The City watchdog has launched criminal proceedings against state-owned lender NatWest for allegedly failing to prevent money laundering, in the first prosecution brought under rules introduced in 2007.
The Financial Conduct Authority alleges that NatWest, formerly known as Royal Bank of Scotland, failed to monitor and properly scrutinise transactions linked to a corporate customer account in the UK that was collecting “increasingly large cash deposits” between November 2011 and October 2016. It is alleged that £365m was paid in over that five-year period, including £264m in cash.
The FCA said: “It is alleged that NatWest’s systems and controls failed to adequately monitor and scrutinise this activity.” No individuals are being charged.
NatWest, which is still 62% owned by the taxpayer following its government bailout in 2008, said that the prosecution related to its commercial banking division, which deals with corporate customers. It said the client that the FCA referred to was no longer banking with the lender.
The corporate customer in question is understood to be Bradford-based jeweller and gold dealer Fowler Oldfield, which was raided by police in 2016 and subsequently closed. The firm was described as being the centre of a multimillion-pound money laundering business, according to crown court proceedings that followed.
NatWest is scheduled to appear at Westminster magistrates court on 14 April to respond to the charges.
The lender could face unlimited fines if it is found guilty of breaching the FCA’s anti-money laundering rules, which have yet to be tested in UK courts.
Any fines paid by the lender would go to the Treasury, which is also in charge of managing the government’s stake in the lender through a body known as UK Government Investments.
“This is a 62.4% state owned bank, and so we have the irony of the government prosecuting itself,” Jonathan Fisher QC, and a barrister at Bright Line Law, said.
NatWest has not yet put aside any cash to cover the costs of the trial or a potential conviction.
However, the Guardian understands that the FCA will not be looking to revoke NatWest’s regulatory permissions if it is convicted.
It is the first criminal prosecution under the money laundering regulations introduced by the FCA in 2007 , and the first prosecution under the regulations against a bank.
The City regulator is bringing proceedings against NatWest under a section of regulation that requires firms to maintain adequate and effective anti-money laundering systems and controls, and to take “all reasonable steps to prevent their use for money laundering purposes”.
NatWest said it had been cooperating with the investigation since the FCA notified it in July 2017. The bank added: “NatWest Group takes extremely seriously its responsibility to seek to prevent money laundering by third parties and accordingly has made significant, multi-year investments in its financial crime systems and controls.”
It is the first time NatWest has been prosecuted for money laundering. The bank said it had more than 4,000 staff – 8% of its headcount – dedicated to detecting and preventing financial crime and had invested more than £1.2bn in improving its systems and controls in the last decade.
The prosecution is a major blow to NatWest’s reputation and the efforts of its chief executive Alison Rose to repair it. The bank nearly collapsed in 2008 requiring the UK government to step in with a £45bn bailout.
The RBS brand was further sullied by claims that it mis-sold toxic mortgage-backed securities in the lead-up to the global credit crunch. It was also accused of pushing small businesses towards failure in order to sell their assets for profit. However, the FCA dismissed those allegations in 2019, and the bank said its handling of struggling business customers was “fundamentally different” than in the wake of the financial crisis.
Rose, a NatWest lifer who took over as chief executive in November 2019, has since rebranded the lender as NatWest.
Fisher, who specialised in money laundering cases, said the NatWest case could potentially be “very damaging” for the lender and could leave the bank with “a lot of explaining to do.”
“Other financial institutions will be sitting less comfortably today if their anti-money laundering procedures are not totally compliant with the requirements of the regulations,” he said.
The FCA said it was conducting separate investigations into other firms under the money laundering regulations.