In a world focused on cyber security, it is hard to imagine a more basic and old fashioned method of money laundering than black bin liners of cash being couriered into local branches. It is even harder to imagine that such a method would go undetected by a major bank. Yet these are the facts of the case for National Westminster Bank plc (“NatWest”) who have been hit by a £265.7 million fine after pleading guilty to three offences under the Money Laundering Regulations 2007 (SI 2007/2157) (“MLR 2007”).
For the first criminal prosecution by the Financial Conduct Authority (“FCA”) under the MLR, the facts of the case are remarkable.
Bradford Jewellers Fowler Oldfields (“Bradford Jewellers”) was taken on as a client by NatWest in 2011 with a predicted annual turnover of £15 million. However, over the next five years, Bradford Jewellers deposited over £365 million into NatWest branches, of which approximately £264 million was cash. This included £700,000 of cash carried into a branch in black bin liners which broke, causing staff to repack the cash into stronger bags. At one point the cash came in at a rate of £1.8 million a day with sums so large, the bank’s floor to ceiling safes were inadequate to store them.
Although originally classified as a ‘high risk’ client, in December 2013, Bradford Jewellers’ risk rating was amended to low with no definitive reason. What is startling is that NatWest identified the suspicious activity, with staff raising concerns and the Court noted that one cash-specific monitoring rule was at times switched off ‘because too many alerts were generated.’ However, no action was taken by the bank until West Yorkshire Police raised concerns and carried out an investigation.
NatWest has subsequently pleaded guilty to three offences for:
- failure to comply with the requirement to conduct ongoing monitoring of a business relationship contrary to regulations 8(1) and 45(1) MLR 2007;
- failure to comply with the requirement to determine the extent of ongoing monitoring on a risk-sensitive basis and being able to demonstrate to its supervisory authority that the extent of the ongoing monitoring is appropriate in view of the risks and money laundering and terrorist financing contrary to regulations 8(3) and 45(1) MLR 20017; and
- failure to apply enhanced ongoing monitoring to its business relationship with Bradford Jewellers in a situation which by its nature presented a higher risk of money laundering and terrorist financing contrary to regulations 14(1) and 45(1) MLR 2007.
The Court has sentenced NatWest as follows:
- A fine in the amount of £264,772,619.95 (reduced by a third from £397,156,944.14 due to the bank's guilty plea).
- A confiscation Order in the amount of £460,047.04 (representing the sum that NatWest gained from its relationship with Bradford Jewellers).
- Payment of the costs of the FCA in the amount of £4,297,466.27.
In calculating the relevant fine, the Court first assessed the amount of ‘harm’ caused by NatWest’s actions (or lack of). They did this first by reference to the amount paid into Bradford Jeweller’s accounts during the indictment period, being £287,794,884.06.
This figure was then reduced by as much as 40% to reflect the fact that this was not substantive money laundering by NatWest themselves, but a breach of the Regulations.
Next, the Court considered culpability, stating that the case had culpability factors which fell under both ‘high’ and ‘low’ culpability. Balancing these points, the Court concluded that the case ought to be characterised as ‘medium’ (culpability level B).
The starting point for culpability level B is 200% of the harm figure, with a range from 100% to 300% depending on aggravating or mitigating factors. Taking into account previous regulatory action and the likely serious nature of the underlying criminal activity, the Court considered that this was balanced out by factors such as early factual admissions and a letter of apology written by NatWest’s Chairman and Chief Executive Officer. They concluded that the culpability multiplier should remain at 200%. At this point, the figure stood at £345,353,864.47.
Finally, the Corporate Guidelines required the Court to ‘step back’ and consider the overall effects of its orders in order to achieve:
- The removal of all gain;
- Appropriate additional punishment; and
Noting that this was not a case of gain, the Court concluded that first point did not bite. In considering the second two points the Court made note of their requirement to ensure that the fine is “substantial enough to have a real economic impact which will bring home to both management and shareholders the need to operate within the law”. To achieve this result, the Court considered that an upward adjustment was appropriate, making a further uplift of 15%. As such, the final figure was £397,156,944.14 which was reduced by a third for an early guilty plea to £264,772,619.95, a figure notably similar to the total cash deposits by the bank’s client.
Given the glaringly obvious nature of the criminal activity and the position of trust that the bank holds to the general public, the amount that NatWest has been fined will no doubt come under much scrutiny and debate as to its appropriateness. NatWest has already pledged a £1 billion investment over the next five years to strengthening and upgrading their financial crime systems and controls. Moreover, failure to comply with regulations, especially where household names such at NatWest are involved, can give rise to serious and ongoing reputational impact.