R (The Financial Conduct Authority) v National Westminster Bank plc, [2021] Lexis Citation 250 (13 December 2021)

Corporate Crime analysis for Lexis Nexis, by Barnaby Hone, 5SAH Chambers

NatWest Plc pleaded guilty to three counts of breaching the Money Laundering Regulations 2007, SI 2007/2157 (MLR 2007). The counts related to the way they managed the accounts of Fowler Oldfield. This was the first time a bank has been found guilty of breaches of money laundering regulations and demonstrates how the courts approach the sentencing of banks for breaches of money laundering regulations. 

What are the practical implications of this case?

The case sets out a template of how a financial institution should be sentenced in future for a breach of MLR 2007 and the replacement Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, SI 2017/692 (MLR 2017). The case provides a template for how other financial institutions will be sentenced for similar breaches, and therefore provides some certainty for bodies who commit these types of offences. Previously, these types of offences typically have been dealt with by way of civil penalties, levied by the Financial Conduct Authority (FCA) but the FCA appear to have taken a more robust approach to dealing with breaches of the regulation.

There are no specific sentencing guidelines for this offence. Therefore, the judge had to consider the fundamental principles of sentencing when considering what sentence to impose. The Judge considered the Attorney General’s guidelines on 'plea discussion in cases of serious or complex fraud' and the Consolidated Criminal Practice Direction. The starting point were the overriding principles of sentencing and the corporate sentencing guidelines for fraud, bribery and money laundering.

The judge set out what is in effect a four-stage approach to sentencing. First considering what the harm was, and how it should be assessed. This was determined as following the money laundering guidance for harm, but then reducing it by 40%. This is a useful and straightforward approach.

The second step was to determine culpability using the consideration of the corporate sentencing guidelines. These considerations allow the calculation of a starting point.

The third consideration is whether there should be a further adjustment to the penalty to achieve the removal of all gain, any necessary additional punishment and deterrence.

Fourth, any statutory reductions for an early guilty plea. Removal of all gain will be normally be achieved by confiscation proceedings. After the sentence is determined, ancillary orders such as confiscation, costs and the victim surcharge will need to be determined.

What was the background to the case?

Fowler Oldfield was a gold-trading company. They opened an account with NatWest in 2011. Originally, they were a company that undertook no cash transfers. There original compliance documents stated that the use of the companies account would be limited to transfers to a number of partners. Over time, this started changing. These changes included changes of directors, which should have been scrutinized in more detail by NatWest.

NatWest also made mistakes in their risk assessment of the company and downgraded it from a high risk to a low risk due to an issue in their risk assessment system. This was later changed to medium risk manually. This did not reflect the fact that the company was always a high-risk operation.

From November 2013 the company’s account started receiving cash deposits. This started with relatively small amounts, in comparison to what was to come, but by April 2014 an average of £1.8 m was being deposited in cash into the account. Though a number of internal questions were raised on these issues by NatWest none were investigated properly. Though there had been a dramatic change in the use of the account the activity continued without any substantive action until June 2016. In this time a number of internal flags were raised but due to inexperience and a lack of proper internal information sharing, there was no decisive action. No Suspicious Activity Reports were made on the account in this time.

So NatWest had failed to put in place sufficient monitoring systems and failed to correctly investigate the issues which were raised with the account. The risk assessment had automatically been moved from high to low, due to an error; too much emphasis had been placed on the relationship manager to assess the risk and possible issues that emanated from the account and no competent investigation occurred when the director changed and when the companies account started averaging cash deposits of £1.8m a month.

In June 2016, West Yorkshire Police began an investigation into Fowler Oldfield. They requested and received NatWest’s assistance. An in-depth internal investigation by NatWest was only launched when West Yorkshire Police found that Fowler Oldfield was part of a large money laundering operation the police were investigating. It was at this point that the extent of NatWest’s regulatory failures came to light. They then self-reported these issues and took steps to remedy them.

What did the court decide?

The judge sentenced NatWest to a fine of £264,772,619.95, ordered them to pay the FCA’s prosecution costs of £4,297,466.27 and made a confiscation order in the sum of £409,047.04. A victim surcharge was also payable by the bank.

The court decided that the starting point for the harm could be calculated at £287,794,887.06 which was the turnover of Fowler Oldfield until the 23 June 2016. Though there was a further £66,527,680.87 paid into the account, this was with the cooperation of West Yorkshire Police, so as not to alert the company that an investigation was ongoing. This was reduced by 40% of the overall harm figure as this was a breach of the MLR 2007 rather than money laundering offences under the Proceeds of Crime Act 2002 (POCA 2002). So, the harm was calculated as £172,676,932.23.

The judge decided that the culpability was medium. This was on the basis that there was a mix of mitigating factors. The judge balanced the cooperation of the bank and the action they have already taken, with the fact that they had previously committed breaches of the regulations which had been punished by way of civil fine. The range of the multiplier for culpability was between 100% to 300%. The judge decided that considering all the factors the current starting point was 200% of the harm.

The judge decided to increase this by 15% as a deterrent to further offending and as punishment for the offending. The judge noted that the bank planned to invest a billion pounds into improving its anti-money laundering regime, but decided that this was still a profitable business and an example needed to be made. This led to a fine of £397,156,944.14 which was reduced by a third for NatWest’s early guilty plea.

The confiscation order was agreed at £469,047.04. This represents the fees earned by NatWest from Fowler Oldfield over the relevant period.

Case details

  • Court: Southwark Crown Court
  • Judge: Mrs Justice Cockerill
  • Date of judgment: 13 December 2021

Barnaby Hone is a barrister with specialist expertise in all types of asset recovery and financial crime. He is ranked in Chambers and Partners and the Legal 500 for his knowledge within POCA, asset recovery, and forfeiture.  Barnaby writes the chapters on International Asset Recovery and Terrorism Finance for Millington and Sutherland Williams on POCA.

This article was originally published by Lexis Nexis PSL. If you have any questions about membership of LexisPSL’s Case Analysis Expert Panels, please contact caseanalysiscommissioning@lexisnexis.co.uk.