In comments to The Australian, Porter accused Westpac of conducting a PR campaign while the dispute was in mediation.
But the real substance of Porter’s attack centred on comments McFarlane made to The Australian Financial Review in June.
In that interview, the Westpac chairman acknowledged that it was appropriate the bank pay a “material” penalty given the seriousness of the charges.
But, he added: “The penalty needs to be based on the facts as to what has actually gone wrong. We are pretty much experts in that at this point in time. We have all the facts.”
McFarlane’s comments clearly incensed Porter. “Any assertion that only Westpac has all the facts relating to this matter demonstrates the sort of arrogance and lack of understanding that led to the alleged breaches arising in the first place,” he told The Australian.
The problem for Westpac, and McFarlane, is that most of the country’s top bankers privately concede that Porter is correct in criticising the bank’s position.
They point out that while Westpac can now point to the faulty reporting systems that led to 23 million breaches of anti-money laundering and counter-terrorism financing laws, it’s simply impossible for the bank to know the repercussions of its failure to report these breaches.
“It is so hard to know with millions of transactions,” noted one. “How can anyone know what happened to every payment and what the ramifications of all these payments were?
“Who can know what may have been averted if there had been proper reporting, what actions the authorities might have taken?”
Other bankers pointed out that keeping close tabs on suspicious monetary transactions was key to identifying criminal activity such as drug dealing, the financing of terrorism or child exploitation.
“Everyone in banking understands that banks have a major responsibility to act in compliance with these laws in order to make it more difficult for the perpetrators to commit these crimes, which carry with them a very large social cost,” one said.
Other senior bankers point out that a major bank’s failure to report dubious transactions made it much more difficult for AUSTRAC to uncover, investigate and deter serious criminal activity.
“AUSTRAC’s focus is not only on the particular transactions but, far more importantly, on the potentially illegal and socially dangerous enterprises that the perpetrators are involved in,” one banker said.
“So it’s not about this payment or that payment, but about the pattern of activity. To say that you think you know where each questionable payment went and you think you can identify what harm it did, is missing the point.
“It’s not about stopping individual illegal acts. It’s about identifying patterns of illegal enterprises and taking action against those involved in those illegal enterprises.”
Westpac’s failure to report suspicious transactions meant that widespread criminal activity has potentially gone undetected.
“The individual transactions may be just the tip of the ice berg,” one banker said.
“Westpac may be able to say that there were a certain number of children exploited by payments that it identified. But these children may just be a fraction of a much larger number of children that were being exploited in other ways.
“But now the trail has gone cold. No one will ever know what harm has occurred which could have been been avoided had these transactions been reported in a timely and appropriate manner.
“Because drug traffickers, arms dealers, paedophiles – these people don’t publish annual reports. There’s a real risk that the questionable transactions that have now been identified are only a very small part of the total.”
The lack of support for Westpac in its battle with AUSTRAC contrasts sharply with the praise showered on the bank in the banking community for taking a stand against the corporate regulator in the landmark “wagyu and shiraz” legal case.
But bankers point out that the wagyu and shiraz battle was a dispute over responsible lending, and in particular about the best way to approach lending, rather than being a moral issue.
What’s more, Westpac could argue that it had a genuine and reasonable belief that it was doing the right thing.
In contrast, in the AUSTRAC case, it’s clear to the banking community that Westpac has done the wrong thing.
“It’s clear that at some level in the organisation, people knew that the bank wasn’t in compliance with anti-money laundering legislation, and they must also have realised that the harm that was caused by the bank’s non-compliance was at best unknown,” noted one banker.
This makes it extremely difficult to gauge the appropriate penalty the bank should face.
One leading banker noted that because the social harm caused by Westpac’s failure to observe proper money-laundering reporting standards was incalculable, there would inevitably be a degree of arbitrariness in estimating the penalty.
What’s more, he added, there was a case for making it difficult for banks to calculate in advance the likely size of the penalties they will face for failing to comply with their legal obligations.
“That makes it impossible for large organisations to make a business judgment about whether they can afford to live with the consequences if they decide not to observe the rules,” the banker said.