduction
The money laundering case of Westpac is selected in this corporation law essay to reflect on how the issues related to money laundering in an organization can be resolved as per the provisions of corporation law. The application of corporation law and related principles to the case of Westpac is discussed in detail. The essay is mainly divided into three parts- description of the case, issues related to the case and understating of relevant corporation law, and application of the principles of corporation law, and the ways it can be implemented to resolve the legal issues. The first part briefly describes the case, key factors, the reason behind the issue, the second part identifies the relevant corporation law and the issues in the case of Westpac, and the third part discusses the applicability of the principles of corporate law to resolve the legal issues of the case. The principles of the Corporations Act guide the organizations and regulate the organizations that are based in Australia and ensure the major business decisions are taken based on reasonable grounds rather than the specific interest of an individual. The principles of the Corporations Act guide the duties of directors and officers to fulfill their responsibilities with care and diligence.

About the case
The case is about major money laundering in Australia done by Westpac, one of the leading banking corporations in Australia. The money laundering case cost damage to the reputation of the bank and the job of former CEO Brian Hartzer. Along with the money laundering case, additional 76,000 breaches are admitted by Westpac, which adds 23 million contraventions to the original lawsuit. The lack of skills among staff, ineffective management, and wrong leadership of Brian Hartzer are the key reasons behind the major legal issue. At first, Westpac was accused of a breach of law in 2019 by AUSTRAC (Vercoe, 2020). The major breach of the banking corporation leads due to the failure of proper reporting of 19.5 million transfer money and bringing foreign funds (Vercoe, 2020). Westpac failed to pass on the information about the originality of many transactions, involvement in the transactions, and sources of the funds. Along with that, the banking corporation also failed to keep proper records of the original sources of the funds that raised suspicion about the fund sources. Westpac failed to properly monitor and assess the risk related to foreign transfers, among which are with the banks of Ukraine, Iraq, Lebanon, and Zimbabwe (Janda, 2020). In the case of regular checking about the customers' payments overseas, the bank failed to provide adequate support. The LitePay service of Westpac is misused by many customers to make the suspicious transfer of money to the Philippines (Janda, 2020).

Almost 262 transactions of customers are related to overseas child exploitation that has been used via the banking system of Westpac. Many of the transactions of customers using LitePay or other banking services of Westpac are related to illegal activities (Janda, 2020). The services of the bank are used by the customers in an illegal way, but the bank fails to report and record them properly and to take adequate action against them.

AUSTRAC began civil proceedings against Westpac in November 2019 based on the allegation that the bank failed to report over 19.5 million IFTIs (International Fund Transfer Instructions), which amounted to more than A$ 11 billion. In addition to that, the bank also failed to provide information regarding the origin of certain international funds that have been involved in the transfer chain. Some of the other charges against the bank include failure inappropriate customer due diligence based on relation to suspicious transactions that are potentially associated with child exploitation. However, this case has also demonstrated the missing of critical intelligence by law enforcement and AUSTRAC that can support the police investigations as Westpac failed to implement effective programs of transaction monitoring along with failure to submit the reports related to IFTI. This case has forced the Australian Regulatory System to harden the financial system against such serious crimes based on massive penalties and appropriate actions. Money laundering is the process that is used by criminals in an attempt to hide the illegal source of their income.

Identification of the issues along with an understanding of the relevant Corporation laws and principles to the chosen case study
The issue in the money laundering case of Westpac was based on AUSTRAC (Australian Transaction Reports and Analysis Centre) filing a civil lawsuit against Westpac for presiding over 23 million payments that violated the protocols of anti-money laundering. The bank has been accused of breaching laws that are aimed at hindering the laundering of criminal money along with financing terrorism. The issue involved suspicious transactions in South East Asia, and it potentially established links with the most heinous crime of child sex abuse (Butler, 2019). According to AUSTRAC, there was a failure on behalf of Westpac to appropriately assess the transactions related to South East Asia and the Philippines, which are supposedly linked to financial indicators of child exploitation. Westpac being the second biggest bank in Australia in terms of assets, market capitalization, and earnings, became liable to pay the heftiest fine in the corporate history of Australia. In addition to that, Westpac is accused of having failed in terms of monitoring and understanding dealings of currency from its financial records to smaller banks that are situated in areas where terrorist organizations are active.

