On 13 December, Southwark Crown Court imposed a fine of £265 million in the sentencing of NatWest PLC for money laundering breaches to which NatWest pleaded guilty in October this year.
This case signals that the Financial Conduct Authority ("FCA"), which brought the case, is taking a tougher stance on money laundering. However, the fine did not meet the FCA's recommendation of a penalty in the region of £340 million and the judge commented that, but for NatWest's guilty plea, the fine would have been around £400 million.
The case highlights a growing trend of the criminalisation of corporate behaviour, which would previously have been dealt with via civil or regulatory sanctions. This trend is also evidenced by the Section 7 offence in the Bribery Act 2010 and the corporate failure to prevent offences under the Criminal Finances Act 2017, by which corporates are being held criminally responsible for their failure to prevent the unlawful activities of individuals associated with them.
These prosecutions arguably have the double impact of not only holding corporates to account for their failure to prevent wrongdoing, but also forcing them to pay closer attention to their internal policies, controls and procedures to ensure that such situations do not recur. This is the FCA's ultimate goal as it helps the regulator to fulfil its aim of enhancing market integrity.
The FCA v NatWest
The FCA brought charges against NatWest for three counts of failure to prevent money laundering under the Money Laundering Regulations 2007 ("MLR 2007"). The part-government owned bank admitted that it had failed to comply with a number of the regulations between 2012 and 2016 in relation to the accounts of a UK incorporated customer, identified as Yorkshire-based gold dealership Fowler Oldfield Ltd. NatWest had accepted £264 million in cash from Fowler Oldfield LLP – roughly the same amount as the fine imposed by the court.
In sentencing NatWest the judge found that one of the "key failings" by the bank occurred in December 2013 when Fowler Oldfield's risk rating was downgraded from high to low and that the bank had been "been unable to say definitively how this happened". The judge found that a periodic review of the account "should have taken place, but did not" and that "both operational and systemic failures" were behind NatWest's offending.
The case against NatWest was extremely strong and the judge opined that the bank had "no realistic alternative but to plead guilty". However given that some of the systemic issues that contributed to the offending arose out of automated functions that did not properly account for the risk involved in the customer relationship with Fowler Oldfield, it is possible that other corporate entities that use automation in relation to customer accounts could find themselves facing criminal prosecution by a more activist FCA.
The FCA gets serious
Over the course of 2021, the FCA's chairman and CEO set out the agency's plans to become a more proactive, assertive and agile regulator. Recent cases including NatWest demonstrate that the FCA are now putting this plan into action.
The NatWest case was the first criminal prosecution by the FCA of a bank under the Money Laundering Regulations 2007. Prior to this the regulator had exercised its civil powers to impose large financial penalties on banks that it found had poor anti-money laundering controls. In 2017 the FCA fined Deutsche Bank £163 million for serious anti-money laundering control failings. In June 2020 the FCA fined Commerzbank London £37,805,400 for failing to put adequate anti-money laundering systems in place and in October of this year the regulator fined Credit Suisse £147,190,276 for serious financial crime due diligence failures.
The NatWest case however saw the FCA opt to utilise their criminal powers even though a civil resolution was available. Having come under criticism for failures to act in other cases of alleged wrongdoing, the FCA appear to have seized the opportunity presented by the NatWest case to show that it intends to make good on its promise to be a more innovative, assertive and adaptive regulator.
In a response to a Freedom of Information Act request made by Mishcon de Reya, the FCA confirmed that between 2017 and 2020, 84 investigations into money laundering were opened. Of these, by 15 December 2020 only one was still ongoing with 36 having been closed without any action being taken. Where FCA investigations were closed following action being taken, this action consisted of financial penalties and public censure in the form of a published final notice. As such, the FCA's recent prosecution of firms for money laundering offences can be seen to herald a new era for the enforcement agency.
Money laundering enforcement in the wake of FCA v NatWest
The regulations under which NatWest has been prosecuted did not require the FCA to prove that money laundering had taken place and the case is a reminder that firms must have adequate procedures in place to prevent money laundering. In the cum-ex cases the FCA has also demonstrated that it will proactively engage with EU and global law enforcement authorities.
The figures for FCA investigations and resultant prosecution of money laundering breaches by the FCA suggest that, although NatWest's prosecution is the first, it will not be the last FCA criminal prosecution for money laundering offences.
The FCA's investigations in 2020 dropped to a four year low in 2020 with only three investigations being opened that year (down from 42 in 2019) - this was presumably as a result of the pandemic. In July 2021, the FCA announced that there is an ongoing investigation into possible money laundering breaches by the digital bank Monzo. Given the FCA's success in the NatWest case and the substantial fine imposed, it seems likely that we will continue to see a more aggressive and proactive FCA. Regulated firms, to whom the MLR 2007 applies, should take notice of this shift.