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FCA slashes half of its money laundering investigations

Posted on 16 September 2020

Since January 2020, the Financial Conduct Authority (FCA) has discontinued half of its criminal investigations into breaches of the Money Laundering Regulations 2017 (MLR 2017).

A recent Freedom of Information Act request has revealed that of the fourteen money laundering investigations open at the beginning of this year, seven have been discontinued by the FCA. Of the remaining seven, six are "dual track" criminal and civil investigations, which could result in civil fines as opposed to criminal prosecutions.

These figures reflect an ongoing trend that has seen the FCA fail to bring a single prosecution for breaches of the MLR 2017 since they were first enacted in June 2017. Under the previous legislation, only one prosecution was ever brought and this was not by the FCA.

Current enforcement trends

The FCA has an array of powers under the current legislation to enable it to enforce the anti-money laundering (AML) rules. To date however, the FCA has only used its powers to impose regulatory fines on companies that have failed to implement effective AML controls. For example, in June of this year, the FCA levied a £38 million fine against Commerzbank's London offering after the bank failed to carry out adequate money laundering checks over a five-year period.

The FCA's inclination towards financial penalties is reflected in its Enforcement Data, published on 10 September 2020, which reveals that in 2019/20 the FCA imposed fifteen financial penalties totalling £224.4 million. This figure is slightly lower than the total for 2018/19, but represents a dramatic increase from a total of £69.9 million in 2017/18.

The increase in financial penalties is in keeping with global trends. A report published by the financial consultancy firm Duff & Phelps last month shows a general increase in fines imposed for AML failures. The first half of 2020 has seen a total of $706 million in AML fines compared with $444 million for the whole of 2019.

Official figures also show a reduction in the number of criminal investigations and prosecutions by other UK enforcement agencies. Figures released in August 2020 show that HMRC has only opened one new investigation since December 2019. Similarly, in a speech on 7 September 2020, Lisa Osofsky, Director of the Serious Fraud Office (SFO), acknowledged criticisms regarding the number of new investigations and the fact that in 2019 the SFO discontinued more cases than it opened.

Looking to the future

The investigations figures released by the FCA suggest that, whilst the legislation and rhetoric around money laundering has intensified in recent years, criminal enforcement is still lagging.

In April 2019, Mark Steward, Director of Enforcement and Market Oversight at the FCA, stated that it is time for the FCA to give "effect to the full intention of the Money-Laundering Regulations which provides for criminal prosecutions", although he conceded that "criminal prosecutions, as opposed to civil or regulatory action, will be exceptional".

The FCA is likely to be on the lookout for an "exceptional" case as pressure mounts for evidence that the AML regime is an effective deterrent to those targeting the UK financial system. The FCA has confirmed that decisions on some of its ongoing criminal investigations are expected "by the end of this year". A conviction in a strategically important case would do much to showcase the FCA's criminal enforcement powers under the AML regime.

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