UK watchdog bares more teeth in its war on money-laundering 

The debate about the pres­ence of Russ­ian oli­garchs and their vast assets in the UK after the Putin regime’s inva­sion of Ukraine has pushed the prob­lem of mon­ey-laun­der­ing up the polit­i­cal and reg­u­la­to­ry agen­da.  

An esti­mat­ed £88bn is laun­dered each year in the UK, accord­ing to research by Credas Tech­nolo­gies, a spe­cial­ist in ID ver­i­fi­ca­tion soft­ware. Based on data from the OECD, its fig­ures indi­cate that only the US (£217bn) is home to more mon­ey-laun­der­ing. The UK’s fig­ure is well above that of France (£55bn) and Ger­many (£51bn). Yet there is evi­dence that even before this sud­den – and, many would say, over­due – con­cern in the UK about the scale of crim­i­nal activ­i­ty, the author­i­ties were already start­ing to take a tougher line on the issue.

The Finan­cial Con­duct Author­i­ty (FCA) has start­ed using its pow­er to mount pros­e­cu­tions on top of impos­ing reg­u­la­to­ry penal­ties and civ­il fines against mon­ey-laun­der­ers. The reg­u­la­tor was grant­ed this capa­bil­i­ty in 2007, but it was only in Octo­ber 2021 that it secured its first con­vic­tion. NatWest was fined £264.8m for fail­ing to prop­er­ly mon­i­tor the activ­i­ty of a com­mer­cial cus­tomer, Fowler Old­field, a jew­ellery busi­ness based in Brad­ford. Dur­ing the time that NatWest served as the firm’s bank, approx­i­mate­ly £365m was deposit­ed with it, of which about £264m was in cash, even though their orig­i­nal busi­ness arrange­ment did not cov­er the man­age­ment of cash.  

Even though some employ­ees at the bank report­ed their con­cerns, no appro­pri­ate action was tak­en. Accord­ing to the FCA, the ‘red flags’ includ­ed sig­nif­i­cant num­bers of Scot­tish bank notes deposit­ed through­out Eng­land; notes arriv­ing with a dis­tinct­ly musty smell; and indi­vid­u­als act­ing sus­pi­cious­ly when pay­ing cash in at branch­es. In some cas­es, the mon­ey arrived in bin sacks. NatWest admit­ted to three offences under the Mon­ey Laun­der­ing Reg­u­la­tions 2007 (MLR).

“Tack­ling finan­cial crimes includ­ing mon­ey-laun­der­ing and financ­ing ter­ror­ism is a pri­or­i­ty,” says an FCA spokesman. “Finan­cial crimes harm soci­ety and the wider econ­o­my, erod­ing con­fi­dence in the UK finan­cial sys­tem. It’s imper­a­tive that the UK, as an inter­na­tion­al finan­cial hub, has an effec­tive regime to counter them. The FCA is com­mit­ted to mak­ing the UK bank­ing sec­tor a hos­tile envi­ron­ment for mon­ey-laun­der­ers.”

The reg­u­la­tor has 42 oth­er anti-mon­ey-laun­der­ing probes into firms and indi­vid­u­als in the pipeline, but only three of these are crim­i­nal inves­ti­ga­tions. The extra effort need­ed to mount a suc­cess­ful pros­e­cu­tion is sig­nif­i­cant.

Giv­ing evi­dence to the Trea­sury select com­mit­tee, Nikhil Rathi, the authority’s CEO, revealed that the Fowler Old­field case had required 30,000 hours of staff time, inter­views with 85 wit­ness­es and foren­sic reviews of 300,000 doc­u­ments, as well as 350 sep­a­rate exchanges of legal cor­re­spon­dence with the bank. Not sur­pris­ing­ly, crim­i­nal pros­e­cu­tions under the MLR are war­rant­ed only in “the most egre­gious cas­es”, accord­ing to the FCA.

