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Mark Watson considers the impact and the possible consequences of the prosecution of NatWest under the 2007 Money Laundering Regulations.
The Financial Conduct Authority (“FCA”) has commenced a prosecution of the bank, NatWest. The first appearance is due to take place at Westminster Magistrates’ Court on 14 April 2021. No individual has been charged.
The allegations against the bank are that pursuant to regulations 8(1), 8(3) and 14(1) of the Money Laundering Regulations 2007 (“the Third Regulations”), implementing the Third Money Laundering Directive (2005/60/EC), it failed to put in place mechanisms to properly and adequately monitor and assess the deposit history to prevent money laundering.
The substance of the allegations dates back to between 2011 and 2016, and involves a small, Bradford-based jewellery wholesaler, Fowler Oldfield, which was closed after an investigation by the Police concluded in 2016.
In 2019, the allegation was first publicised that between £250,000 and £2 million in cash had been deposited on an almost daily basis by couriers, relying on a system of tokens involving the use of the serial numbers found on bank notes, acting as a confirmation code. It was said that Fowler Oldfield was laundering the proceeds of crime.
In total, the FCA alleged that £365 million was paid into Fowler Oldfield’s NatWest account between 2011 and 2016.
This is not the first time, unfortunately for NatWest, that it has fallen foul of the regulator.
Both parties’ ancestors clashed in 2010 when the FSA pursued RBS for failing to ensure that its customers and transactions were not involved in the financing of terrorism between December 2007 and December 2008. The bank was fined £5.6 million.
The FCA inherited its powers from the FSA in 2007 and has promised to use these powers to enforce the Regulations for some time now. This is the first prosecution brought under the powers. The Third Regulations were repealed and replaced in 2017 by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, implementing the Fourth Money Laundering Directive 2015/849/EU, but given the timing of the alleged conduct, the Fourth Regulations were not relevant.
The Third Regulations were introduced with the purpose of imposing duties upon institutions and individuals in the regulated sector in relation to customer due diligence, in order to combat money laundering or the risk of it. Should the institution or individual fail to comply with these duties, they could be prosecuted.
The Regulations and approach by the FCA is oddly reminiscent of the Bribery Act, the Woolf Report and BAE Systems.
On 6 May 2008, the Woolf Committee published its report on BAE Systems’ ethical policies and processes. The committee was established after an investigation by the Serious Fraud Office (“SFO”) into allegations of corruption surrounding the Al-Yamamah aircraft contract with Saudi Arabia.
The Report found that whilst BAE had made improvements, there were a substantial number of recommendations that BAE should follow in order to become more ethically sound in its business practices.
This investigation and report led to the introduction of the Bribery Act, which received Royal Assent on 8 April 2010 and commenced on 1 July 2011.
Sections 7 and 8 of the Bribery Act impose positive duties on organisations to prevent bribery on its behalf by employees and/or agents and third parties. The location of the agent is not relevant to prosecution: if a Danish company has business dealings in the UK and pays a bribe in the UAE, that company could be prosecuted in the UK.
The Bribery Act, unlike its cousin the Foreign Corrupt Practices Act 1977 in the United States of America, does not allow for the exception of a ‘grease payment’ (known as ‘facilitation payments’ in the UK). This is a payment made to a foreign official which does not affect the decision of the foreign official but is undertaken in order to expedite a transaction.
Due to the ‘failure to prevent’ duty imposed by the Bribery Act, it was hailed as the toughest anti-corruption legislation in the world. It also ushered in a new culture in business. Everyone working in industries that feature making deals or similar transactions will be aware of limits on gifts and entertainment in these scenarios. Not only that, but companies like BAE Systems now tout their new anti-corruption measures and mechanisms as a form of marketing to demonstrate their trustworthiness.
Whilst it took the BAE Systems investigation and the Woolf Report to encourage the introduction of the Bribery Act, which in turn led to a change in business culture and practice, the Money Laundering Regulations have been in place for some time, almost like a money laundering sleeping lion.
The prosecution of NatWest and the demonstration by the FCA that the Regulations have teeth could be the first step in another sea change in commercial culture, this time in financial services.
Mark Watson is a member of Carmelite Chambers who specialises in financial crime and was called to the Bar in 2011. He defended in the largest counterfeit cigarette production operation that HMRC has ever prosecuted and is developing an early practice in Covid related payment frauds. He is also an elected member of the Criminal Bar Association Executive Committee.
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