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Westpac share price: Implications of the $1.3 billion AUSTRAC fine

Westpac today revealed it had agree to a $1.3 billion penalty with AUSTRAC. We examine some of the implications below.

Westpac share price tumbles on AUSTRAC penalty update

In what is set to represent the largest fine in Australia’s corporate history, Westpac Banking Corporation (WBC) today announced that it had reached an agreement with AUSTRAC to pay a $1.3 billion penalty related to breaches of the AML/CTF act.

Westpac's CEO took today's announcement as a chance to apologise for the failings of the bank, saying:

'We are committed to fixing the issues to ensure that these mistakes do not happen again. This has been my number one priority.’

Unsurprisingly, investors bid the stock down in response – with WBC dropping close to 2% in the first hour of trade. Though Westpac posted more pronounced losses than the likes of CBA and NAB – all of the big four banks traded lower during the early parts of today’s session. This came as the broader market tumbled, with the ASX 200 dropping 93 points by 10:15, following a weak showing from Wall Street overnight.

Though the AUSTRAC fine had already likely been priced into the stock to some degree – with Westpac previously making a $900 million provision related to the AUSTRAC proceedings – today’s penalty came ahead of the bank’s previous provisioning.

As a result, WBC said it would raise its AUSTRAC-related provision by $404 million – accounting for the updated penalty as well as the associated legal costs.

Under today’s agreement, Westpac conceded that the bank had breached the Anti-Money Laundering and Counter-Terrorism Financing Act on a staggering 23 million occasions, as well as conceding to an additional 76,000 contraventions of the act, brought forward by AUSTRAC after the initial statement of claims was released in 2019.

The next stage of the process, noted WBC, would involve the submission of a Statement of Agreed Facts and Admissions to the Federal Court. For reference, the Federal Court is still required to approve the proposed $1.3 billion penalty.

Commenting on today's announcement, AUSTRAC's Chief Executive Officer, Nicole Rose PSM, said:

‘We have been, and will continue to work collaboratively with Westpac and all businesses we regulate to support them to meet their compliance and reporting obligations to ensure this doesn’t happen again in the future.’

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Other implications in focus

Looking forward, Westpac said it was working diligently to bolster its financial crime capabilities, hiring some 200 financial crime personnel as a means of improving these capacities.

'As part of this process we are improving our end-to-end financial crime risk management processes and have established clearer accountabilities for AML/CTF compliance.'

'We have also undertaken a reassessment of our culture, governance and accountability and are embarking on a comprehensive, multi-year program to strengthen how we manage non-financial risk across the Group,’ it was also noted.

YTD the Westpac share price has fallen ~32%.

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