By Kai Zhang
On 14 December 2021, National Westminster Bank Plc (“NatWest“), a major bank in the UK, was fined by the Financial Conduct Authority (“FCA“) close to £265 million for failure to comply with the relevant anti-money laundering (“AML“) requirements with respect to one single client, a Yorkshire jewelry company (“the Client”) during the period from 8 November 2012 to 23 June 2016 (the “relevant period“). The fine would have been nearly £398 million, but NatWest pleaded guilty and therefore was given a reduction. In addition, slightly over £460,000 of crime money was confiscated (which is essentially the fees NatWest gained from the Client.).
During the relevant period, NatWest actually had in place, at least on paper, all the required internal AML procedures and processes regarding monitoring customer transactions. It was the implementation and application of these procedures/processes that turned out to be significantly defective. According to the FCA documents, “red flags” were repeatedly raised by frontline staff (including reports that banknotes being deposited by the Client carried a prominent musty smell), but these were not properly investigated and pursued. It seems that there was a significant over-reliance on what the bank’s Relationship Manager for the particular Client had to say (the Client was generating the highest revenue in the region; the fees generated by the second highest client in the region were less than half than the fees from this Client). As it turned out, the Client was in fact a front for money- laundering, and at the height of the activity, was depositing up to £1.8m in cash per day with NatWest.
At around the same time, Transparency International UK (a non-profitable organisation focusing on anti-corruption and a member in the Transparency International global movement) published a report: “Together in Electric Schemes: Analysing Money Laundering Risk in E-Payments“. The report identifies a number of AML concerns in the UK electronic payment sector. The report made certain recommendations, essentially calling on the FCA to tighten the AML scrutiny on the entire sector (notwithstanding that the sector is already subject to the relevant AML requirements).
Further, there have been various reports that the on-going COVID pandemic is fueling the rise in fraud. According to a report in the Financial Times, £2.3 billion was lost to online fraud in 2020. While some of the frauds themselves may have had little to do with the banking/payment sector (e.g. the victim is simply making a payment as a result of a fraud), payment firms (including banks and non-bank firms), particularly firms with which the fraudsters open receiving accounts, are reminded of the various obligations under the AML requirements to verify their customer’s identity and to monitor their customer’s transactions on an on-going basis.
Given all these strands of development (read together), it seems safe to say that the regulators (such as the FCA) will be, if not already, increasingly turning their attention on the effective compliance with AML requirements. This means that firms cannot just design/maintain sound procedures/processes, but more importantly firms need to have the right environment and culture that facilitates the actual application of these processes within the firm (e.g. star employees can be effectively challenged when needed). And as for the NatWest incident, it certainly demonstrates that if a customer’s business looks too good to be true, then it’s probably not.