Westpac Bank Scandal: Ethical Analysis and Recommendations Report

This report analyzes the ethical failings of Westpac Bank, focusing on its involvement in money laundering and child exploitation. The report identifies key ethical issues, including breaches of anti-money laundering laws and failures in internal controls. It applies ethical theories such as deontology, utilitarianism, and virtue ethics to evaluate the bank's actions. The analysis reveals unethical behavior and a disregard for stakeholder interests. The report recommends improvements, including the development of ethical standards based on virtue ethics, incorporating stakeholder theory into decision-making models, establishing a robust ethical decision-making process, and implementing an effective internal control system. The conclusion emphasizes the need for Westpac to prioritize ethics alongside profit generation to improve its reputation and ensure responsible business practices.

BMA735
Management
Ethics
Running Head: Management and Ethics
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Management and Ethics 1
Contents
Overview..........................................................................................................................................2
Key issues and ethical theories........................................................................................................2
Recommendations............................................................................................................................6
References........................................................................................................................................8

Management and Ethics 2
Overview
Ethics are an integral part of each business that shows the pathway to do the correct things.
Business ethics is a form of applied ethics that teach the manager of business the ways to induce
ethics in actions as it outlined some ethical principles (Collste, 2012). In recent times, hundred of
scandals have been reported in media where either business owners or managers have forgotten
about ethics and concentered on other aspects where businesses have to pay a huge cost as a
result of these actions. This report is developed on one of such scandal that was committed by
Westpac, an Australian bank. The report will highlight key issues mentioned in the relevant case
study and shall consider them with the help of different ethical theories. Further, some
recommendations will also be made considering ethical theories to resolve the key issues.
Key issues and ethical theories
Starting from the discussion over the case this is to state that Westpac has found to be engaged in
activities of child exploitation indirectly. The financial intelligence agency of Australia, Austrac
has brought legal action against the company where the same failed to meet its obligation under
Anti-money laundering law and did not report more than 23 million transactions where a sum of
nearly $11bn was involved (Davies, 2019). Out of many, one of the lawsuits brought attention to
many where dozen of Westpac customers paid nearly $500000 to people in Philippians (Butler,
2019). The reason behind this attraction was a link between these transactions to child
exploitation. These transactions have been done by the people involved in the activities of child
exploitation. One on the payment made to a person who found to be engaged in live streaming of
child sex. The key issue involved in the whole scenario was that being a bank, Westpac was

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supposed to have comprehensive programs in place to check the transactions that can be linked
to terrorism or crime.
To check the element of ethics, in this case, some theories need to be discussed. These ethical
theories are of different beliefs.
1. The first theory to consider here is deontology that is a duty-based approach (Misselbrook,
2013). It is a normative theory that focuses on actions rather than the consequences (Kaptein
and Wempe, 2011). According to this theory, the morality of an action based on the action
itself to decide whether the same was right or wrong under a series of rules. The theory
believes that to follow the ethics in action, one is only required to follow his/her duty (Lin,
2016). The important thing to discuss this theory is that the same does not weigh the cost or
benefit of a situation. In the given case, it was a legal issue where the company breached anti-
money laundering laws. In addition to being a legal issue, it was also an ethical issue that can
be proved by using deontology theory. Being a banking institution, it was the duty of Westpac
to report all the transactions in a time bind manner but the same did not do so.
The case cannot be understood as a matter of mistake but it was a deliberate act of the bank as
there were millions of such transactions. Due to the failure of complying with the duty, ethics
does not seem to be in place applying the demonology theory.
2. Here this is necessary to inform that the actions of the bank lead major consequences to a
variety of people. Ethics can also be checked based on the results of certain actions. The
concept is contained by the theory of utilitarianism, under that, an action seems to be ethical
where it leads to happiness to the majority number of people (Veenhoven, 2010). This is a
reverse concept to the deontology that only consider action. No matter what action is or

