At the heart of Austrac's case against Westpac is a series of arrangements with foreign banks (correspondent banks) designed to make the processing of cross-border payments cheap and easy.Austrac says these arrangements gave rise to a number of risks, including cross-border movement of funds (including from higher risk jurisdictions), limited information about the payer or payee, limited or no visibility over the source of funds or purpose of transactions, no limits on volume or value of transactions and acceptance of cash deposits from unverified sources.It claims that Westpac failed to manage these risks.If Austrac wins its case, the impact could go beyond Westpac. Australian banks may need to review the way they do business with foreign banks and process international payments.One of Westpac's arrangements with correspondent banks is called "Australasian cash management". It allows a correspondent bank to use Westpac's infrastructure to process payments for their overseas customers through the Australian payment system. Correspondent banks "batch" funds transfer instructions from multiple payers to multiple payees.The batched instructions are sent to Westpac via channels that are not governed by SWIFT and do not always include full information about the payer and payee.Austrac says billions of dollars have entered Australia through these cash management arrangements over the past six years alone. It claims that Westpac "did not and does not know" where the funds originate.Westpac also offers an international payment service, LitePay, to its customers and certain correspondent banks. The LitePay platform facilitates low value international transfers out of Australia, including to higher risk foreign jurisdictions.And it offers agency or "off-system BSB" arrangements to correspondent banks that do not have direct access to the Australian payments system. This payment service allows the correspondent bank to open an account with Westpac, through which its offshore and domestic customers operate virtual accounts. This enables the correspondent bank to process payments through the Australian payments system relying on Westpac's infrastructure. Westpac has limited visibility over the virtual customers.Austrac claims that Westpac did not carry out an appropriate preliminary assessment of the risks that the correspondent banking relationships might, inadvertently or otherwise, involve. Nor did it appropriately consider and assess risk mitigation factors.According to Austrac's concise statement of claim: "Each of the correspondent banking relationships involved higher ML/TF risks that required a more detailed due diligence assessment. Westpac did not regularly assess the nature of each correspondent bank's ongoing business relationship, including its products and customer base, the types of transactions carried out as part of the relationship and any changes to the relationship. Nor did it regularly assess the adequacy of each correspondent bank's AML/CTF controls and internal compliance practices."Austrac said this was in spite of a number of correspondent banks disclosing higher ML/TF risks, such as themselves having correspondent banking relationships with high risk or sanctioned countries, including Iraq, Lebanon, Ukraine, Zimbabwe and Democratic Republic of Congo.Some correspondent banks that had disclosed such relationships had been fined by overseas regulators for AML/CTF breaches resulting from inadequate controls.The risk posed to Westpac was that these