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NatWest cops landmark £265m money laundering fine for dirty money failures

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The first criminal conviction of a bank under UK anti-money laundering laws should focus minds on compliance basics, accounting experts have said, after “incredible” failings led NatWest to accept musty-smelling bin bags containing millions of pounds in cash from a criminal gang.

16th Dec 2021
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NatWest has been fined £265m after pleading guilty to money laundering offences linked to a jewellery dealer whose enormous cash deposits often arrived in ripped, smelly bin bags.

In the first criminal conviction of a bank under UK anti-money laundering laws, NatWest admitted significant, egregious errors in its monitoring of Fowler Oldfield (Fowler), a gold bullion dealer, between 2012 and 2016. 

Southwark Crown Court on Monday heard the “catalogue of failures” involved the bank’s automated transaction system incorrectly recognising cash as cheque deposits, tellers’ concerns over the prominent stink of bank notes, and the suspicious behaviour of some depositors going unreported.

The fine would have been much higher but for the bank’s guilty plea, Mrs Justice Cockerill said in sentencing, adding that the bank was not complicit in the money laundering despite its carelessness.

“Of course, with hindsight it seems incredible that no one noticed suspicious behaviour - especially as at the height of the activity £1.8m was being deposited a day in cash,” said Janet Jack, chief executive of the International Association of Bookkeepers (IAB).

“NatWest has said it deeply regrets failing to monitor the customer properly but this case is a reminder to all of us who work in accountancy or wider financial services of the importance of anti-money laundering rules and the need to be vigilant,” said Jack.

Serious compliance failure

When taking on the family-owned Bradford-based dealer as a customer, the bank understood it would not handle cash from the business, yet £365m was eventually deposited, of which around £264m was in notes.

At some point in 2013, Fowler’s risk rating was changed from “high” to “low” in the bank’s internal systems. NatWest was unable to explain how or why this occurred, but soon followed a litany of compliance failings connected to the account.

Relationship managers inside NatWest carried out almost no checks on the nature of the business, the court heard, while a change in Fowler’s operating model that would usually trigger multiple high-risk notifications passed without review.

“There was certainly and obviously a serious compliance failure,” said Charlie Steele, partner at Forensic Risk Alliance. “There were cases like this in the United States a few decades ago, involving repeated large deposits of bundles of cash in circumstances suggesting links to crime, but we haven’t seen cases like that more recently, since the US government significantly ramped up criminal and civil anti-money laundering enforcement.”

Increasingly sizable cash deposits were made to various branches monthly, starting at £148,760 in November 2013 to £2.35m by June 2014, with no red flags raised by NatWest’s systems. Scottish notes were often handed over to branches in bulk and far from the border.

Several front office staff reported suspicions to managers responsible for investigating suspected money laundering, however no appropriate action was ever taken.

“The question is not so much how did NatWest miss the suspicious nature of numerous cash payments (they did not to the extent that concerns were raised), but in light of such egregious warning signs, why were concerns not acted on and further steps not taken?” said Thomas Cattee, head of white-collar crime at Gherson Solicitors.

“Indeed, it appears that the risk rating was mischaracterised, warnings were not properly investigated, and there was a general lack of experience. All-in-all the required regulatory controls were fundamentally inadequate,” he told AccountingWEB.

‘Torn bin bags full of cash’

Red flags included significant amounts of Scottish bank notes deposited throughout England, notes carrying a prominent musty smell, and individuals acting suspiciously when depositing in branches.

Some NatWest branches which received sums between £12m and £43m included the deposit of such large sums that they were brought in black bin bags “which tore because of their weight, and sums so large that the bank’s safes were inadequate to store them,” the court heard.

Vigilant staff raised concerns of handling large amounts of cash that smelled like it had sat in storage for long periods rather than being used for business, but their complaints were generally ignored.

A NatWest office specifically set up to deal with money-laundering investigations, at Borehamwood, missed most of the alerts, which the bank blamed on inexperienced staff. The court heard, however, that employees were pushed to close suspicious alerts quickly rather than focus on investigating or filing with crime agencies, and that Borehamwood had a high turnover of staff.

The court heard a suspicious activity alert generated in 2015 naming Fowler concerned an account belonging to a supplier of hair extensions and wigs was also overlooked. The company had received almost £387k from Fowler, following which the funds were transferred to a pub business before being transferred out to money transfer businesses. No action was taken, and the alert was not passed on to crime agencies. The incident was typical of the failings surrounding NatWest’s handling of Fowler.

