Record corporate fines don’t deter: here’s a ‘frank’ fix to make penalties bite

All things considered, Westpac’s record A$1.3 billion fine for breaching anti-money-laundering laws could have been worse.

Each of the alleged 23 million breaches of the Anti-Money Laundering and Counter-Terrorism Act between 2010 and 2018 carried a penalty of up to A$63,000. So the fine might have been more than A$1 trillion.

The A$1.3 billion equates to three months’ earnings for Westpac. It is A$400 million more than the A$900 million the bank set aside in its half-year results (in April). But that didn’t bother the market.

Westpac’s share price ended the week 7% higher.

As Nathan Zaia, an analyst with investment research company Morningstar, explained: “It’s huge. It’s the largest fine in history. It’s an eye-watering number. But it’s already pretty much been expected by the market.”

With Westpac’s annual profit exceeding A$6 billion, and its market capitalisation more than A$60 billion, Zaia said a few hundred million dollars more didn’t “really have much of an impact with the valuation we put on the bank”.

If the biggest fine in Australian corporate history doesn’t make a difference to a company’s share price, it’s hard to see how that fine serves as a deterrent. It is the job of the board and senior management to serve the interests of shareholders. What doesn’t matter to investors won’t matter much to the board either.

There could be a way, though, to use the tax system to give corporate fines more bite, by making shareholders feel more of the pain.

 

 

Source: Record corporate fines don’t deter: here’s a ‘frank’ fix to make penalties bite