For the better part of a decade, the Financial Conduct Authority (FCA) has operated as the United Kingdom’s leading regulator of the financial services industry.[1] Like financial regulators in various other countries, it wields considerable civil and administrative authority in carrying out its missions to protect consumers, maintain stability in the financial sector, and oversee competition in that sector.
Unlike many financial regulators, however, the FCA also has the power to initiate criminal proceedings against individuals and corporate entities for a wide range of criminal offences in England, Wales, and Northern Ireland.[2] Since its creation in 2013, the FCA has brought criminal prosecutions against a number of individuals.[3] Until 2021, however, it had never done so against any firm.
On December 13, 2021, the FCA announced that a major United Kingdom bank, National Westminster Bank Plc (NatWest), had been sentenced to a fine of £264,772,619.95, based on NatWest’s prior guilty plea to three violations of the United Kingdom Money Laundering Regulations.[4] Because this case is the first of its kind for FCA criminal enforcement in general, and for FCA anti-money laundering (AML) enforcement in particular, this post will discuss key elements of the NatWest resolution.
Facts
The case stemmed from serious and repeated failures in NatWest’s monitoring of the activity of a commercial customer, Fowler Oldfield, a gold buyer and seller based in Bradford, England, between November 2012 and June 2016. At the time that NatWest took on Fowler Oldfield as a customer, it understood that the company was a small business owned by a married couple, that the Bank would not handle any cash for the business, and that future sales were predicted to be £15 million per year.[5]
In November 2013, however, Fowler Oldfield’s business model underwent what even NatWest’s attorney conceded was a “startling” change.[6] From late 2013, numerous NatWest branches
started to receive millions in Fowler Oldfield cash. Staff in a number of branches and cash centres flagged concerns about the activity or submitted [Internal Money Laundering Suspicion Reports]; however, staff in some other branches/centres did not do so. The non-notifiers included branches/centres which received sums between £12 and 43 million and situations which included the deposit of such large sums of cash that they were brought in in black bin bags, which tore because of their weight, and sums so large that the bank’s safes were inadequate to store them.[7]
Over the course of NatWest’s relationship with Fowler Oldfield, approximately £365 million was deposited with the bank, approximately £264 million of which was in cash.[8]
Some NatWest employees reported their suspicions about Fowler Oldfield transactions to NatWest staff responsible for investigating suspected money laundering. “The ‘red flags’ that were reported included significant amounts of Scottish bank notes deposited throughout England, deposits of notes carrying a prominent musty smell, and individuals acting suspiciously when depositing cash in NatWest branches.”[9] Nonetheless, no appropriate action was ever taken.
In some cases, NatWest’s automated transaction monitoring system incorrectly recognized cash deposits as check deposits. Since checks carry a lower money laundering risk than cash, this was a significant gap in NatWest’s monitoring of a large number of customers depositing cash, including Fowler Oldfield.[10]
Finally, there were numerous gaps and weaknesses in other aspects of NatWest’s three lines of defense with regard to AML compliance. These included:
- A lack of experience in the staff of the NatWest office responsible for most of the AML investigations, and inadequacy of investigations, which emphasized “timing – closing alerts within 30 days – rather than quality”;[11]
- Failures to seek further information from internal and open sources about Fowler Oldfield, to identify that Fowler Oldfield “was erroneously rated by NatWest as ‘low’ or ‘medium’ risk for most of the relationship”, and “to adequately identify, and respond to a series of money laundering ‘red flags’[12];
- Failure “to keep documents, data or information obtained for the purposes of customer due diligence up to date”[13];
- Failure “to conduct ongoing monitoring of Fowler Oldfield on the basis that it was a high-risk customer”[14]; and
- Failure to conduct enhanced ongoing monitoring of Fowler Oldfield as a high-risk customer.[15]
Sentencing
In her sentencing remarks, the judge identified and discussed at length the numerous categories of failures in NatWest’s AML program, policies, and procedures. She recognized that for retail banks,
the provision of services to cash- generating businesses is a particular area of risk, and that there is a corresponding need for careful assessment of that risk. It is incumbent upon corporate entities in such positions to justify their position by a scrupulous regard both for establishing and carefully operating systems which will prevent the infiltration of the financial sector by money which is the proceeds of crime and will also ensure that those who seek to do so are not allowed to flourish.
