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NatWest’s involvement in an evolving money laundering investigation has captured the attention of the industry.
Unlike the usual enforcement action taken by the UK’s Financial Conduct Authority (FCA), which focuses around regulatory infringements such as a policy or process, this case centres around a specific customer.
The FCA has accused NatWest of processing £264 million in cash transactions for a Bradford-based gold jeweller and scrap metal dealer, Fowler Oldfield.
Despite the customer’s last unaudited accounts, from 2014, showing net assets of just £81,129, the bank still processed transactions in the millions on behalf of the company between 2011 and 2016.
The FCA said in September last year it had cancelled half of its money laundering investigations for the calendar year.
Rachel Woolley, global financial crime director at Fenergo, refers FinTech Futures to a statement made by the FCA in September last year. It said it had thrown out half of its money laundering investigations, seven out of 14, in 2020.
Rachel Woolley, global financial crime director at Fenergo, says these seven may not have met the “minimum threshold”, and weren’t solid enough to guarantee a court win.
NatWest is the first bank facing criminal procedures under the UK’s 2007 money laundering regulation (MLR), so why now?
Woolley reckons this case could be the first of many. “I don’t think this is in isolation,” she says. “I think there’s probably a few more that are going to come out in the coming months.”
It’s unclear exactly how large-scale money launderer Fowler Oldfield, which allegedly shifted up to £2 million a day until its liquidation in 2016, beat NatWest’s systems.
As the bulk of transactions were paid in cash, Woolley suggests the company could have used money mules, and deposited cash at multiple branches to spread out the total.
“Even sophisticated transaction monitoring should be able to flag this,” she says. “What’s fallen out of place here is the ability to join dots together.”
NatWest was alerted to the investigations back in 2017, a year after proceedings into Fowler Oldfield commenced.
Woolley says it’s unlikely NatWest is the only bank implicated in the Bradford-based money laundering operation. She also speculates that large values of cash long-term isn’t normal for a jeweler-based business.
Initial reports referred to Fowler Oldfield as a “money service business”. In some cases, entities which deal in high cash values operate money services businesses.
“The case highlights the need for better controls, more robust processes, and a clear understanding of know your customer (KYC) requirements.”
Money laundering-related laws have evolved in the UK since Fowler Oldfield’s liquidation in 2016. The UK has taken on up to the fifth EU anti-money laundering (AML) directive, prior to the consolidation of Brexit.
“It’s taking time for regulations and solutions to catch up with the criminals,” says Woolley. “But we’re certainly in a better place than we were four years ago.”
Between January 2015 and August 2019, more than a third of bank branches closed, totalling 3,303.
Such macro-economic factors may have had an effect on money laundering tactics. Pre-2016, washing money through a high street bank’s shop window might have sufficed. But with shutters rapidly coming down, criminals could be pivoting.
In the last year, Woolley points out the effect the health crisis has had on the way banks are monitoring transactions. “You will have seen a lot of financial institutions update their own thresholds and fine tune transaction monitoring systems,” she explains.
“Because all of a sudden you have a lot of cash intensive businesses which aren’t doing business anymore. So, you have to ask, where’s their cash coming from?”
This ability to respond to macro-economic factors is something Woolley thinks banks will have to, if they haven’t already, master in order to avoid the headlines.
West Yorkshire police raided Fowler Oldfield’s premises in 2016. They seized assets estimated to be worth £2 million, alongside financial records.
The original investigation resulted in a number of arrests, including convictions in Bradford crown court for those acting as cash couriers.
The Times highlighted that a judge said the case involved money-laundering “on a massive scale”.
Woolley explains: “I would imagine that it’s on the back of this investigation that [the FCA is] joining the dots to all of the other stakeholders in the ecosystem of activity.”
She adds: “it’s a lot harder to adjudicate on something where you’re implicating a financial institution, or any entity, that isn’t directly responsible for the criminal activity”.
Whilst the criminal behind this case isn’t the bank, it still raises questions as to whether NatWest did its job.
“It speaks to a bigger issue,” says Woolley. “Which is the ability in the first place for these systems to be breached.”
Whilst Woolley agrees sharing the investigation details is in the public interest, the AML expert questions what the reports are achieving beyond a short-lived “buzz”.
“The reality is that you’ve got an organised criminal group which has circumnavigated controls that exist now.”
“I know that there’s been significant enhancements made by [NatWest], which is the case with all financial institutions, particularly in the UK,” she says.
“But what it doesn’t speak to, necessarily, is the ability for the organised criminal group to continue to circumnavigate those controls.”
As of yet, it is unclear whether other financial institutions, besides NatWest, are involved in the case. But with the FCA yet to unveil six money laundering investigations it kept on from last year, many in the industry will be waiting to see who falls under its gaze next.
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