11 Nov AML Compliance Failure – NatWest Fined £264 Million

In 2021, NatWest was fined £264 million for failing to prevent the laundering of nearly £400 million by a single client. This case was the first time the UK’s Financial Conduct Authority (FCA) brought criminal charges against a bank under anti-money laundering (AML) regulations. It highlights the serious consequences financial institutions can face when they do not follow AML compliance requirements.

Background of the NatWest Money Laundering Case

The case revolves around Fowler Oldfield, a gold trading company based in Bradford, UK. When NatWest took Fowler Oldfield on as a customer, it was expected to have an annual turnover of £15 million. However, the company ended up depositing £365 million over five years, including £264 million in cash.

Many red flags were raised by these cash deposits, but they were ignored by the bank. Some of the cash was deposited in bin bags, and other warning signs, such as a musty smell from the banknotes and an unusually high number of Scottish banknotes deposited in England, were also overlooked.

Ignored Red Flags and System Failures

NatWest’s systems and procedures for detecting suspicious transactions were inadequate. Even though some bank employees reported concerns about these cash deposits, no proper action was taken. The bank’s automated systems also failed, misclassifying some cash deposits as cheques, which are subject to less strict monitoring.

In another oversight, Fowler Oldfield was initially classified as a high-risk client, but this rating was lowered in 2013 without explanation. This allowed the suspicious activities to continue unchecked for several more years.

The bank’s failure to properly monitor and investigate these large sums of cash being deposited across 50 branches contributed to a breakdown in its AML controls, enabling large-scale money laundering.

Guilty Plea and Legal Proceedings

In October 2021, NatWest pleaded guilty to three offences under the Money Laundering Regulations 2007. This case was the FCA’s first criminal prosecution of a bank under these regulations, marking a significant step in the enforcement of AML laws in the UK.

In December 2021, Southwark Crown Court fined NatWest £264,772,619.95, a figure reduced from £397 million due to the bank’s guilty plea. The court also ordered NatWest to pay a confiscation order of £460,047 and the FCA’s legal costs of over £4 million.

Mrs. Justice Cockerill, who sentenced NatWest, noted that although the bank was not directly involved in the money laundering, its failings were essential in allowing it to happen. Without the bank’s mistakes, the laundering would not have been possible on such a large scale.

FCA’s Position on AML Failures

The FCA made it clear that NatWest’s actions were unacceptable. Mark Steward, the FCA’s Executive Director of Enforcement, stressed that NatWest’s failure to monitor and investigate suspicious transactions created an opportunity for money laundering. He pointed out that AML failures are serious because they can allow crimes like drug trafficking and terrorism financing to occur.

The FCA’s prosecution of NatWest shows its commitment to enforcing AML regulations and its readiness to bring criminal charges when necessary. Institutions are expected to have strong systems in place to prevent illegal activities.

Consequences for NatWest

The fine and the criminal conviction damaged NatWest’s reputation significantly. While the bank’s CEO, Alison Rose, expressed regret over the failure to properly monitor Fowler Oldfield, the fine highlights the seriousness of failing to comply with AML regulations.

Since then, NatWest has invested in improving its AML systems and pledged to take steps to prevent similar incidents in the future. The bank’s leadership acknowledged that preventing financial crime is a priority and committed to improving oversight of its clients.

Impact on the Banking Sector

The NatWest case sends a clear message to the banking sector: AML compliance is critical and must be taken seriously. This was the FCA’s first successful criminal prosecution of a bank for AML failures, signalling its intent to hold institutions accountable for regulatory breaches.

Banks and financial institutions are now under pressure to ensure their AML systems are effective in identifying and reporting suspicious activities. Automated systems alone are not enough—human oversight and judgement are also essential in detecting criminal activities.

Role of Anti-Money Laundering Regulations

The charges against NatWest were brought under the Money Laundering Regulations 2007, which were designed to prevent the financial system from being used for money laundering and terrorist financing. These regulations have since been replaced by the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017.

The NatWest case shows that even traditional banking methods, like cash deposits, can pose risks if proper controls are not in place. This highlights the need for banks to continuously review and improve their AML systems to stay ahead of evolving criminal tactics.

Criminal Charges Against Other Parties

Besides NatWest, the West Yorkshire Police conducted a separate investigation into Fowler Oldfield and those involved in the cash deposits. Eleven people have pleaded guilty to charges related to the money laundering scheme, and more trials are scheduled. This shows that NatWest’s failures extended beyond the bank itself, affecting others involved in the crime.

The Importance of AML Compliance

In conclusion, the £264 million fine against NatWest serves as a strong reminder that financial institutions can face serious consequences if they do not comply with AML regulations. This case shows the importance of having effective AML systems, continuous monitoring, and staff training to detect suspicious activities.

As financial crimes continue to evolve, institutions must adapt to prevent them. AML regulations are not just legal requirements but essential safeguards against illegal activities that can harm communities and economies.

At KYC Lookup, we understand the importance of AML compliance. We offer online AML courses and resources which are all fully accredited and help financial institutions stay updated on regulations and best practices. Our expertise can help you protect your organisation from the risks of financial crime and ensure you remain compliant with ever-changing regulations.