Westpac bank severs ties to Nauru Government over money laundering concerns

Updated

One of Australia's biggest banks has told the Nauru Government it will no longer do business with it or any of its entities.

Key points: Westpac bank informs Nauru Government it will cease operations in the Pacific nation

Customers in Nauru told their accounts will be closed by April 30

Development comes days after Nauru gains entry into IMF, World Bank

The Westpac bank has also told its Australian customers who do business with the Nauru Government that they will have to close their accounts by the end of the month.

Sorry, this audio has expired Audio: Westpac Bank to close all accounts transacting with Nauru government (Pacific Beat)

Early last month Westpac sent letters to customers who conduct business with the Nauru Government.

The customers were informed they would have to close their accounts by April 30 as the bank was no longer doing business with the Government or any of its entities.

A source who has seen the letter, and who wants to remain anonymous, said Westpac acted after concerns were raised by the bank's anti-money laundering and counter-terrorism financing experts.

The ABC understands the bank wrote to the Nauru Government informing it of its intentions.

A Westpac spokeswoman did not deny the bank's decision to severe ties with the Nauru Government but declined to comment citing privacy concerns.

Westpac's move will only affect Nauru Government accounts and a handful of business entities.

The decision will not effect regular customers who make banking transactions to Nauru.

The Nauru Government dismissed the reports of Westpac's withdrawal as "misleading", "politically motivated" and "fabricated".

In a statement released on Thursday night the Government said Westpac's departure was part of the bank's withdrawal of services from small Pacific countries in recent years.

The Government said it had strengthened its relationship with Bendigo Bank, which it described as its "chief financial partner" after the bank established a local agency on the island last year.

"Bendigo Bank has become pivotal in the lives of all Nauruans who can now enjoy the services of a banking institution for the first time in more than a decade," the statement said.

Former Nauru president, opposition MP Marcus Stephen expressed shock at the move by Westpac bank.

"We have been with Westpac since day one when we were under Australian administration," he said.

Mr Stephen called on the Government to tell people what was going on.

"It's really disappointing to hear that this has happened," he said.

"I think the Government has a lot of explaining to do not only to the Parliament but to the people and explain why this has happened."

Westpac sensing 'something pretty wrong', says expert

Money laundering and tax evasion expert from Griffith University, Professor Jason Sharman said Westpac's move was believed to be the first time that an Australian bank had taken such strong action.

"Nauru was on an international money laundering blacklist in 2001/2002 and even then the action wasn't as strong," he said.

"I think the immediate question will be, what does Westpac know that we don't and Australian banks tend to be a risk-averse bunch." Professor Jason Sharman from Griffith University

"It must be a sign that Westpac feels that there's something pretty wrong going on in Nauru."

Professor Sharman said while Westpac's move was directed at the current government, Nauru had a long history of questionable financial dealings.

"Nauru really got itself into trouble setting up somewhere between 200 and 400 shell banks around about 15 years ago and some of them were implicated in a very big scandal to do with the Bank of New York," Professor Sharman said.

"As a result Nauru was really stigmatised and subject to international sanctions at that time.

"I think the immediate question will be, what does Westpac know that we don't and Australian banks tend to be a risk-averse bunch.

"So particularly when you have one bank pulling out because of the provisions of Australian anti-money laundering law it immediately creates pressure on other banks and financial institutions to start asking hard questions about their links or even just pre-emptively severing them in what's been called de-risking."

Nauru gains entry to IMF, World Bank

News of Westpac's move came only a few days after Nauru became a member of the International Monetary Fund and World Bank.

Nauru Finance Minister David Adeang was in Washington this week to sign the admission documents and posed for a photo with the IMF's managing director, Christine Lagarde.

In a statement, President Baron Waqa trumpeted his country's entry into the two organisations.

"This shows just how far my administration has come in showing the world that we are now a fiscally mature and responsible economy, free of the burdens of past governments," Mr Waqa said.

The Bendigo Bank is the only Australian bank with a physical presence in Nauru.

It has declined to comment on Westpac's move.

In a statement, Bendigo Bank said it was monitoring strategies in place to prevent, detect and react to suspicious activity.

Powered byScreendoor.

Topics: banking, fraud-and-corporate-crime, australia, nauru, pacific

First posted