NatWest to face the first criminal prosecution by the FCA for breaches of money laundering regulations

NatWest Bank is alleged to have accepted cash deposits of £264m without adequately monitoring and scrutinising the suspicious transaction behaviour. Following a four-year long investigation by the FCA, the bank has found itself before the Magistrates’ Court to defend itself against criminal failings to adhere to the Money Laundering Regulations 2007 (“MLR”). However, it is interesting to note that there are no individuals charged with any offences. The penalties will therefore be financial in nature and will not result in a custodial sentence or criminal conviction for any individual. The reputational damage, however, is likely to be significant for the bank as the case will be closely monitored as it the first time a bank has faced a criminal prosecution of this nature.

The FCA allege that NatWest failed in its obligation to conduct and demonstrate risk sensitive due diligence and ongoing monitoring of its relationships with its customers for the purposes of preventing money laundering. The issues arise from an account owned by a UK incorporated customer. It is alleged that around £365 million was paid into the customer’s account, with £264 million paid in cash. NatWest’s handling of those deposits is said to have failed to adhere to the requirements of regulations 8(1), 8(3) and 14(1) of the MLR.

Regulations 8(1) and 8(3) MLR require a relevant person to conduct ongoing monitoring of a business relationship, including keeping up-to-date documents, data or information obtained for the purpose of applying customer due diligence measures. The regulations also provide for the ongoing monitoring of customer due diligence.

Regulation 14(1) MLR relates to enhanced customer due diligence and ongoing monitoring. A relevant person is required to apply enhanced customer due diligence measures and monitoring on a risk-sensitive basis in any situation which presents a higher risk of money laundering or terrorist financing.
NatWest is to appear before Westminster Magistrates’ Court on 14 April 2021. We will be following the case closely as it progresses.

Does this represent a change in approach by the FCA? Can we expect to see more criminal prosecutions in the future? We will have to wait and see if the landscape changes in favour of criminal prosecutions in certain instances. Regardless of the outcome, it is clear that now is the time to ensure that AML compliance is a priority and that staff training is up to date.

Recent Fines by Regulators

Concerns about AML compliance failures have hit the headlines with increasing frequency in recent months. We have seen some of the largest fines imposed over recent months by regulators.

Over the last 12 months, we have seen a number of record fines imposed by the FCA and HMRC for non-compliance with money laundering regulations. In June 2020, the FCA issued a £37.8m fine to Commerzbank London for its failures to put in place adequate AML systems and controls between October 2012 and September 2017. Commerzbank London undertook a significant remediation exercise to bring its AML controls into compliance. The bank also conducted an extensive look-back exercise to identify suspicious transactions during the period in question.

Earlier this year, a money transfer company was handed the largest ever fine issued by HMRC of £23.8m, for ‘significant breaches’ of MLR obligations relating to risk assessments, record-keeping, policies, controls and procedures, and due diligence.

The Gambling Commission has taken similarly stringent action, issuing a fine of £13m to an entertainment business in April 2020. The penalty marked the Gambling Commission’s highest fine to date and was accompanied by strict conditions for the company to maintain its gambling license. Neil McArthur, Chief Executive of the Gambling Commission described the failings as ‘extremely serious’. The investigations hinged on failures to conduct enhanced due diligence. The regulator also identified failures by the business to adequately check the sources of funds in several instances.

Against this backdrop, the decision by the FCA to mount a criminal prosecution for the first time indicates a further escalation and a more robust approach towards breaches of money laundering rules.

If my business is under investigation, what should we do?

If you are currently under investigation for AML failings, the latest developments will make for uncomfortable reading.

The MLR compel those conducting regulated activity to take a risk-based and proportionate approach to their compliance obligations. The fundamental statutory obligations mandate regulated businesses to conduct a thorough risk assessment. That risk assessment should be used as the starting point to monitor customer relationships and implement a comprehensive risk and controls framework. Key compliance obligations are to ensure adequate policies and procedures are in place, that they are followed by employees, and that thorough employee training takes place. All controls implemented should be reviewed regularly and updated where appropriate.

Insufficient dedication of properly trained staff to fulfilling ongoing (and time-consuming) compliance requirements is often a feature when breaches occur. It is worth noting that, following its investigation and £37m fine from the FCA, Commerzbank London bolstered its compliance resources from three AML professionals to 50.

We know that the levels of financial crime have increased dramatically during the pandemic and therefore the systems and controls in place to target money laundering are arguably more important than ever. Changes to working practices during the pandemic have meant that many businesses have had to review their AML systems and controls. Conducting operations remotely has affected traditional customer identification and due diligence methods in some businesses.
Regulated businesses need to review their risk assessments and compliance frameworks regularly as part of their obligations. However, now is a good time to renew those efforts and ensure that the framework is robust.

Companies would be well advised to take advice at an early stage if potential problems are identified. If you are already under investigation for AML breaches, please do not hesitate to contact us to discuss how we can assist.

For further information on anti-money laundering obligations for regulated and non-regulated sectors please contact Nicola O’Connor.