By Syndication Washington Post,Bloomberg · Peter Vercoe
Chairman Lindsay Maxsted said the board was "truly sorry," two days after the lender was sued by Australia's financial crimes agency for 23 million breaches of the laws, one of the worst cases brought globally in recent years. The agency has said the systemic breaches were the result of "indifference by senior management and inadequate oversight by the board."
Westpac has since come under fire from politicians, pension funds and shareholder groups. Australia's second-largest lender responded on Friday by instituting an independent inquiry and implicitly backing Hartzer, 52, who has pledged to lead the response.
"The notion that any child has been hurt as a result of any failings by Westpac is deeply distressing," Chairman Lindsay Maxsted said in a statement after the board met Friday. He endorsed Hartzer's decision, saying the "board, CEO and management team are fully committed to fixing these issues."
Westpac said it will appoint independent experts to review efforts to improve compliance with anti-money laundering and counter-terrorism financing laws. It has also started talks with community groups about taking further steps to fight child exploitation.
The suit against Westpac alleges that between November 2013 and June 2019, the lender failed to report more than A$11 billion ($7.5 billion) in international transfers.
Among the most serious allegations, the Australian Transaction Reports and Analysis Centre said Westpac failed to carry out appropriate due diligence on 12 customers whose accounts showed repeated low-value transactions to countries in Southeast Asia including the Philippines, even though it knew these patterns were indicative of child exploitation risks.
In one case, a customer in October and November 2014 transferred money to a person in the Philippines who was later arrested for child trafficking and exploitation involving the live streaming of child sex and offering minors for sex.
The "allegations clearly indicate there may have been a lack of attention to" human-rights issues "within the corporate culture of Westpac," Ethical Partners Funds Management CEO Matt Nacard and Chief Investment Officer Nathan Parkin said in a statement. The fund has sold some of its Westpac shares since the allegations were aired, they said.
While Hartzer appears safe for now, other local bank CEOs have been brought down by scandals in the past two years after initially vowing to stay on.
In August 2017, Ian Narev resigned as Commonwealth Bank of Australia CEO less than two weeks after the lender was sued for more than 53,000 breaches of money-laundering rules. That case was eventually settled with the bank paying a record A$700 million fine.
In February this year, National Australia Bank CEO Andrew Thorburn and Chairman Ken Henry quit after being the target of withering criticism in a report into financial industry misconduct, which questioned whether they were capable of leading the lender's response to a string of scandals, including charging customers for services they never received.
Westpac shares fell for a third day in Sydney, extending a slide that has wiped A$6.4 billion ($4.3 billion) off the bank's market value. The stock closed at A$24.77, the lowest in almost 10 months. Shares of the other big banks also fell this week, dragging the benchmark index to its worst decline in seven weeks.
Banks around the world have been caught in a series of high-profile laundering scandals. Danske Bank is the target of criminal probes in Denmark, Estonia and France after claims it was involved in a scheme to funnel dirty money from Russia and other former Soviet states to the West. HSBC Holdings was fined $1.9 billion by the U.S. Justice Department and bank regulators in 2012 for failing to do enough to monitor money laundering in its global operations.