The extraordinary criminal proceedings against NatWest

Financial institutions receiving hefty fines by their regulators for poor anti-money laundering (AML) controls is nothing new, but 2021 saw a ground-breaking news story within the remit of AML enforcement as NatWest became the first financial institution to face a criminal prosecution under the UK AML laws[1]. On 7th October, NatWest pleaded guilty to criminal charges brought by the Financial Conduct Authority (FCA) under the Money Laundering Regulations (MLRs) 2007. At the time of writing, the case has gone to Southwark Crown Court for sentencing in December[2], with an FCA lawyer suggesting the fine could potentially be around £340m – greater than the sum of its other fines for the past two years[3].

There can, therefore, be no doubt this is a significant case that will catch the attention of other banks. NatWest accepted the failure to comply with regulation 8(1) between 7th November 2013 and 23rd June 2016 and regulations 8(3) and 14(1) between 8th November 2012 and 23rd June 2016 under MLRs 2007, relating to the accounts of a UK incorporated client. Such regulations require regulated firms to ensure they have adequate AML systems and controls[4].

The client in question was Fowler Oldfield Ltd; a century-old jeweller in Bradford that was shut down in 2016 following a police raid. The FCA alleged the client deposited around £365m over five years, of which £264m was cash; and this included, at times, as much as £1.8m being deposited a day. These figures are shockingly inconsistent with the estimated £15m turnover that was stated when the client was onboarded, while it was also agreed the bank would not handle cash deposits[5].

A sign of things to come?
The criminal proceedings by FCA highlight a shift from traditionally imposing civil penalties, and as such, demonstrating the extensive enforcement powers it has under the MLRs[6], as well as a willingness to hand out significant punishments that could have severe impacts financially and potentially reputationally also. Jonathan Fisher QC, a senior lawyer whose specialisms include AML, deemed this “a big scalp” for the FCA, while David Savage, head of financial crime investigations at law firm Stewarts, commented that, ‘When combined with the recent release of the Pandora Papers, it seems clear that money laundering and tax evasion will increasingly be the focus of regulators, both domestically and internationally, in the coming years’[7].

Although enforcement is nothing new, the various developments we have seen highlight the increasing risks financial institutions are facing and the need to take proactive mitigatory action. Furthermore, it is important to consider the political pressure in relation to this case in particular and enforcement in general. British lawmakers have recently written to the FCA enquiring why it took so long to bring the case to a successful conclusion, while also looking into why no individuals were prosecuted[8]. Furthermore, in July 2021, there was a call to evidence on the effectiveness of the UK’s AML regime, noting the lack of prosecutions to date[9]. While these developments do not mean change is imminent, the additional scrutiny could potentially lead to an increase in more severe criminal punishments in time, potentially including individuals.

A reminder for financial institutions
The recent case and its implications for the future of AML enforcement serve as a timely reminder for institutions to ensure appropriate AML controls are in place. There is a need to ensure that a sufficient number of well-trained staff are employed to mitigate the risks of further fines and possible criminal action, along with the need to keep up to date with legal and regulatory developments and suitable methods for preventing and detecting financial crime.

Glenn Smith, EMEA Head of AML & Head of Fraud, SAS UK & Ireland, argued that ‘manual, inexact and time-consuming processes have no place in modern banking’, with technologies using AI and machine learning being necessary in locating ‘true positives’ while monitoring transactions. He further stated that a ‘legacy rules-based transaction monitoring system’ has ‘simple, deterministic rules’ that ‘cast the net far too wide and clumsily for the ever-evolving nature of money laundering and fraud’[10]. Crucially, it seems that financial crime is constantly changing and banks must, therefore, stay alert to match this.

How can Lysis help?
Lysis is able to assist regulated firms in various ways to help ensure ongoing compliance with the ever-changing financial crime regulation. Lysis can provide expert consulting and advisory services to review financial crime controls, design and implement improvements to systems and procedures, and deliver appropriate training to staff. Lysis can also provide outsourced managed services teams of experienced analysts to assist with a variety of tasks such as client on-boarding, refresh and remediation, politically exposed persons (PEPs), sanctions and adverse media screening as well as transaction monitoring.

Our clients include fintechs, investment banks and cryptocurrency firms among others, and we ensure our staff have a thorough understanding of the necessary financial crime issues related to each.

Phil Kelly Consultant at Lysis Group [1][2][3][4][5][6][7][8][9][10]

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