Financial institutions in Australia are required to submit a report to AUSTRAC, and in the case of Westpac, the bank could not provide information about the transfer origin of the funding sources to various other banks who are concerned in the transactions. In addition to that, the bank also did not keep the mandatory records about the whereabouts of the money in certain scenarios. The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 is the federal legislation of Australia that is the relevant corporation law (AUSTRAC, 2019). According to sections 41, 43, or 45, the information given to the AUSTRAC CEO is mandatory for the reporting entity to communicate the information to which Westpac failed (Australian Government, 2019). Section 49A of AML/CTF makes the stipulation in regards to reports by the affiliates of registered allowance. The rules of AML/CTF make stipulation in and for relation to the required reports by this part that needs to be provided by a reporting organization, which is also a registered allowance network that imposes upon the provider. Westpac breached the 51C Reporting Entities Roll, according to which it is mandatory to keep a roll by the CEO of AUSTRAC for the purpose, which is termed as the Reporting Entities Roll.

The factor money laundering is illegal in Australia, and this is an unlawful offense under Part 10.2 of the Criminal Code Act 1995 (Criminal Code) (CDPP, 2015). The CDPP (Commonwealth Director of Public Prosecutions) is the main influence that is accountable for handling offenses related to laundering of money. Westpac has indulged in offences related to money laundering at the Territory and State level that are handled by the relevant authorities. The bank committed an offense of money laundering under the criminal code by dealing with money that has been intended as an instrument of crime. In addition to that, there exists liability of corporate criminal activities in Australia, and the criminal code is applicable to corporate organizations in an equivalent way as it is applicable to individuals. On the other hand, the principles related to the physical element and fault element of the offense are required to be proven in relation to the corporate bodies that are set out in Part 2.5 of the Criminal Code. On August 31, 2020, the final report of ALRC (Australian Law Reform Commission) on CCR (Corporate Criminal Responsibility) was publicly released (ALRC, 2021). In this case of Westpac's money laundering, the maximum penalties that the bank is eligible for depends upon the value of the money that is involved in the offense. It is also to be noted that there is generally no time limit for the aspect of prosecutions of offenses regarding money laundering under Section15B of Crimes Act 1914 (Federal Register of Legislation, 2016).

In Australia, the AML/CTF Act and AML/CTF Rules aim at preventing the financing of terrorist organizations by imposing several obligations to the financial sector of the country. In the mentioned money laundering performed by Westpac, failed to adhere to the obligations that have been established in the country along with failing to comply with the Privacy Act 1988. The main offences related to money laundering are set out in Part 10.2 of the Criminal Code that encompasses a wide range of criminal activities. Section 400.3 to 400.8 of the Criminal Code is based on dealing with property or money that helps in preceding the crime or acts as an instrument of crime (Kingston Lawyers, 2020). In the mentioned case study of Westpac money laundering, section 400.3 to 400.8 is applicable as the bank financed one of the heinous crimes of child abuse or exploitation

Overall, there are various sections and principles under the Australian Corporation Law that have been breached by Westpac, and thus a wide range of provisions will be applicable, such as due diligence, obligations on reporting, obligations to disclosure, etc.

Application of the corporations’ principles and laws to solve the legal issues of the chosen case study
The money laundering case of Westpac can potentially be solved by using several corporations’ principles and laws. In Australia, the main business and corporate fraud regulatory provisions and offenses are established under the Corporations Act 2001 and the Commonwealth Criminal Code (Criminal Code) along with specific criminal laws and specific statutes of the territories and states (Corporations Act, 2017). The ASIC (Australian Securities and Investments Commission) and the AFP (Australian Federal Police) can work closely with the international enforcement agencies in this case to obtain adequate evidence required for solving this case. The existing legal framework in Australia for money laundering is the AML/CTF Act 2006, and this can potentially be helpful to solve the case. Tranche 1 of the AML/CTF Act 2006 states that the FTRA (Financial Transaction Reports Act) 1988 is the established system responsible for monitoring the transactional money flow (Regulations, 2019). There is a requirement for financial institutions to report every transaction involving specific amounts of cash threshold, and this requirement of reporting was introduced during the time when financial and banking transactions were significantly different than those of the interconnected global financial system. Westpac, in this case, failed to show the flow of certain cash transactions, and this is clear of this reporting standard, and thus, charges can be placed against the bank, which will be a major step towards solving the case. The Federal Court should accept the penalty that has been imposed upon Westpac for breaching laws related to anti-money laundering.

