BPI faces probe over Australia’s money laundering scandal

Pinoy Money Talk

The Bank of the Philippine Islands (BPI) is dealing with another problem, this time, due to possible ties to Australia’s recent massive money laundering and child exploitation scandal.

The bank will be investigated, together with nine other local banks, by the Bangko Sentral ng Pilipinas due to money transfer transactions in and out of Australia that supposedly involve payments for child exploitation.

BPI is a major player in the BSP probe because it is a remittance partner of Australia’s second-largest bank, Westpac, which was discovered to have facilitated the payments, in violation of several Australian laws against money laundering and the commerce of child sex abuse.

Westpac and BPI partnered in 2016 to offer LitePay, a remittance service primarily targeting Filipinos based in Australia who send money to recipients in the Philippines. The service allowed users to transfer money easily from a Westpac account in Australia to a BPI account in the Philippines. The service, however, was alleged to have been used as a platform to conduct money laundering activities.

The Bangko Sentral ng Pilipinas is launching an investigation to determine possible involvement of BPI and other Philippine banks in a massive money laundering scandal that happened in Australia. (Image source: Business World)

The Australian Transaction Reports and Analysis Centre (AUSTRAC), equivalent to the Philippines’ Anti-Money Laundering Council (AMLC), alleged that Westpac committed anti-money laundering breaches at least 23 million times. These specific violations include:

1. Failure of Westpac to “appropriately assess transactions to the Philippines and South East Asia that have known financial indicators relating to potential child exploitation risks”; and

2. Failure to “understand and monitor transactions of money from its accounts to small intermediary banks located in countries where terrorist organisation are known to operate.”

Banks are required to comply with a strict “Know Your Customer” policy, which entails collecting information about customers and evaluating their bank and financial transactions, before providing a service such as international money transfer. Westpac is alleged to have been lax regarding this, allowing their customers to make small payments to recipients in the Philippines and other Southeast Asian countries supposedly for child sex abuse and solicitation.

Banks are also expected to support the government’s initiative in fighting money laundering and terrorism financing but Westpac has been accused by AUSTRAC to have fallen short in adequately investing in technology and implementing control measures that will monitor and report potential terrorist financing transactions.

If found guilty, Westpac could be meted a penalty of monetary fine reaching $1 trillion Australian dollars.

BPI, for its part, announced that it has already started its own investigation regarding the suspicious transactions. It has also terminated the use of the LitePay remittance facility and vowed to cooperate with the BSP in compliance with anti-money laundering regulations.

The Australian money laundering scandal is another blow to BPI that is still reeling from the so-called “water woes” brought about by the Philippine government’s threat to terminate the concession agreement with water service providers Maynilad and Manila Water Co. (MWC).

BPI issued billions of pesos worth of loans to these two companies, and a termination of the concession contracts could possibly lead to loan default which could have adverse impact on BPI’s financials.

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Pinoy Money Talk is an educational website about money, banking, investments, and personal finance which started in 2005. Its group of five writers consists of one equity research analyst, one fintech startup owner, one finance educator, and two investment professionals.