In addition, the bank’s automated transaction monitoring system incorrectly recognised some cash deposits as cheques, which carry a lower money laundering risk. This was a significant gap in the bank’s monitoring and enabled millions in dirty money to be washed, said the Financial Conduct Authority, which brought the case.

“NatWest is responsible for a catalogue of failures in the way it monitored and scrutinised transactions that were self-evidently suspicious,” said Mark Steward, executive director of Enforcement and Market Oversight at the FCA. “Combined with serious systems failures, like the treatment of cash deposits as cheques, these failures created an open door for money laundering.”

Sign of things to come

The first case brought by the FCA under money laundering laws is unlikely to be the last, experts said.

“As such, and especially now that the FCA has cut their teeth for this type of prosecution, institutions that could also be on the FCA’s radar would do well to ensure proper checks are implemented going forwards, proper systems are in place, any concerns are properly acted upon, and lastly, hope that there are no skeletons in the closet,” said Cattee.

Practitioners are warned the spectacular nature of NatWest’s failure should not be seen as an outlier; the regulator has promised to increase site visits and prosecute aggressively where it can, even if it is unsure of victory.

“At least one FCA official made a comment to the effect that the case shows that the FCA is up to effectively enforcing the laws through criminal prosecutions,” Forensic Risk Alliance’s Steele added.

Compliance fines in the United Kingdom reached £36.6m during the first half of 2020, said IAB’s Jack, which “absolutely pales into insignificance” compared to the NatWest fine.

"The pandemic over the past 20 months has interrupted many business activities but unfortunately money laundering hasn’t been one of them,” she said, adding that “constant vigilance is needed to stay one step ahead of the money launderers”.

Replies (22)

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By Justin Bryant
16th Dec 2021 12:07

If this were a small accounting/law practice it would presumably be shut down over this. Too big to fail is the more fundamental problem here.

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Replying to Justin Bryant:
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By Hugo Fair
16th Dec 2021 14:11

Quite.
Given the quantity of 'concerns' raised by operational staff (but ignored), and the sheer volume of physical evidence, it is frankly inconceivable that there wasn't any internal collusion somewhere within the bank.
So why no prosecution of individuals?
Unlike the impact on a small accounting/law practice, any penalties don't hit the transgressors.

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By GHarr497688
16th Dec 2021 13:45

Right so I am a little tiny micro business with a handful of hairdresser , restaurants , window cleaners , small shops - most keep reasonable records and pay tax on time and yet I am to get their ID , check it against a register , look in who I am dealing with , watch they they don't buy a stamp for a personal letter , do a Firm wide risk assessment etc.etc. Pay a Fee on £300 for AML (interesting that this year HMRC have completely made a mess of the renewal which means I am bombarded with email threatening me - I reply and get no response from anyone ) whilst Nat West appear to ignore the rules and pay what really is a minuscule amount given they are part Government owed etc etc. What is this County coming too . I can't believe who must be managing these Firms and would think the whole AML rules need an overhaul. If you recall when MTD 4 Vat came in it was discovered many Accountants were not even registered. I despair.

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Replying to GHarr497688:
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By jamiea4f
17th Dec 2021 10:54

HMRC make a mess? Surely not..

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By CJaneH
16th Dec 2021 13:45

I assume every one followed procedure, accepted the status quo, did their own job, but did not think let alone question!

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Replying to CJaneH:
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By Hugo Fair
16th Dec 2021 14:03

"Well it was only my job to count the number of bin-bags brought in - which I did. I think it was George's job to weigh each bag. I'm not sure who was meant to check if we were allowed to do the counting/weighing, but someone must have done that surely?"

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By Paul Crowley
16th Dec 2021 14:43

Why do we bother?

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the sea otter
By memyself-eye
16th Dec 2021 18:05

Quite.
If even the big boys fuchs up, what chance for us mere mortals?
I had a GDPR (more crap) reminder last week - told them to F off (politely of course) as no longer have a computer...

This was posted from my abacus.

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By Justin Bryant
17th Dec 2021 10:12

Basically when you are too big to fail, you don't really need to worry about such things. See also: https://www.bbc.co.uk/news/business-59689581

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Replying to Justin Bryant:
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By jwgrogan
17th Dec 2021 18:03

That is : HSBC fined £64m for anti-money laundering failings.

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David Winch
By David Winch
17th Dec 2021 10:14

The anti-money laundering failures at NatWest in this case are simply mind-boggling!

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By brumsub
17th Dec 2021 10:29

I find it hard to believe that these are compliance failures in the main. More like collusion or turning a blind eye by officials concerned. Heads should roll and there must be prosecution of Money Laundering officers involved right up the chain.

