Money laundering in the spotlight

Money laundering in the spotlight - FCA launches criminal proceedings

Banks breaching money laundering regulations often grab front-page headlines - and not just in the business press. Eye-watering sums of money and criminal involvement are a far more interesting read than an obscure technical breach of regulations that very few understand.

Danske, Denmark's largest bank, is a case in point. Between 2007 and 2016 it's estimated that around €200 billion of non-resident money flowed through its Estonian branch. At one point non-resident business accounted for 99% of the branch's profits and 11 per cent of Danske's total profits, according to the Financial Times. Yet the branch was small and accounted for less than one per cent of the bank's assets. Clear red flags were missed and ignored, and the ramifications of the scandal continue to unfold several years after reports of money laundering were first made public in 2017.

Cases involving the laundering of huge sums of money associated with criminal activity and the failure of senior bank management to take action in the face of obvious red flags are (fortunately) rare. A rarity that contributed to the significant level of media coverage in the Danske case. But systemic control failures and regulatory breaches at a transactional level on a smaller scale can cause serious reputational damage and regulatory sanctions, as the UK's NatWest Bank has recently discovered.

Natwest is facing criminal proceedings relating to possible money laundering breaches between November 2011 and October 2016, according to a Financial Conduct Authority (FCA) press release on 16th March. The FCA alleges that sums totalling around £365 million were paid into customer accounts, including £264 million in cash, without adequate scrutiny.

This represents a major blow to NatWest, which rebranded its parent company to NatWest Group plc last year, leaving behind the RBS name associated with some of the worst excesses of the banking boom and subsequent financial crisis of 2008.

Anti-money laundering (AML) requirements have become tougher over time and this is set to continue, which poses a challenge for banks. Risks are increasing as criminals use ever more sophisticated schemes to circumvent controls, while regulators are taking a firm stance where they find controls to be absent, poorly designed or inconsistently applied.

Whether or not the UK's money laundering legislation is overly complex is one for lawyers to debate, but the challenge of interpretation and implementation sits squarely with the banks. Applying AML controls consistently and comprehensively in the face of reduced margins, pressure to maintain lending levels and stagnant share prices is a difficult balancing act, which unfortunately NatWest seems to have got wrong.