The current obligations of the reporting entities under the AML/CTF Act 2006 are based upon several aspects, with the first major aspect being verification and identification (AMLCTF, 2020). It is mandatory for reporting entities to verify and identify the identity of the customer or organization before indulging in financial transactions, along with carrying out due diligence on customers. Westpac did not verify the whereabouts of certain international transactions that have been allegedly linked to child abuse or exploitation in South East Asia. This is a clear breach of the current obligation and thus can be helpful in terms of solving the case—Division 5A of AML.CTF Act's Part 2 authorizes the disclosure and use of certain personal information that is being held by RCB, which is a credit reporting body (Gilbert Tobin, 2020). The legal issues of this case can potentially be solved by the AUSTRAC Privacy Consultative Committee as subsection 212(2) makes it mandatory for the CEO of AUSTRAC to indulge in consultation with the AIC (Australian Information Commissioner) in terms of performing their functions. Part 4 of the AML/CTF Act 2006 is based on reports about movements of currency across borders along with bearing instruments of negotiation. Westpac breached this section based on not reporting the movements of cross–border currency to the CEO of AUSTRAC. It is evident that the legal issues can be solved based on filing charges of AML/CTF Act 2006 and Corporations Act 2001.

It has become important for Westpac and AUSTRAC to solve the legal issues, and thus the best viable solution is for Westpac to pay the penalty imposed upon them that can set an example of the seriousness of the offense related to anti-money laundering. Thus, paying a civil penalty of a massive amount will help in solving the legal issues that are surrounded in this case. There can also be clear charges against Westpac for failing to carry out relevant due diligence on its customers who sent money to South East Asia and the Philippines for child exploitation. It has become extremely important to solve the legal issues surrounding Westpac’s anti-money laundering by making a concise statement of the claims that can effectively outline the magnitude of the maximum fine that can be imposed upon Westpac for the heinous crime. The bank has allegedly contravened the AML/CTF Act 2006 on several occasions where each contravention can attract a civil penalty that ranges between $21 million and $17 million (AICD, 2019). These breaches can potentially work as extremely strong evidence against Westpac, which will ultimately help in solving the legal issues associated with this case of anti-money laundering. In addition to that, there is also evidence that suggests that Westpac has implemented relevant scenarios that get automatically detected in terms of criminal activities. Therefore, the best possible solution for Westpac will be to cooperate with the investigation of AUSTRAC so that the reputation of the bank can be saved by a massive extent as the investigation can identify the potential defaulter and the proceedings based on the Corporations Act 2001 and AML/CTF 2006 can bring justice to such a heinous crime committed by the bank. Overall, the various sections of the Australian Federal legislation can play a decisive role in terms of solving the legal issues with this case.

Conclusion
In the end, it can be concluded that anti-money laundering is a major crime that is related to some of the most heinous activities. In Australia, there are various laws and principles that are intended to mitigate the issues related to anti-money laundering, but despite all the measures, a major bank like Westpac has successfully indulged in such crime. Thus, it raises several questions about the efficiency of the Australian legal system to counter such major crimes. However, AUSTRAC has been successful enough to file adequate charges against Westpac for its anti-money laundering crime based on the breach of Corporations Act 2001 and AML/CTF Act 2006, and this can potentially make a difference in the perception of financial sectors in terms of indulging in criminal or fraudulent activities. After analyzing the case study of Westpac, it is evident that the bank has failed to disclose records of certain massive international transactions, which have been linked to child abuse or exploitation in South East Asia and the Philippines. Overall, it can be stated that despite Australia with the international obligations in terms of protocols of anti-money laundering, there are still several areas to be performed better.

References
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ALRC (2021). LAW REFORM INQUIRIES IN 2019-20. [online] Transparency Portal. Available at: https://www.transparency.gov.au/annual-reports/australian-law-reform-commission/reporting-year/2020-21-34 [Accessed 16 Jul. 2021].

AMLCTF (2020). AML/CTF programs overview | AUSTRAC. [online] www.austrac.gov.au. Available at: https://www.austrac.gov.au/business/how-comply-guidance-and-resources/amlctf-programs/amlctf-programs-overview [Accessed 16 Jul. 2021].

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Australian Government (2019). Exemptions from AML/CTF obligations | AUSTRAC. [online] www.austrac.gov.au. Available at: https://www.austrac.gov.au/business/how-comply-and-report-guidance-and-resources/exemptions-and-modifications/exemptions-amlctf-obligations [Accessed 16 Jul. 2021].

Butler, B. (2019). Legal breaches allowed Westpac customers to pay for child sexual abuse undetected, Austrac alleges. The Guardian. [online] 21 Nov. Available at: https://www.theguardian.com/australia-news/2019/nov/21/legal-breaches-allowed-westpac-customers-to-pay-for-child-sex-undetected-austrac-alleges [Accessed 16 Jul. 2021].

CDPP (2015). Money Laundering. [online] www.cdpp.gov.au. Available at: https://www.cdpp.gov.au/crimes-we-prosecute/money-laundering [Accessed 16 Jul. 2021].

Corporations Act (2017). Corporations Act 2001. [online] Legislation.gov.au. Available at: https://www.legislation.gov.au/Details/C2018C00031 [Accessed 16 Jul. 2021].

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