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By Ian Bee
17th Dec 2021 11:11

I have heard stories of legitimate cheque deposits being stopped by the receiving bank on account of being for a large amount. Maybe overzealous but you can see how that happens. Then massive amounts of cash get accepted by NatWest, despite concerns from staff members?

Very strange.

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Replying to Ian Bee:
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By Justin Bryant
17th Dec 2021 11:19

Never attribute to conspiracy that which can be explained by incompetence (and/or sheer indifference in this case per my above comments).

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By Arcadia
17th Dec 2021 12:06

I fail to see how this 'should focus minds on the basics', a comment attributed to ' an accountancy expert'. Are we all to check back to make sure we didn't let one of these through? What are we supposed to do exactly? Advise our clients to get stronger bin liners?

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By colinstewart
17th Dec 2021 13:03

Another 'words fail me' response: So Natwest are as bad as the big accountancy firms when it comes to regulatory compliance and performance in relation to the standards that they are required to maintain. I hear the too big to fail claims, and you are wrong. You are wrong because there is not enough competition in the market and closing down any business does not solve the problem. What solves the problem is hanging individuals out to dry: Where are the bosses of Natwest being handed custodial sentences? Where are the partners of the big five having their practicing certificates withdrawn and the membership of the ICAEW rescinded? That is where the big and small differ and we are all small so we are all more likely to suffer the wrath of the regulators, however, we are smarter because we use our common sense and don't accept bags of used fivers!

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Replying to colinstewart:
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By Justin Bryant
17th Dec 2021 14:04

But they are too big to shut down in the 1st place is my TBTF point (and that clearly is not wrong by definition). Your other point is a general point about regulators and the like finding it too difficult & expensive to properly enforce rules against big fry and small fry are easier targets (to show their paymasters that they are (purportedly) doing their job), so they're the ones more likely to get shut down and fined etc. in general all else being equal ignoring TBTF.

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Replying to Justin Bryant:
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By colinstewart
17th Dec 2021 16:34

TBFT, Trailer Boat Fishing Tournament
TBFT ; To be fair though
What does TBFT stand for? · — Too Big for Teens

Don't worry - I don't really need to know!

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Replying to colinstewart:
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By Hugo Fair
17th Dec 2021 19:10

To be fair, whether you love or loathe acronyms, you'd have got further if you'd used the same four letters (in the same order) as Justin ... TBTF (not TBFT).

And he did use the full version (too big to fail) more than once in earlier posts on this thread ... but if you don't really need to know, then there's no problem anyway.

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Replying to Hugo Fair:
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By colinstewart
18th Dec 2021 10:02

Thank you Hugo, is that what they are called.

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By Springfield
17th Dec 2021 14:03

Anyone who has read Bob Mayer's Disaster Guides will know that there are generally seven steps to any catastrophe, like a plane crash or a military disaster.

As someone who, in the seventies and eighties worked in several High Street bank branches and subsequently in its head office treasury, I think I can spot a few of these here, although I used to see risk and funding horror stories rather than money laundering which wasn't a thing back then.

The first and most obvious one is the deferential attitude to "big" customers. In the old days a branch manager would happily tell a hard-up student that he wouldn't cash his £30 cheque and ten minutes later authorise a £250m telegraphic transfer payment by "Big" plc (his biggest and best customer) without a moments thought as to whether they actually had the money in place to fund such a transaction.

So, we'd have to occasionally tell a local Captain Mainwaring - "Do you realise that despite your lending discretionary power being £50,000, you've inadvertently just granted your customer a £100m overdraft?"

Or on another occasion "let's hope that £250m turns up tomorrow as we've had to take an emergency loan from the Bank of England this afternoon to cover that payment you authorised, and they'll want it back in the morning.!"

"Big" customers can account for the vast majority of one branch's annual fees and charges income, so why risk rocking the boat or upsetting them with a simple phone call to see what they were up to? Of course, normally it would be fine - until the day when, say, the payment instruction comes in a day early, and suddenly it's not fine at all.

We then move through the stages of :

Inertia - "it's always been done this way", to

Safety in numbers - "if there was anything wrong someone else would have spotted it", and on to

Faulty Alarm - "can't we fix that bloody alarm that keeps going off?", to

Fingers in the ears - "I've a horrible feeling something's wrong here but I'm frightened to be the one to put my head above the parapet" to

Escape - "with any luck I'll be in a different job when the s..t hits the fan.

You get the idea.

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Replying to Springfield:
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By Arcadia
17th Dec 2021 15:24

A good point being made here about fingers in ears. Whistleblowers get the sack, not a bonus.

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