Washing The Proceeds Of Crime: Money laundering charges recently brought against NatWest

April 7, 2021

3 min read

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What's going on here?

The Financial Conduct Authority (FCA) recently announced that it has started criminal proceedings against NatWest for money laundering offences related to an account worth £365mn.

What does this mean?

The FCA alleges that NatWest has breached the Money Laundering Regulations 2007 (MLR 2007), specifically in relation to failing to carry out enhanced customer due diligence and ongoing monitoring. The MLR 2007 ensures that a firm determines, conducts and demonstrates risk-sensitive due diligence and ongoing monitoring of its relationships with its customers for the purposes of preventing money laundering. This is an important anti-money laundering (AML) policy because it enforces regulated firms such as NatWest to actively detect money laundering within customer accounts open with the bank. NatWest is the first bank to be charged with an offence under the MLR 2007 which has been in place for 14 years. Over a period of 5 years, the account at NatWest had £365mn deposited into it, with £264mn deposited in cash during this period. This is a blatant series of suspicious transactions, and considering the worth of the account, this alone should have alerted NatWest to report the suspicious activity to the National Crime Agency (NCA) via a suspicious activity report (SAR). NatWest should have also conducted enhanced customer due diligence and ongoing monitoring which would have further informed them of the suspicious activity concerning the customer account.

What's the big picture effect?

Money laundering is a global issue that allows white-collar criminals to enjoy the proceeds of crime they are earning from illegal activities, these activities could include the illegal sale of narcotics, sex trafficking and selling counterfeit goods. These illegal activities are highly lucrative for professionally organised criminals and they will go to extreme lengths to ensure the funds they are earning can be enjoyed. This is done by disguising the proceeds of crime using a series of different transactions to make the money look legitimate. Common methods to disguise the proceeds of crime include using shell companies, offshore accounts, buying property and currency trades. The consequences of allowing money laundering to go unpunished can result in the financing of terrorism and white-collar criminals investing in other illegal activities.

It is important that regulated firms comply with AML policies to detect money laundering, especially in the context of financial institutions such as trading firms and banks where professional money launderers are most likely to disguise transactions. Law firms are also included here because there is a threat of sham litigation being used as a method to make the proceeds of crime look legitimate. A professional money launderer will do this by beginning proceedings with a law firm that will require a large upfront payment, the launderer will then contact the law firm saying the legal matter has been resolved which will result in the upfront payment being returned to the launderer. This is a convoluted method of disguising the proceeds of crime, and law firms should ensure that they are abiding by AML policies by conducting customer due diligence and reporting any suspicious activity.

The UK is known as the “money laundering capital of the world” because of London’s lucrative property and financial market with “roughly £90bn being laundered in the city each year”. NatWest is now subject to an investigation by the FCA and if they are convicted will face an unlimited fine. There has been a long outcry for reform of the AML policies implemented in the UK. Furthermore, there may be a need for more oversight into how financial institutions are detecting money laundering. Intelligence and oversight look to be the way forward, however, a stricter approach to detecting money laundering could deter or restrict other financial institutions from seeking to operate in the UK. This is because institutions having to meet higher obligations may become too much to manage and institutions do not want to be subject to tougher regulatory compliance which could result in prosecution and fines, resulting in monumental reputational damage.

Report written by Harry Grice

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