Just when you thought the banks world of pain was over…think again.
Westpac Banking Corp [ASX:WBC] has confirmed this morning that it is being pursued by AUSTRAC. The money laundering regulator is suing the bank for some 23 million breaches.
As you’d expect, that hasn’t gone down well with the market. The Westpac share price has slumped 2.3% in early trading following the news.
The question remains though: Will there be more pain to come?
Bad money, bad deeds
Important to note is the fact that these breaches have been public for a while. Westpac admitted to these failures in their recent annual report.
However, AUSTRAC’s decision to pursue for a ‘civil penalty’ or fine — is new. And the details are ugly. Particularly the fact that Westpac may have had a hand in aiding child exploitation.
Even if they weren’t aware of such a fact, if true, it will be extremely disappointing. As AUSTRAC state:
‘These AML/CTF laws are in place to protect Australia’s financial system, businesses and the community from criminal exploitation. Serious and systemic non-compliance leaves our financial system open to being exploited by criminals’.
These are serious charges for serious misconduct. If found guilty, then this suit could end up costing Westpac dearly. We’ve already seen a precedent set this year.
In June, AUSTRAC and CBA settled a similar case. The bank agreed to pay a $700 million fine for its failure to stop 53,750 breaches.
A result that was punctuated with this statement from AUSTRAC’s CEO, Nicole Rose:
‘…this outcome sends a strong message to industry that serious non-compliance with the AML/CTF Act will not be tolerated.’
We wonder what kind of ‘strong message’ Rose will be aiming to deliver to Westpac.
Bottom line beat down
Whatever comes of this case, Westpac will face an uphill battle. The whole banking sector was already under pressure, and this will add more.
Guilty or not, we can already see the market reaction. Traders are wary of the impact this will have on Westpac’s bottom line.
We’re not at all surprised, though.
This is yet another factor contributing to the squeeze on banking dividends.
Once a staple for any yield-hungry investors, these ailing businesses aren’t what they used to be. That’s why we think savvy investors should steer clear. You can learn all about it in our urgent warning, right here.
For now, we’ll be keeping our eye out for ongoing developments. The ramifications for this case could be huge.
For Money Morning