How Anti-money Laundering Successes Obscure ‘Almost Complete’ Failure

Enforcement crackdown hides uncomfortable realities

Next month, Westpac’s new chairman faces Australia’s “biggest breach of anti-money laundering laws”, but there’s more at stake — in every country affected by such laws — than most reports suggest. A vigorous regulator is tipped to beat its record-breaking penalty against another major bank, amidst “significant” claims against a third. On the other hand, growing enforcement successes obscure uncomfortable realities about the impact on crime.

Breathless reporting obscures sad reality

In November, Westpac, Australia’s oldest bank, was charged with 23 million breaches of anti-money laundering laws, including allegedly overlooking payments potentially indicative of sex exploitation overseas.

Most reporting is scrupulously accurate, yet misleading. Missing from most of the thousands of published reports is a broader perspective.

Curated to highlight its most salacious claims, the regulator’s announcement unsurprisingly generated excited commentary calling the “bombshell revelations” “deeply troubling”, “incredibly concerning” and “about as serious as it gets”. Penalty predictions of $1 billion or more ease the regulator’s burden. Bloodied corporates often settle, to stem the damage. AUSTRAC, Australia’s anti-money laundering regulator, might get to claim another “success” without proving its case (or explaining how it overlooked a glaring gap in the number of reports it should have received).

Westpac’s initial response suspended managers’ bonuses, boosted compliance funding by $80 million, and pledged tens of millions of dollars to schemes combatting child exploitation. Soon after, the bank’s chief executive resigned, its chairman announced early retirement, and Westpac entered crisis talks with investors amidst fresh regulatory investigations and a “precipitous slide” in its share price. The bank risked losing major government contracts, was hit with a $500 million capital charge and class actions, and saw $4 billion wiped from its market value.

The pressure on Westpac continues. Two weeks ago, a Victorian man “suspected of using [Westpac’s] transfer system” was arrested for…