Fitch Ratings: AUSTRAC's Proceedings Against Westpac Have No Immediate Rating Impact

(The following statement was released by the rating agency) Fitch Ratings-Sydney-November 20: The proceedings brought by the Australian Transaction Reports and Analysis Centre (AUSTRAC) against Westpac Banking Corporation (WBC: AA-/Negative/aa-) for systemic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act is credit negative, but will not have an immediate impact on Westpac's ratings, Fitch Ratings says. Fitch believes the allegations reflect a wider range of weaknesses in internal controls and reporting systems, which we have already factored into Westpac's Negative Outlook. On 20 November 2019, AUSTRAC applied to the Federal Court of Australia for civil penalty orders against Westpac. AUSTRAC's allegations include that Westpac's oversight of banking services provided through its correspondent banking relations was deficient in allowing correspondent banks to access the Australian Payment System without conducting appropriate due diligence, and that the bank failed to report over 19.5 million International Funds Transfer Instructions (IFTIs) to AUSTRAC. The potential costs from fines or settlement have yet to be determined. Fitch believes the alleged failures reflect broader weaknesses in Westpac's current systems and controls, which the authorities have claimed is not unique among Australia's four major banks - whose Long-Term IDRs are all on Negative Outlook. Westpac is addressing the weaknesses. The AUSTRAC proceedings are likely to increase costs for Westpac and take up management's time in the short term, but we believe the immediate impact for Westpac will be manageable. Likewise, we expect any fine or settlement to be manageable if it is one-off in nature. By way of comparison, Commonwealth Bank of Australia (AA-/Negative/aa-) agreed to a AUD700 million after-tax settlement with AUSTRAC in 2018 following proceedings related to the anti-money laundering and counter-terrorism financing law. Given the alleged failures at Westpac include cross-border payments, there is potential for further investigations by foreign regulators into Westpac's compliance of anti-money laundering and counter-terrorism financing regulations. Fitch will continue to assess any developments and information as they arise - including should foreign regulators take action and compound the issue for Westpac - to determine the impact on the bank's credit profile. 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