Case Study

Westpac CEO Pushed Out amidst Child Exploitation Scandal

Westpac Chief Executive Officer, Brian Hartzer has become the first casualty of the money laundering and child exploitation scandal that has engulfed the major bank. He has been pushed out as Westpac, a major lender, battles an investigation by Australia’s financial intelligence agency over a money laundering and child exploitation scandal.

The bank’s leader stepped down on December 2, 2019 with a hefty golden handshake of 12 months’ pay, which amounts to $2.7 million. Westpac Chairman, Lindsay Maxsted said that the board had accepted the “gravity” of the issues raised by AUSTRAC.

“As was appropriate, we sought feedback from all our stakeholders including shareholders and having done so, it became clear that board and management changes were in the best interest of the bank,” he said in a statement released to the Australian Securities Exchange.

Mr Hartzer said that he was ultimately accountable for everything that happens at the bank. “It is clear that we have fallen well short of what the community expects of us, and we expect of ourselves,” he said in a statement issued by Westpac.

It comes after a report in The Australian revealed Mr Hartzer attempted to lobby support from Westpac’s senior leaders by saying the scandal was not playing out as a high street issue. He added that reading the newspapers like the Fin (The Australian Financial Review) and The Australian, makes everyone believe that the world is ending, but people in mainstream Australia go about their daily lives, “this is not a major issue, so we don’t need to overcook this.’’

Mr Maxsted will also bring forward his retirement to early 2020, while Director Ewen Crouch — who was in charge of risk and compliance — did not stand for re-election at the Westpac Annual General Meeting on December 12, 2019.

AUSTRAC Chief Executive, Nicole Rose told reporters that the major lender failed to report more than $19.5 million international funds transfers over five years. The transfers amounted to $11 billion, which resulted in a “significant loss of intelligence” for the financial crimes agency. “Westpac failed to pass on information about the origin of international funds transfers and keep records as required,” she said.

The most staggering indictment in AUSTRAC’s bid to investigate Westpac was less than $500,000 that a dozen of its customers allegedly paid to the Philippines and South East Asia. The agency explained these types of payments are consistent with transfers made to those who are involved with child exploitation.

“Westpac failed to introduce appropriate detection scenarios to detect known child exploitation typologies, consistent with AUSTRAC guidance and their own risk assessments,” Ms Rose said.

Existing Chief Financial Officer, Peter King served as Acting Chief executive from December 2 until a new boss was to be appointed. Mr Maxsted said that the interim chief had been tasked with implementing the Westpac Response Plan in the face of the child exploitation scandal.

Talking about Peter King, Mr Maxsted stated that he had a long and distinguished career at Westpac and had been the CFO since 2014and was the right choice to provide stability and direction to the bank and its people. He added “Peter is an executive of exceptional integrity who is deeply respected by the market and the entire Westpac team.”

Facilitating ‘Horrendous Types’ of Crimes

Attorney-General Christian Porter said that the enormous number of alleged money laundering breaches by Westpac had the potential to facilitate the most horrendous crimes.

“Anyone who breaches money laundering laws and therefore allows money to be laundered, has — just as a matter of fact and common sense — contributed to the facilitating of international and domestic crimes of a variety of types,” he explained.

“The reason people launder money is to hide the profits of crime and criminality, and to fund further crime and criminality, which is why we have such strong laws, such strong penalties and why the government takes such an incredibly robust approach to money laundering.”

Investment bank Citi noted in a report aimed at predicting the ensuing bloodbath at Westpac how similar scandals had resulted in mass changes to executive teams. NAB’s Chief Executive and Chairman followed most of its management team out the door after a foreign exchange trading furore in 2004 cost the bank $360 million. CBA chief executive Ian Narev stepped down amid significant management and board changes at the major lender after its AUSTRAC settlement related to anti-money laundering and terror-financing charges.

The microscope had been fixed on Mr Hartzer who admitted that the issue of personal accountability is absolutely necessary, and he would personally lead Westpac’s response to all the issues highlighted.

He stated, “With respect to the specific customer matters that are in the detailed statement of claim, it’s the first time that I saw them was this morning.” “I was … utterly horrified at what I read, and am absolutely determined to get to the bottom of why on earth this was allowed to persist.”

Later, Mr Maxsted said the board was devastated by the issues raised by AUSTRAC. He added, “The notion that any child has been hurt as a result of any failings by Westpac is deeply distressing and we are truly sorry, the board unreservedly apologises.”

He assured that Westpac had already made significant improvements, including reviewing and taking action on all of the individual customers mentioned by AUSTRAC and establishing a multi-layered review. They also commenced discussions with relevant community groups about any further steps they could take to fight child exploitation.

Case Study Guidelines

Please use the information provided below to help guide your approach to AT1. You may post any questions you have regarding this assessment into the ‘Ask the Class’ discussion board.

Assignment Details:

1. This assignment is due at the end of

Week 5, on Monday, March 22, 2021, at 11:30 pm
.

2. An assignment folder has been set up in the Assessments section in MyLO which is where you will need to upload your assignment.

3. The expected word count is

2000 words

with a leeway of +/- 10%.

4.
References
are
not included
in the word limit.

5. It is expected that your report will incorporate references at least

fifteen (15)

sources of academic literature.

Assignment Objectives:

1. The objective of AT1 is for you to critically analyse the case study provided from the perspective of management ethics.

2. You are required to:

a. identify

key ethical issues

in the case studies using

ethical theories

and knowledge that you have gained during the first few weeks of this unit.

b. Use

ethical theories

propose and justify strategies and recommendations to address the ethical problems you have identified.

c. Apply a
cademic language

to write your paper.

Assessment Rubric

1. An assessment rubric will be used to determine the outcomes of your case analysis.

2. Please ensure that you

review the rubric

prior to submitting your assignment.

Referencing

The principles of academic integrity are highly valued at the University of Tasmania.You are expected to maintain academic integrity by correctly referencing other scholars’ work and not copying others work without attribution. If in any doubt, we recommend that you make yourselves aware of the following resources:

1. https://www.utas.edu.au/__data/assets/pdf_file/0009/917874/Student-Guide-to-Academic-Integrity.pdf

2. https://utas.libguides.com/ld.php?content_id=21757934

3. https://www.utas.edu.au/turnitin