James Alleyne, legal coun­sel at law firm Kings­ley Nap­ley, pre­vi­ous­ly worked in the FCA’s enforce­ment divi­sion. He notes that “the suc­cess­ful pros­e­cu­tion of NatWest for offences con­trary to the MLR is new ter­ri­to­ry for it. This reflects an increas­ing­ly aggres­sive and cre­ative approach to the treat­ment of seri­ous mis­con­duct.”

Unusu­al though it might be, the Fowler Old­field case should spur banks and oth­er reg­u­lat­ed busi­ness­es to review their anti-mon­ey-laun­der­ing prac­tices and ensure that their ‘know your cus­tomer’ activ­i­ties are fit for pur­pose. A call for evi­dence by the gov­ern­ment in July on the reg­u­la­to­ry and super­vi­so­ry regime also sug­gests a greater desire in West­min­ster to pur­sue crim­i­nal pros­e­cu­tions wher­ev­er pos­si­ble.

While enforce­ment inves­ti­ga­tions and finan­cial penal­ties seek to pun­ish pre­vi­ous mis­con­duct, they don’t aim to mit­i­gate the ongo­ing threats posed by weak con­trols against finan­cial crime. Accord­ing to Alleyne, there’s lit­tle doubt that the FCA is adopt­ing an increas­ing­ly assertive approach to the super­vi­sion of reg­u­lat­ed busi­ness­es. This, he says, fol­lows the report by Dame Eliz­a­beth Gloster into the col­lapse of invest­ment firm Lon­don Cap­i­tal & Finance, which left 11,000 peo­ple fear­ing the loss of their life sav­ings. 

“Firms with ongo­ing weak­ness­es in their finan­cial crime defences can expect increas­ing­ly intru­sive super­vi­sion by the reg­u­la­tor, includ­ing the impo­si­tion of require­ments on the FCA’s own ini­tia­tive,” Alleyne explains. “These can pre­vent a firm that’s under­tak­ing any activ­i­ty – reg­u­lat­ed or unreg­u­lat­ed – from tak­ing on new clients or serv­ing exist­ing clients.” This can result in “sig­nif­i­cant costs and dis­rup­tion” to the busi­ness­es con­cerned.

Oth­er observers have broad­ly wel­comed the FCA’s tougher approach but would like it to go fur­ther. Oliv­er Bul­lough, author of But­ler to the World: how Britain became the ser­vant of tycoons, tax dodgers, klep­to­crats and crim­i­nals, points out that bil­lions of pounds are “laun­dered through the City every year. These funds are the fruits of klep­toc­ra­cy, fraud, tax eva­sion, drug deal­ing, peo­ple traf­fick­ing and more.”

Bul­lough argues: “If this coun­try wants to put an end to such crimes, it needs to make laun­der­ing their pro­ceeds risky – and right now it’s not doing that. To fight finan­cial crime, law enforce­ment agen­cies need three things: resources, infor­ma­tion and sup­port. To help them, there­fore, the gov­ern­ment needs to mas­sive­ly increase their bud­gets, so that they can devote the same effort to attack­ing illic­it wealth as its own­ers put into defend­ing it.”

In some coun­tries, extra invest­ments in anti-mon­ey-laun­der­ing enforce­ment have pro­duced a healthy return, as fines are imposed and prof­its are prop­er­ly taxed. Bul­lough and oth­er cam­paign­ers are call­ing for polit­i­cal sup­port for those involved in a high­ly com­plex and some­times risky area of law enforce­ment that can cause embar­rass­ment for the rich and pow­er­ful. 

“There are many fac­tors that make Lon­don an excel­lent cen­tre for mon­ey-laun­der­ing. The total sham­bles of our law enforce­ment sys­tem is just one of those,” Bul­lough argues. “Solv­ing a prob­lem this big will take years of care­ful, ded­i­cat­ed work, rather than just one case. I hope this is the start of that process, rather than an iso­lat­ed spasm.”