The UK’s Financial Conduct Authority (FCA) announced on 16 March 2021 that it has commenced criminal proceedings against National Westminster Bank Plc (NatWest), a subsidiary of NatWest Group plc. The proceedings relate to alleged failings under the Money Laundering Regulations 2007 (MLRs 2007). NatWest is scheduled to appear at Westminster Magistrates’ Court on 14 April 2021.
The FCA alleges that NatWest failed to adequately monitor and scrutinise a customer’s activity between 2011 and 2016, thereby failing to adhere to the requirements of Regulations 8(1), 8(3) and 14(1) MLRs 2007. The MLRs 2007 required regulated firms “to maintain adequate and effective anti-money laundering systems and controls,” and to take “all reasonable steps to prevent their use for money laundering purposes.” This includes that firms conduct risk-sensitive due diligence and ongoing monitoring of its relationships with its customers for the purposes of preventing money laundering.
First Criminal Prosecution Under the MLRs 2007
While failures to apply adequate due diligence and ongoing monitoring have repeatedly been the focus of intervention by UK supervisory authorities, the NatWest case is of relevance for the UK financial services sector for a different reason: the case is the first criminal prosecution brought by the FCA and the first criminal case against a bank under the MLRs 2007.
Regulation 45 MLRs 2007 provides that failure to comply with key obligations under the MLRs 2007 is an offence that if tried on indictment, can lead to a custodial sentence of up to two years as well as a fine. This is more severe than the penalties that can be imposed as part of civil proceedings under Regulation 42 MLRs 2007.
With the NatWest case, the FCA has put an end to the ongoing speculation whether the FCA would ever follow the path of criminal prosecution for breaches of money laundering regulations. The FCA has sent a clear and strong message to industry stakeholders that money laundering and the requirements for financial services firms to have robust controls and systems in place are being taken seriously and shortcomings will have grave consequences.
Mark Steward, Director of Enforcement and Market Oversight at the FCA, may have had cases like this in mind when discussing the possibility of “dual-track” investigations as part of a speech about the pipeline of the FCA’s AML investigations in 2019. Steward expressed that “it is time that we gave effect to the full intention of the Money-Laundering Regulations which provides for criminal prosecutions.” Steward continued that while he assumed that criminal prosecution would remain the exception, “[the FCA] need[s] to enliven the jurisdiction if we want to ensure it is not a white elephant and that is what [the FCA] intend[s] to do where we find strong evidence of egregiously poor systems and controls and what looks like actual money-laundering.”
The FCA has been conducting “dual-track” investigations for some time. These can lead to either civil or criminal proceedings. In September 2020 it was revealed under a freedom of information request that the FCA had discontinued half of its criminal investigations for money laundering breaches since January 2020, but was continuing to pursue one single-track criminal investigation and six dual-track investigations. It remains to be seen whether the FCA will follow the path of criminal proceedings more frequently in the future, even if—as set out by Steward—they remain the exception. The outcome of the current case may pave the way for this.
Is Criminal Prosecution of Individuals under the MLRs the Next Possible Step?
The NatWest case will, however, not only come as an unwelcome development for firms currently under investigation by the FCA, but also for previous and current members of senior management, including Money Laundering Reporting Officers (MLROs), of such firms. Regulation 47 MLRs 2007 extends the criminal liability provision under Regulation 45 MLRs 2007 to individuals where such offence was committed by the corporate entity with the consent or connivance of an officer of such corporate entity or where the offence was attributable to any neglect of an officer. In such instances, both the corporate entity and the individual could be held liable.
The FCA has so far not charged any individuals as part of the NatWest proceedings. However, in recent years the FCA and other regulators globally have shown an increasing willingness to take individual action against MLROs or senior management of financial services firms in addition to action against the firm as part of civil proceedings.
While the relevant provisions for criminal proceedings have been in place for a long time, the fact that the FCA now seems willing to use them, if only against a corporate entity at this point in time, may therefore be a concerning development for individuals.
While the FCA is likely not to want to deter strong individuals from taking on challenging roles in the future, the current trend seems to highlight the expectation that individuals in senior roles with compliance responsibilities must take their duties seriously.
It is therefore important that Senior Managers and MLROs are clear on their roles and responsibilities, and clearly articulate and escalate issues up their reporting lines, highlighting any potential shortcomings by their institutions to comply with the relevant provisions of the current MLRs. Regulation 86(3) MLRs 2017 , like its predecessor, Regulation 45(4) MLRs 2007, provides a statutory defence against a criminal charge where the relevant person took all reasonable steps and exercised all due diligence to avoid the offence being committed. Being able to demonstrate compliance with the requirements of one’s role and due escalation of relevant issues may make the difference for the decision by the FCA on whether to bring charges against an individual.
How We Can Help
Guidehouse’s Global Investigations & Compliance team includes professionals with deep investigative experience, including former regulators, prosecutors, in-house experts, and technology specialists. Our experience includes many years of performing reviews on behalf of regulators around the world and assisting firms in delivering financial crime assessment and remediation projects. Please reach out to us if you would like to discuss further how we can assist you, for example with an independent review of the robustness of your current Anti-Money Laundering and Sanctions Programme, or as part of your ongoing dialogue with the FCA or other regulators.
Special thanks to Neema Wadhia for contributing to this article.