NatWest was targeted by the FCA in mid-March, as the regulator alleged the firm “failed to adhere to the requirements of regulations 8(1), 8(3) and 14(1) of MLR 2007 between 11 November 2011 and 19 October 2016.” NatWest will be taken to court next month and the outcomes are set to be watched closely.
In announcing their intentions, the FCA laid out the following details: “These regulations require the firm to determine, conduct and demonstrate risk sensitive due diligence and ongoing monitoring of its relationships with its customers for the purposes of preventing money laundering.
“The case arises from the handling of funds deposited into accounts operated by a UK incorporated customer of NatWest.
“The FCA alleges that increasingly large cash deposits were made into the customer’s accounts. It is alleged that around £365million was paid into the customer’s accounts, of which around £264million was in cash.
“It is alleged that NatWest’s systems and controls failed to adequately monitor and scrutinise this activity.
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“NatWest is scheduled to appear at Westminster Magistrates’ Court on 14 April 2021.
“This is the first criminal prosecution under the MLR 2007 by the FCA and the first prosecution under the MLR against a bank.
“No individuals are being charged as part of these proceedings.”
Barry Faudemer, the Chief Executive of Baker Regulatory Services, examined the case and broke down just how significant it is for the industry: “The news that NatWest Bank has been charged with criminal offences by the FCA alleging inadequate systems and controls from 2011 to 2016 to forestall or prevent money laundering follows the international trend of law enforcement and regulators upping their game when it comes to holding businesses to account for failing to do enough to combat money laundering.
“Using criminal powers rather than deploying substantial civil financial penalties is a significant development and the first time that such criminal sanctions have been pursued against a high street bank.
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“What is simply breath-taking is the alleged volume of the cash transactions. The FCA claims ‘increasingly large cash deposits’ were made into a UK account, including £264million in cash.
“It is alleged that the business paying funds into the account was a money broker which may explain the high volume of cash deposits.
“Just how the bank exercised its anti-money laundering systems and controls over such a long period of time is now set to come into sharp focus.”
Additionally Tony Wyatt, a Barrister at Ewing Law, provided perspective on how this case may be being viewed by other financial institutions: “The commencement of criminal proceedings against NatWest Bank by the Financial Conduct Authority reads like a shot across the bow to London’s financial institutions.
“It is well known in commerce that the law places strict requirements on the movement of funds, and in particular on the movement of cash; think of the raised eyebrows when even a small bundle of £20 notes passes the cashier’s desk for proof of that. It is perhaps no surprise, then, that £365million – £264million of which was in cash – has caught the attention of the FCA.
“The sums are mind boggling, but they are unlikely to be unique. And so the City must now be wondering ’why this one?’.
“Why has the FCA chosen to prosecute NatWest in the criminal courts, rather than via the usual route of civil action? As a corporate entity the outcome is likely the same: an unlimited fine. Plus the civil route is easier, lacking the higher standard of proof required in a criminal case.
“Were one or more individuals to find themselves charged then this would of course change, with the maximum sentence then being one of 14 years imprisonment.
“And such a development can of course not be ruled out: we know little of the facts at this stage, but the mere allegation raises significant questions in terms of corporate governance, where wilful blindness to the company’s actions or policies is not a defence. Throw in the fact that – uniquely – NatWest is part-owned by the state and the complications just multiply.
“For now, however, all we know is that the Financial Conduct Authority has finally bared its teeth. And for the City of London, that will come as an unwelcome surprise.”
Tony concluded by examining the impact this may all have on banking customers themselves: “The impact on ordinary bank customers from this is unlikely to be noticed at all; ironically, the adherence to money laundering regulations in terms of what we could term ‘ordinary accounts’ is extremely strict.
“Ewing Law typically fields multiple calls a week already from clients asking us to establish why their bank accounts have been frozen. Invariably the answer is because of ‘suspicious activity’, i.e. a quantity of cash being deposited into an account which, when looked at as a pattern, is deemed irregular.
“Oversight is strict and investigations efficient – the frozen accounts are almost always available again within days – which is why the headline allegations in the NatWest case are so unusual.”