On 13 December 2021 NatWest was fined £264 million for breaches of the Money Laundering Regulations 2007 (MLR 2007). NatWest had previously admitted to failing appropriately to supervise a customer’s account, which enabled the money laundering of £365 million.
As the first criminal conviction and the first prosecution of a bank under the MLR 2007, this is an important landmark and marks a key development in the regulatory and enforcement landscape for financial institutions in the context of money laundering offences. As we discussed in our previous blog post on the launch of the criminal proceedings (here), the key question is whether this is a one-off conviction or the shape of things to come.
Key points from the sentencing
Cockerill J, in her sentencing remarks, noted that there had been both operational and systemic failures on the part of the bank, which had allowed money to be laundered: “Although in no way complicit in the money laundering which took place, the Bank was vital,” Cockerill J said, “without the Bank’s failures, the money could not be effectively laundered.”
Cockerill J sentenced NatWest to: (i) a fine of £264,772,619.95; (ii) pay the Financial Conduct Authority’s costs of £4.2 million; and (iii) pay a £460,000 confiscation order.
In calculating the penalty, in the absence of specific sentencing guidelines for offences under the MLRs, Cockerill J applied the Sentencing Council guidelines used for corporate offenders convicted of fraud, bribery or substantive money laundering. The judge applied a 40 per cent discount to the “harm” element of the penalty calculation, to reflect that offences under the MLR 2017 do not require any criminal intent. However, Cokerill J declined to grant a discount to reflect the bank’s commitment to remediation through investing £1bn in its financial crime programme over five years. The fine also includes (i) a 15 per cent uplift to reflect the need for appropriate additional punishment and deterrence; and (ii) a reduction of one third in the light of NatWest’s early guilty plea.
NatWest’s sentencing signals the FCA’s increasing appetite to use its criminal powers to prosecute AML offences. The FCA has signalled its intention over recent years to more routinely open investigations into AML failings as dual track investigations (which can result in either criminal or civil action). Such AML investigations are reported to be ongoing into a number of institutions.
The NatWest case highlights the size of the criminal financial penalties that can be imposed under the MLR 2007: fines are not subject to a statutory cap. The penalty is set by reference to the Sentencing Council’s Guidelines, and is based on an assessment of culpability and harm, and weighted against factors that increase or reduce the seriousness of the offence. In this instance, on the one hand, despite NatWest not receiving any financial benefit form the money laundering (it made a loss on its overall relationship with the customer), its fine of £265 million included an increase of 15 per cent to “reflect the need for appropriate additional punishment and deterrence”. On the other hand, the fine was reduced by one third because NatWest plead guilty at the first available opportunity. This fine dwarfs the largest civil fine imposed by the FCA for an AML systems and controls failings of £163m in 2017.
Reputational harm, procurement debarment and licencing consequences may also arise out of a criminal conviction. In this instance the FCA has chosen not to strip NatWest of its regulatory approvals or take action against any individuals. However, both options are available in future prosecutions.
This case is an example of the wider trend towards the criminalisation of systems and controls failures, and other forms of corporate negligence, in the UK. This trend includes the Bribery Act 2010, the tax evasion provisions of the Criminal Finances Act 2017 and more recently the criminal offences in the Pensions Act 2021.
Mark Steward, the Director of Enforcement and Market Oversight at the FCA, has consistently stated that the FCA will only seek criminal prosecution in the most egregious cases. We will have to see if the FCA seeks to use its criminal powers in the context of (i) cases where there is no evidence or no clear evidence of actual money laundering or (ii) cases involving more complex underlying systems and controls issues, given the need to explain the case to a lay jury in criminal proceedings and the policy objections to the use of criminal proceedings in such circumstances given the FCA’s extensive civil powers.
For now, the criminal conviction of NatWest remains a one-off case, but we must wait and see whether the FCA delivers on its promise, made in September 2021 by the FCA CEO Nikhil Rathi, to be “a regulator that tests our powers to their limits.”
Trainee Solicitor Stephen Lau also contributed to this blog.