She then found that in this case, “NatWest failed signally to do so”, adding that
it must be borne in mind that although in no way complicit in the money laundering which took place, the Bank was functionally vital. Without the Bank – and without the Bank’s failures – the money could not be effectively laundered the FCA prosecution in this case extended beyond the corporate entity itself.[16]
The judge stated that “it is incumbent on the Court to pass a sentence which is of sufficient size that it will be felt by management and shareholders of the Bank.”[17] Although she acknowledged that NatWest “has seen no net financial benefit from its involvement with Fowler Oldfield’s money laundering”, she calculated an initial fine figure of £397,156,944.14, which she then reduced by one-third, per the United Kingdom Sentencing Code, because of NatWest’s early guilty pleas. The final sentence was a £264,772,619.95 criminal fine and payment of £4,297,466.27 for the FCA’s costs.[18]
Observations
Several observations are in order concerning the NatWest sentencing. The factual record at sentencing leaves no doubt that NatWest – despite the fact that the FCA had previously fined it three times in relation to its AML procedures[19] – had numerous and longstanding deficiencies in its AML program that extended throughout the Bank, including deliberate decisions by various managers to look past or ignore significant indications of ongoing and substantial money laundering.
The very fullness of that record, however, calls into question the sentencing judge’s comment that NatWest was not “complicit” in the underlying money laundering. Under longstanding statutory law and the authoritative views of the United Kingdom Supreme Court, a person who assists another in the commission of a crime is an accessory, and therefore “is guilty of the same offence as the principal.”[20]
There seems little doubt, given the totality of the facts adduced at sentencing, that NatWest repeatedly assisted in large-scale money laundering in the face of numerous indicators, over multiple years, that the cash deposits had one or more illegal sources. Because willful blindness is as firmly entrenched in English as in American law,[21] the FCA may well consider advocating for a finding of willful blindness, as the facts warrant, in future criminal cases involving corporate violations of the Money Laundering Regulations.
It should also be noted that United Kingdom authorities’ investigation of the underlying money laundering has extended well beyond NatWest itself. As of November 30, a separate investigation by West Yorkshire Police led to 11 people pleading guilty to charges relating to the cash deposits and three cash couriers being charged, and an additional 13 individuals are awaiting trial at Leeds Crown Court in April 2022 in relation to the activities of Fowler Oldfield.[22]
In any event, United Kingdom Money Laundering Reporting Officers and U.S. AML compliance officers should peruse the NatWest sentencing remarks, use the facts therein for comparison with their own AML programs, and incorporate highlights from the NatWest resolution in their AML training programs. As this resolution shows, senior executives of financial institutions can ill afford to engage in persistent neglect and under-resourcing of their AML programs.
Footnotes
[1] See Gov.UK, Financial Conduct Authority, https://www.gov.uk/government/organisations/financial-conduct-authority.
[2] See Financial Conduct Authority, EG 12 Prosecution of Criminal Offences, in FCA Handbook, https://www.handbook.fca.org.uk/handbook/EG/.
[3] See, e.g., Financial Conduct Authority, Five sentenced in FCA prosecution of £2.8m investment fraud, September 4, 2018, https://www.fca.org.uk/news/press-releases/five-sentenced-fca-prosecution-28m-investment-fraud.
[4] Financial Conduct Authority, NatWest fined £264.8 million for anti-money laundering failures, December 13, 2021,https://www.fca.org.uk/news/press-releases/natwest-fined-264.8million-anti-money-laundering-failures.
[5] See Sentencing Remarks of Mrs. Justice Cockerill, Regina (Financial Conduct Authority) v. National Westminster Bank Plc, December 13, 2021, at 8¶¶29-30, https://www.judiciary.uk/wp-content/uploads/2021/12/FCA-v-Natwest-Sentencing-remarks-131221.pdf [hereinafter Sentencing Remarks].
[6] Id. 11 ¶40.
[7] Id. 14 ¶51.
[8] Id. 9-10 ¶36.
[9] Financial Conduct Authority, supra note 4.
[10] Id.
[11] Sentencing Remarks, supra note 5, at 13-14 ¶49.
[12] Id. 19 ¶68(c).
[13] Id. 20 ¶69.
[14] Id. 21-21 ¶72.
[15] Id. 21-22 ¶75.
[16] Sentencing Remarks, supra note 5, at 31 ¶123.
[17] Id. 31 ¶121.
[18] Id. 32 ¶¶126-129 and 33 ¶131.
[19] Id. 6 ¶21.
[20] See, e.g., R. v. Jogee, [2016] UKSC 8 ¶1 (February 18, 2016), https://www.bailii.org/uk/cases/UKSC/2016/8.pdf.
[21] See, e.g., Regina v. Sleep, 169 Eng. Rep. 1296, 1302 (Cr. Cas. Res. 1861); Jonathon L. Marcus, Model Penal Code Section 2.02 (7) and Willful Blindness, 102 Yale L.J. 2231,2233-34 (1993).
[22] See Financial Conduct Authority, supra note 4.
Jonathan J. Rusch is a Senior Fellow at New York University School of Law’s Program on Corporate Compliance and Enforcement; Adjunct Professor at Georgetown University Law Center, American University Washington College of Law, and Washington and Lee Law School; and Principal of DTG Risk & Compliance LLC. He is a former Deputy Chief in the U.S. Department of Justice’s Fraud Section, and former Senior Vice President and Head of Anti-Bribery & Corruption Governance at Wells Fargo.
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