NatWest fined £264.8m for AML failings

The long awaited sentencing following the conviction of NatWest on three offences of failing to comply with the MLRs resulted in the announcement of a fine on the bank of £264,772,619.95.  The bank admitted to breaching Regulation 8(1) (ongoing monitoring), 8(3) risk-sensitive ongoing monitoring and 14(1) enhanced ongoing monitoring, of the MLR 2007.

In announcing the fine, Mrs Justice Cockerill noted that although the bank was in no way complicit in the money laundering which took place, without it and its failures, the money could not have been laundered.

The fine relates to failure properly to monitor the activity of Fowler Oldfield, a Bradford based jewellery business, over a period from late 2012 to mid-2016 (with the offences under Regulations 8(3) and 14(1) kicking in then and the third offence a year later. The bank had originally understood the customer would not handle cash, but following a change in the customer’s business model at the end of 2013, around £264m of the £365m the customer deposited over the course of its relationship with the bank was in fact cash. Some employees had raised internal suspicion reports, but no appropriate action was taken, and the investigations of the reports did not at any time refer to or address the change in business model.

The court heard that there were several red flags surrounding some of the deposits and also that the bank’s transaction monitoring system incorrectly recognised some cash deposits as cheque deposits, which led to a gap in monitoring given the lower-risk profile of cheques. Additionally, although a number of reports were made, suspicions were not reported by some branches or centres that received large amounts of cash in bin bags, and sums so large they would not fit in the bank’s safes.

The bank used the familiar 3LOD compliance model and had in place a number of policies and procedures to address ongoing customer monitoring. However, it was agreed that the first line of defence failed in this case, specifically within the lack of challenge to the Relationship Manager. The office charged with most of the internal investigations was also a new office, created as part of an initiative to improve the banks’ AML response, but its staff lacked experience.

Throughout the period, individuals in various branches flagged various concerns, and the NCA submitted a formal information request on the client in July 2014, which was not recorded on the file and, although concerns were raised about explanations provided by the Relationship Manager, these were neither recorded nor taken further. A year later the client was listed as an associated party in a SAR, and an internal report triggered a request for the Relationship Manager to consider whether an enhanced review was necessary, but he advised that there were no concerns, and his explanation was not checked or challenged.

West Yorkshire Police had investigated a suspected large-scale money laundering operation run out of Fowler Oldfield, and following it notifying NatWest of this, NatWest helped with the investigation and subsequently exited the relationship and told FCA it had discovered “concerns” in the management of the relationship. It retrospectively submitted 13 SARs.

A Skilled Persons review at the bank showed that the bank had made demonstrable progress in making effective changes to its AML programme, and that the bank had put significant financial commitment to change.

Separately, 11 people pleaded guilty to charges relating to the cash deposits, 3 cash couriers were charged and a further 13 individuals are awaiting trial in relation to Fowler Oldfield’s activities.

When sentencing, the judge acknowledged the cooperation on all sides, and noted the maximum penalty for the breaches is an unlimited fine.  While stressing there was no deliberate flouting of rules or lack of commitment to AML principles, the judge also noted the previous civil actions taken by FCA against the bank.  It was agreed that there was no case for a compensation order, but the judge agreed that a sum reflecting the amount the bank gained from its relationship with Fowler Oldfield should be the subject of a confiscation order. This amounted for just over £450,000.  When calculating the harm, all parties agreed the sensible starting point was the amount of funds paid into the account during the indictment period, which was nearly £288m. The parties agreed that the £66m paid in after the bank became aware of the police investigation should be excluded from the calculations of harm.  In terms of the harm amount, the judge appreciated that the figure should reflect the difference between committing the predicate money laundering offences as opposed to breaches of the Regulations, but was not so taken by the fact that some of the funds may not have been the proceeds of crime.  On the basis of the first point, the judge agreed to a proposal to reduce the amount by 40% to around £172.5m.   Turning then to culpability, the judge considered this at a medium level (200%), given the failings were not peculiar to this one account and would have affected other relationships, but that it must be careful not to “double count” offences. There were aggravating factors such as the previous regulatory actions and mitigating factors such as the bank’s cooperation, and the fact that it did attempt to monitor the account – but there was the lack of acceptance of commission of offence, and reporting only once the police had made it aware of its investigations.  The judge also took account of a letter from the Board regretting the events and committing to progress.  All in all, that kept the multiplier of 200% and a figure of £345m.  Finally, the judge had to consider adjustment for the “overall effect of its orders” to achieve the removal of all gain, appropriate additional punishment and deterrence.  While the judge considered representations including that the bank did not need any further deterrent, and that SFO had agreed reductions in bribery prosecutions for firms that had apparently acted deliberately, the judge was not convinced, and increased the amount by 15% to create a reduction before plea of nearly £400m. The one third reduction for the guilty plea resulted in the £264.8m fine (plus the confiscation order and FCA’s costs of £4.3m).

Emma Radmore