On 7 October 2021 NatWest pleaded guilty to failing to properly monitor certain accounts and apply appropriate customer due diligence measures under the UK Money Laundering Regulations 2007 (the MLR 2007). The regulations require certain firms, including those regulated by the FCA, to ensure they have adequate anti-money laundering systems and controls to prevent money laundering.
The charges, brought by the Financial Conduct Authority (the FCA), related to a gold dealership who deposited £365m in cash into a NatWest account between 2011 and 2016. This was despite ref flags which included the company having a predicted turnover of only £15m. Due to the dates of the breaches, the charges were brought under the now repealed MLR 2007.
NatWest accepted that it failed to comply with Regulation 8 (conducting ongoing monitoring of a business relationship) and Regulation 14 (applying enhanced due diligence and enhanced ongoing monitoring. By pleading guilty NatWest admitted that they did not comply with the MLR 2007 (including following any relevant guidance issued by the FCA) and it did not take all reasonable steps and exercise all due diligence to avoid committing the offence.
NatWest will be sentenced at Southwark Crown Court in December and will likely be hit with a substantial fine for its breaches.
Civil vs criminal – what's on the horizon
The UK has 25 anti-money laundering supervisors, comprising three statutory supervisors (the FCA, HMRC and the Gambling Commission) and 22 professional body accountancy and legal supervisors. Each supervisor is tasked with ensuring that those caught by the money laundering regulations have adequate anti-money laundering systems and controls to prevent money laundering.
Both the MLR 2017 and the MLR 2007 permit a supervisor to pursue civil and criminal enforcement. In the past, supervising authorities, including the FCA, have imposed civil sanctions for money laundering breaches.
Civil action is often considered to be easier and more straight forward than criminal, however the FCA have in past iterated its intention to pursue criminal sanctions where they find strong evidence of egregiously poor systems and controls.
In June 2020 the FCA fined Commerzbank AG (London Brach) over £37 million for failing to implement adequate anti-money laundering procedures. This followed a fine of £102 million implemented by the FCA against Standard Chartered Bank in 2019, and a record fine of £163 million against Deutsche Bank in 2017, both for anti-money laundering failings.
This is the FCA's first criminal prosecution under the MLR 2007, and they are yet to bring any criminal prosecutions under the current Money laundering, Terrorist Financing and Terrorist Financing (Information on the Payer) Regulations 2017 (MLR 2017).
However, a freedom of information request obtained by the Howard Kennedy Business Crime and Regulatory team revealed that the FCA has 45 investigations currently open in respect of potential breaches of anti-money laundering and of those, 9 investigations have a criminal element.
The decision to prosecute NatWest will not have been taken lightly, but it could be indicative of a new tougher approach by the FCA in relation to breaches of the money laundering regulations.
It will be interesting to see Southwark Crown Courts approach to sentencing in this matter and how the fine for criminal breaches compares to the significant civil penalties issued by the FCA in recent year. This could be an important factor for the FCA to consider when deciding whether to bring further criminal prosecutions in the future for money laundering breaches.
Compliance is business critical, and there are likely to be significant ramifications for non-compliance including criminal prosecution and significant fines.
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