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The chair of the UK House of Commons’ Treasury Committee has written to the Financial Conduct Authority (FCA) requesting further information on the prosecution of NatWest for money laundering.
The FCA needs to explain why it took five years for it to reach a successful conclusion to its proceedings against NatWest, Mel Stride, chair of the Treasury Committee, said in a letter to FCA chief executive Nikhil Rathi.
Stride, who previously served as financial secretary to the Treasury during Theresa May’s tenure as Prime Minister, welcomed the prosecution. “Banks have an important role to play in preventing money laundering and it’s clear NatWest failed to conduct thorough checks on this occasion,” he said.
“However, there are questions which remain to be answered, most notably why it has taken five years after the police raid in 2016,” Stride continued.
The Treasury chair used his letter to ask five questions of the FCA:
- When was the FCA made aware of the money laundering implications of the police raid on Fowler Oldfield in 2016, and by whom?
- Was the FCA notified by the National Crime Agency (NCA) or another police agency and when?
- After the FCA was made aware, when was the decision taken to appoint investigators and then prosecute NatWest Bank?
- What interactions does the FCA have with the NCA and other police forces about cases such as Fowler Oldfield, where the police action which was made public prior to prosecution suggested that an FCA regulated concern was failing to stop money laundering?
- Why did the FCA decide not to prosecute NatWest individuals in this case?
“I expect to place this letter and your response in the public domain. I would be grateful for a reply by October 25,” Stride summarised.
NatWest's Historic AML Case (original article published on VIXIO PaymentsCompliance on October 8, 2021)
NatWest made history in a landmark case after admitting that it failed to comply with the UK’s 2007 Money Laundering Regulations.
NatWest, which statistics show is the UK’s third-largest bank in terms of customers, has now accepted that it failed to comply with the regulations and has been warned that it will face a large fine. However, the FCA has confirmed it will not take action against any individual current or former employees of NatWest.
“To have a bank the size of NatWest pleading guilty to money laundering charges is unprecedented, and hopefully will be a wake-up call for the industry,” said John Dobson, chief executive at SmartSearch, a UK-based consultancy specialising in AML.
“Change is long overdue,” he continued, “despite tools being readily available to prevent this illegal activity, currently 99 percent of ill-gotten gains are successfully laundered by criminals, and regulated businesses need to do much more to prevent this.”
“If the moral obligation to stop terrorists, drug smugglers and sex traffickers legitimising their money isn’t enough motivation, through this case, the FCA has shown it is willing to severely punish those who don’t take their responsibilities seriously,” he said.
This is a highly significant result for the FCA, said Sebastien Ferriere, an associate at London-based law firm Browne Jacobson.
“It is one of the most high-profile outcomes of the FCA's strategy shift since 2017 in respect of financial crime enforcement, and it will undoubtedly open the door to other Money Laundering Regulations investigations and prosecutions in future,” he predicted, suggesting that this is only the start for the FCA.
Financial crime and AML remain a key priority of the FCA's Business Plan for 2021/22, and as of March 31, the regulator had 54 open financial crime investigations, Ferriere pointed out.
“Since the 2015 HBOS Report by Andrew Green QC, which criticised the FCA's regulation and investigation of the retail banking company, the regulator has made significant changes to its general enforcement capabilities and approach,” noted Ferriere.
In addition, the implementation of the 2017 Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations further prompted the regulator to review its approach to financial crime and develop its prosecutorial abilities.
“Since 2017, the FCA has opened a large number of 'dual track' investigations, which may give rise to either criminal or regulatory proceedings, though it has been criticised for discontinuing the criminal limb of many,” said Ferriere.
In a statement to the press, NatWest chief executive Alison Rose said that the bank deeply regrets its failure to monitor and therefore prevent money laundering by its customers between 2012 and 2016. “NatWest has a vital part to play in detecting and preventing financial crime and we take extremely seriously our responsibility to prevent money laundering by third parties,” she said.
In the years since this case, Rose said that the bank has invested significant resources and continues to enhance efforts and works tirelessly alongside other banks, industry bodies, law enforcement, regulators and governments to help find collaborative solutions to tackle financial crime.
“These partnerships are crucial to counter the significant and evolving threat of financial crime to society,” she said.
The case was originally brought forward by the FCA in March.
The regulator alleged that NatWest, which is in part backed by the British state, had failed to monitor suspect activity by a client who deposited about £365m in its accounts over five years — of which £264m was in cash.
The case has now been remitted to the Crown Court, one of the UK’s senior courts for prosecutions, for sentencing, which will be determined at a subsequent hearing.
The sentencing is expected to be in four to eight weeks’ time and NatWest has confirmed that a provision will be made in its third-quarter financial accounts in anticipation of a potential fine being imposed at that hearing.
“While the fine hasn’t been announced, it is almost certain to be more than the £400m that NatWest allowed being laundered through its systems,” said Dobson.
It will be interesting to see how the eventual sentence compares to fines under the regulatory regime, said Ferriere.
“The FCA is reportedly seeking a fine of £340m. By contrast, the regulatory fine against Deutsche Bank AG in 2017 was £163m, following AML systems and controls failings surrounding the transfer of US$10bn suspicious funds from Russia,” he pointed out.