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whether the duty has been performed or not, the same is treated as ethical under utilitarianism
if, in the end, it generates happy results to the majority of people. This theory in this way
consider cost benefit analysis (Wintgens, 2013). The application of the theory can better be
understood with the help of an example where accepting bribe seems good and ethical when it
lead to approval of a scheme beneficial for a larger number of citizens. Businesses are an
important part of each society where the same has a range of stakeholders. In such a situation,
they should take those actions, which are beneficial for all of them. To consider the actions of
Westpac applying this theory, again they seem unethical as they only considered goodness
and happiness of a particular group, which was a shareholder, and too for some time. In
addition to failure in reporting the transaction to Austrac, another ethical issue was also there
where the bank failed to have a close eye on the transactions that were being proceeded by the
same to detect the irregularity. To assure the happiness of a maximum number of people, the
bank was certainly required to detect those transactions, which were illegal or unethical such
as child exploitation, but rather doing so, the bank did not pay enough attention to the issue
and decided not to place any system to detect suspicious transactions.
The very first stakeholder that affected from this scandal was governing bodies to that
company failed to report the transactions where customers of the bank were using the bank
system to pay for live streaming of child exploitation. Having an irresponsible bank such as
Westpac in the nation’s banking system has out a big question mark on the governance and
compliance system of not only the bank but also the whole nation. The issue of child
exploitation has also affected the society where the accurate number of the child involved has
not been found but it the length of time and payments raised a concern. These customers were
paying for child exploitation over four and five years. If an appropriate check system would

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have been there then many children could be saved. The payment made to people in the
Philippines bust spread fear among Australian society members too. Further, due to the
negligence of the bank, it is now likely to face heavy penalties of billions of dollars. This will
surely bring an adverse impact on the financial situation of the bank that would ultimately
create a situation of loss for shareholders. Customers lost their faith in the business and the
identified ethical issues have diminished the goodwill of the bank. In the way, it is clear that
facilitating offshore payments of child exploitation to bring these negative outcomes yet has
been pursued by the bank.
3. In addition to the discussed theories, one another theory also helps to identify ethical or
unethical actions. Virtue ethics theory is an important branch that judges actions based on the
character of people (Morris and Morris, 2016). According to this theory, the right action is the
one that a virtuous person would have done in the same situation (Svensson, 2011). It looks
after the moral character of a person that pursues an action rather than action or results of the
action (Jeong and Han, 2013). The theory sees a person virtuous who acts as per principles of
virtue that includes honesty, courage, integrity, fairness, self-control, law-abiding, fidelity,
and prudence (Marcus and Hargrave, 2019).
The bank did not meet the Austrac guidelines as well as also did not follow its own risk
assessment (Hall, 2019). Here it lacks virtues of self-control as well as law-abiding.
Following the scandal, CEO of the company, Mr. Hartzer has resigned from his post where he
took all the accountability of the subjective scandal. However, the company has still been
agreed to pay $2.7million as payout after resignation (Letts and Doran, 2019). This
announcement further raised the dissatisfaction level among investors. The decision of the
company does not seem fair where even after a huge scandal and an advance 12-month notice,

Management and Ethics 6
Mr. Hartzer is likely to get millions of salary putting the interest of shareholders and investors
at risk one more time. No person with virtue character would have done this. Further, there is
no report of placing a surveillance system by the bank even after the scandal that shows the
company is still not up to the virtue of integrity in its actions and has not realized the mistake
to the required level. Here in this manner, considering virtue ethics, the above-discussed
actions of the bank found unethical.
Recommendations
Considering the above-mentioned ethical issues, it is far clear that the bank is in the necessity to
make certain changes. Here some recommendations have been developed for the bank using that
the same can deal with the identified and similar issues in the future. These recommendations
have been made considering the principles of different ethical theories. These recommendations
are made as follow:-
 Ethical standards: - Ethical standards can be understood as a set of principles formed to
communicate certain underlying moral values. These standards come in the form of
ethical codes that further guide the behavior of managers and employees of the business.
It is recommended to develop ethical standards based on principles of virtue ethics. It
means the bank must reframe its current ethics code and should include the additional
principles of virtue such as compassion, tolerance, and courage in addition to the general
principles such as honesty, integrity, and fairness. Further, under this code, leaders of
business are recommended to adopt a "right approach" where they would be looked after
the protection of rights of those who may be affected by an ethical decision.

