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NatWest has been fined a staggering £264.8m following an anti-money laundering (AML) scandal; however, experts are divided on whether this is justice served for one of the UK’s largest retail banking institutions.
“It must be borne in mind that although in no way complicit in the money laundering which took place, the Bank was functionally vital. Without the Bank, and without the Bank’s failures, the money could not be effectively laundered,” said Justice Cockerill, the sentencing judge at Southwark Crown Court, when delivering her ruling.
This brings to an end a lengthy process for NatWest, which led to it pleading guilty in October this year.
Without a very early guilty plea, it would have been £397m, pointed out Sebastian Sayer, legal director at law firm Fox Williams and previously an enforcement lawyer at the Financial Conduct Authority (FCA).
To put it into some context, the FCA's biggest fine in a regulatory case prior to this one was £163m in 2017 against Deutsche Bank.
In 2019, total fines reached £391m, which was “a bumper year for FCA regulatory fines”, according to Sayer. With the Natwest ruling, however, total fines in 2021 will surpass £500m.
“Some may see this as an example of zealous anti-business regulation, but I think the better view is that this shows how seriously the FCA takes ensuring our financial markets are clean, that laws and regulation are enforced, and that cases with a true deterrent value are brought,” said Sayer, adding that ultimately these sanctions strengthen the financial markets, and give institutions and people confidence that the UK is the right place to do business.
However, others have expressed uncertainty about just how effective the case will be in preventing further abuses of the law from happening.
"The amount is eyewatering and staggering. There were rumours before it came to court about what was going on at NatWest, but once you read what actually happened, it is shocking,” said Gary Prince, chief strategy officer at SimplyPayMe.
It raises more questions than it answers, he continued. “Knowing how banks work, when you read through the transcript, it is either a systemic failure or there are individuals turning a blind eye.”
£264m paid in cash
The charges announced on Monday covered NatWest’s failure to properly monitor the activity of a commercial customer, Fowler Oldfield.
The jewellery business, based in Bradford, then proceeded to launder money through NatWest between November 2012 and June 2016.
When taking on Fowler Oldfield, NatWest initially understood it would not handle cash from the business.
However, over the course of the customer relationship approximately £365m was deposited with the bank, of which around £264m was in cash.
Some of the bank’s employees, who were responsible for handling these cash deposits, reported their suspicions to bank staff responsible for investigating suspected money laundering, but no appropriate action was ever taken.
“There were 40-odd different branches where cash was being paid in, millions of pounds being processed and all just being excused, with no accountability,” complained Prince.
Red flags that were reported included significant amounts of Scottish banknotes deposited throughout England, deposits of notes carrying a prominent musty smell, and individuals acting suspiciously when depositing cash in NatWest branches.
"Bigger questions need to be asked of NatWest. Are the bad apples gone, and if money laundering is rife at the bank, then why are they still running?” said Prince. “Now it has been unravelled, more attention is needed. Senior employees need to be going to trial and prison. If things were overlooked, then this may not just be one instance."
So far, a separate investigation by West Yorkshire Police has led to 11 people pleading guilty to charges relating to the cash deposits and three cash couriers being charged. A further 13 individuals are awaiting trial at Leeds Crown Court on April 25, 2022 in relation to the activities of Fowler Oldfield.
Fundamentally, the NatWest case was not difficult to stop, argued Shaun Taylor, senior director at ThetaRay. “This was the largest customer in the area, with a significant increase in activity, exceeds the banks understanding of scope and level of business, a high-risk product in cash, and an unusual amount of Scottish bank accounts.”
“The reason that cases like Natwest and Danske Bank have happened is that banks are relying on poor rules-based controls that are programmed by human bias,” he continued. “The bias may be clever AML staff from the banks adding rules to systems to stop risks that they as individuals are aware of. This is a fundamentally flawed approach.”
As uncovered in the case, the bank’s automated transaction monitoring system incorrectly recognised some cash deposits as cheque deposits.
As cheques carry a lower money laundering risk than cash, this was a significant gap in the bank’s monitoring of a large number of customers depositing cash, of which Fowler Oldfield was one.
Digital solutions
It is not the first and unfortunately will not be the last example of insufficient AML controls by large banks, said Smith-Taylor. “Regulators in most major financial centres are aligned with the UK with fining banks for poor controls and the regulators themselves are now becoming more vocal about the use of new technology, such as artificial intelligence, to stop events like NatWest occurring.”
This year, regulators including the European Banking Authority have promoted the use of digital tools to help manage AML risks. In addition, the global standard-setter, the Financial Action Task Force, used a discussion paper published over the summer to promote the digitisation of financial crime prevention.
“If a large bank in the UK can't stop what is a slow payment method, considering cash clearance takes multiple days, then I'm sure they will also struggle with real-time payments where the funds, in theory, could be transferred by criminal means within seconds,” warned Smith-Taylor.
But it is not just the systems that people blame for NatWest’s failings — corporate governance is an issue as well.
"One reason is that everyone thinks it is someone else's job. A bit like a crime that occurs in a crowd isn't reported because everyone thinks someone else has reported it,” said Adrian Pay, director at compliance platform Dynamic GRC.
Hubris is another issue, he continued. “A lot of legacy banks believe in their own infallibility, which was part of the cause of the 2008 global financial crisis. There was a lot of 'don't you know who we are?' syndrome."
In a statement regarding the sentence, NatWest chief executive Alison Rose commented: “NatWest takes its responsibility to prevent and detect financial crime extremely seriously. We deeply regret that we failed to adequately monitor one of our customers between 2012 and 2016 for the purpose of preventing money laundering. While today’s hearing brings an end to this case, we will continue to invest significant resources in the ongoing fight against financial crime."
