Westpac has been served with a class action lawsuit alleging it deceived investors by failing to disclose the extent of AUSTRAC‘s risk management concerns, as documents reveal the bank made just under $2 million profit from the 23 million unreported transactions.
Plaintiff law firm Phi Finney McDonald has filed a suit in the Federal Court of Australia seeking damages on behalf of institutional and retail investors who bought shares in Westpac between December 16, 2013, and November 19, 2019.
“Phi Finney McDonald has been approached by institutional investors from across the world who are outraged by Westpac‘s alleged conduct,” said the law firm’s director, Tim Finney.
“The governance issues raised in this case are extremely serious, and the losses caused to our clients are substantial.”
The firm has separate shareholder actions under way against the Commonwealth Bank and AMP, partly over misconduct uncovered by the Hayne royal commission.
This is the first shareholder class action filed against Westpac since AUSTRAC in November released its allegations of 23 million breaches of anti-money laundering and counter-terrorism financing (AML-CTF) laws.
The Phi Finney McDonald suit will rest on whether Westpac breached its continuous disclosure obligations and engaged in misleading and deceptive conduct by failing to properly inform prospective investors.
It alleges that the bank failed to adequately assess the AML-CTF risks associated with its international transfer platforms, to undertake appropriate due diligence on customers linked to child exploitation and to report matters in a timely fashion to regulators.
The action is being bankrolled by London-headquartered Woodsford Litigation Funding.
“I am confident that the funding package proposed will maximise net returns for investors seeking redress against Westpac, and we look forward to helping those investors obtain the compensation they are due,” said Woodsford chief investment officer Charlie Morris.
The lawsuit comes as correspondence from Westpac to the federal Parliament, seen by the The Australian Financial Review, revealed the bank made a net profit of almost $2 million from the transactions at the heart of AUSTRAC‘s statement of claim.
“Westpac estimates that it made a net profit of $1,874,166 from the transactions that are the subject of these allegations over the relevant period, November 2013 to November 2018,” said the bank’s response to an official question on notice from Labor MP Andrew Leigh.
“The majority of these transactions were inbound recurring payments from corporates and government pension funds to people living in Australia, made through our Australasian cash management product.”
Dr Leigh is calling for Westpac‘s leadership to be hauled up before a parliamentary committee for questioning over the AUSTRAC matter, but Liberal MP Tim Wilson said this would result in a “show trial” that could adversely affect legal proceedings.
The bank confirmed to the Australian Securities Exchange on Wednesday that a class action had been filed against it, and said it intends to fight the allegations.
“The claim relates to market disclosure issues connected to Westpac‘s monitoring of financial crime over the relevant period and matters which are the subject of the recent AUSTRAC proceeding,” said the statement to the ASX. “Westpac will be defending the claims.”
The decision to defend the action comes in stark contrast to its approach to the central litigation proceedings with AUSTRAC, which is under way in the Federal Court.
Westpac‘s lawyers told the court their client does not intend to challenge the bulk of the charges laid against it.
Mr Finney declined to name a total amount of damages sought by the action, explaining it would depend on the transaction histories of the specific investors who join the action.
Law firm Maurice Blackburn and litigation funder IMF Bentham have previously indicated they were watching the Westpac–AUSTRAC matter closely, after institutional investors voiced anger over a perceived lack of disclosure by the bank before its successful $2.77 billion capital raise.