Hands up, Guilty as Charged: Financial Conduct Authority successfully convicts NatWest of £365 million Money Laundering charges
What has Happened?
On the 7th October 2021, NatWest entered a plea of guilty to the charge of failing to prevent money laundering activity by a corporate client. It has come to light that an eye-watering £365 million of dirty money passed through its books for four years between 2012 and 2016. NatWest seemingly dropped the ball as this customer's business turnover was only anticipated to be in the region of £15 million. However, NatWest's money laundering reporting systems apparently failed to recognise that the customer account received deposits nearly 25 times larger than projected. The Financial Conduct Authority took decisive action because NatWest had seemingly failed to "take any or all reasonable steps to prevent the use of its financial system for money laundering purposes".
What Does This Mean?
Following this development, NatWest is bracing themselves for a significant fine estimated to be somewhere in the region of £340million. This reflects the significance of their conduct and acts as a deterrent to prevent future businesses from doing the same. This case has two critical implications. Firstly, it is the first time in its relatively short history that the Financial Conduct Authority has successfully prosecuted under the provisions of the Money Laundering Regulations 2007. These impose strict duties on companies to mitigate the risk of money laundering taking place. Secondly, it appears to be a paradigm shift away from how the Financial Conduct Authority operates typically. Before this case, the regular pattern was for the regulator to hand down civil penalties.
What Impact Could it Have on the Legal Profession?
This case brings into sharp focus the distinct change of tact being adopted by the Financial Conduct Authority to combat financial crime. The Law Society has warned lawyers to be extra vigilant when handling client cash deposits and always comply with the Money Laundering Regulations. The onus is clearly on the industry to protect its clients after this outcome.
The Law Society emphasised now more than ever the importance of carrying out a thorough due diligence exercise and continuing to impose a culture of compliance by continually monitoring and reviewing all transactions. It is essential to insist clients provide valid identification documents such as passports and the source of any funds is revealed. These records will need to be kept in writing on the file.
Training is vital for ensuring staff competence remains high; this can be done by regular communication of legal updates. Through the actions mentioned above, law firms can protect their clients.
Firms also need to make sure their insurance provisions are robust to mitigate against an event of this magnitude from having a damaging impact on the firm. The damage to the organisation's reputation would be felt tremendously as public trust would be impacted, resulting in clients looking elsewhere for a 'more competent' level of service.
Lawyers will be waiting anxiously to discover the level of fine imposed on NatWest, the reasoning behind any decisions made and any judicial warnings handed down to deter any similar actions by businesses across the country. The Law Society fear that it could "lead to over-application" of the Money Laundering Regulations 2007. It warns banks of the colossal damage it could have on business confidence in the UK if banks jumped to conclusions and rashly suspended customer bank accounts without stepping back and carefully considering the evidence before it.
For anybody interested in following this topic, the International Compliance Association is holding a "Real-Time in AML transaction monitoring" session as part of its ICA Live: Nordic-Baltic Virtual Session from 25th to 26th November 2021. The fallout of this case will indeed be discussed.
#Sidley LLP Sidley Newsroom #Matrix Law #MatrixChambers #Simmons&Simmons #SimmonsLLP
Sources used in writing this article###
[Source 1] National Westminster Bank Plc pleads guilty to breaches of Regulations - National Westminster Bank Plc pleads guilty to breaches of Regulations | NatWest Group
[Source 2] Evans, Victoria, - NatWest pleads guilty to money laundering failings – October 2021 - Natwest Money Laundering fine - October_newsletter_final_draft - 01.11.2021.pdf
[Source 3] Regulation 8 (1) Money Laundering Regulations 2007 – The Money Laundering Regulations 2007 (legislation.gov.uk)
[Source 4] Regulation 8 (2) Money Laundering Regulations 2007 - The Money Laundering Regulations 2007 (legislation.gov.uk)
[Source 5] Regulation 45 (1) Money Laundering Regulations 2007 – The Money Laundering Regulations 2007 (legislation.gov.uk)
[Source 6] Financial Conduct Authority – NatWest Plc pleads guilty in criminal proceedings – 7th October 2021 - NatWest Plc pleads guilty in criminal proceedings | FCA
[Source 7] NatWest faces £340m fine after admitting "money-laundering" failings – 7th October 2021 - NatWest faces £340m fine after admitting 'money-laundering failings | NatWest Group | The Guardian
[Source 8] Williams, Michael – "FCA claimed a big scalp": Natwest's £320 money laundering fine sends message to the entire City" – 11th October 2021 - 'FCA claimed a big scalp': NatWest's £320m money laundering fine sends message to the entire City - CityAM : CityAM
[Source 9] Dempsey, Jonathan - Six ways to mitigate a bad day at the office | Article | Compliance Week – 4th August 2021
[Source 10] ICA Live: Nordic-Baltic Virtual Conference – 25-26 November 2021 – International Compliance Association - Home | ICA Nordic (int-comp.org)
[Source 11] Sidley LLP – Key Reminders for Regulated Firms Following FCA-NatWest Anti-Money Laundering Case – 14th October 2021 - Key Reminders for Regulated Firms Following FCA-NatWest Anti-Money Laundering Case | Insights | Sidley Austin LLP
Written by Jason Connolly