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 Ethical decision-making model: - Many times, the decision-maker of business cannot
decide which approach is best for them. For instance, they remain confused about
whether to focus on actions or results. In such a situation to state that, the bank must
include the stakeholder theory of ethics and governance in its decision model. The theory
is given by R. Edward Freeman and believes that the business must consider the interest
of all the stakeholders in their actions rather than only shareholders (Freeman, Harrison,
Wicks, Parmar, De Colle, 2010). When this would be clear for managers, it is expected
that the decision-making approach of them shall be clear and direct and they shall take
only those decision that considers the interest of each stakeholder.
 Ethical decision-making process: - Similar to the model, the process is equally important.
It is recommended for the bank to decide a proper decision-making process using which
managers would be able to reach up to ethical decisions. This process can include various
steps such as defining the issue, consult resources and seeking assistance. The process
can be developed based on the principles of virtue again.
 Internal control system and governance:- This is an important recommendation to make
here. The money laundering and child exploitation scandals have been reported as due the
bank failed to check the non-compliance on time. In such a situation, the bank is now
advised to develop an internal check and control system to ensure that all the duties have
been done. The basis of this recommendation is the ethical theory of deontology that
believes ethics can be ensured in an entity following the duties and compliance.
Apart from the aforesaid major recommendation, some other actions can also be adopted by the
bank that includes the development of whistleblowing policies and other reporting structures so
that any unethical activity can be reported on time.

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To conclude the report this is to states that Westpac been unethical in its actions in the past but
the situation can be better in the future by paying additional attention to ethics in addition to
profit generation.

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References
Butler, B. (2019) What is Westpac accused of, and how is this related to child exploitation? –
explainer. [online] Available from:
https://www.theguardian.com/australia-news/2019/nov/21/what-is-westpac-accused-of-and-how-
is-this-related-to-child-exploitation-explainer [Accessed on 29/03/2020]
Collste, G., 2012. Applied and professional ethics. KEMANUSIAAN: The Asian Journal of
Humanities, 19(1), pp.17-33.
Davies, A. (2019) Westpac in crisis talks with largest investors amid money-laundering scandal.
[online] Available from: https://www.theguardian.com/australia-news/2019/nov/25/westpac-in-
crisis-talks-with-largest-investors-amid-money-laundering-scandal [Accessed on 29/03/2020]
Freeman, R.E., Harrison, J.S., Wicks, A.C., Parmar, B.L. and De Colle, S., 2010. Stakeholder
theory: The state of the art. Cambridge University Press.
Hall, J. (2019) Westpac CEO pushed out amid child exploitation scandal. [online] Available
from: https://www.news.com.au/finance/business/banking/westpac-ceo-resigns-amid-child-
exploitation-scandal/news-story/a1b785b735053246572609d567eb6ebd [Accessed on
29/03/2020]
Jeong, C. and Han, H., 2013. Exploring the relationship between virtue ethics and moral
identity. Ethics & Behavior, 23(1), pp.44-56.
Kaptein, M. and Wempe, J.F., 2011. Three general theories of ethics and the integrative role of
integrity theory. Available at SSRN 1940393.

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Letts, S. and Doran, M. (2019) Westpac chief executive Brian Hartzer quits amid pressure over
money laundering scandal. [online] Available from:
https://www.abc.net.au/news/2019-11-26/westpac-ceo-brian-hartzer-quits-money-laundering-
scandal/11737864 [Accessed on 29/03/2020]
Lin, J.W.B., 2016. The Nature of Environmental Stewardship: Understanding Creation Care
Solutions to Environmental Problems. Wipf and Stock Publishers.
Marcus, A.A. and Hargrave, T.J., 2019. Managing Business Ethics: Making Ethical Decisions.
SAGE Publications, Incorporated.
Misselbrook, D., 2013. Duty, Kant, and deontology. Br J Gen Pract, 63(609), pp.211-211.
Morris, M.C. and Morris, J.Z., 2016. The importance of virtue ethics in the IRB. Research
Ethics, 12(4), pp.201-216.
Svensson, F., 2011. Eudaimonist virtue ethics and right action: a reassessment. The journal of
Ethics, 15(4), pp.321-339.
Veenhoven, R., 2010. Greater happiness for a greater number. Journal of happiness
studies, 11(5), pp.605-629.
Wintgens, L., J. (2013) The Law in Philosophical Perspectives: My Philosophy of Law. Belgium:
Springer Science & Business Media.