UK regulators have imposed a record level of money laundering penalties on banks in 2021, and experts predict fines will remain steep as the country’s Financial Conduct Authority exercises its powers to pursue criminal charges.
The cases brought by the Financial Conduct Authority, or FCA, against NatWest Group PLC, Credit Suisse AG and HSBC Holdings PLC helped bring the value of anti-money laundering fines in the UK to $672 million in 2021, is more than tripled $206 million in 2020, according to a study by regulatory technology company Fenergo.
“In the past, fines were seen as the cost of doing business,” said Nick Baxter, a UK-based banking consultant and director of Rockstead, a provider of regulatory compliance services. “Now you have reached a point where the fines are so great that it is no longer cheaper to pay the fine and not fix the systems and controls.”
Regulators across Europe are issuing bigger fines than before, said Rachel Woolley, global director of financial crime at Fenergo. There has been “a shift in the narrative” in that the “tempting sanctions” no longer come exclusively from US regulators, Woolley noted.
The increase in the total value of fines in Europe, and the UK in particular, bucked the global trend in 2021. The value of penalties related to anti-money laundering offences, to sanctions, the Markets in Financial Instruments Directive and data privacy regulations around the world has halved in the past year, with fines issued in the United States down about 75%, according to the research.
Beware the Watchdog
The FCA’s readiness to use its criminal powers has made it “a more powerful force,” said Tony Wyatt, associate attorney at Ewing Law.
A case against NatWest in 2021 was the first time the FCA has brought criminal charges against a bank since it was given such powers under the 2007 money laundering regulations. It led to a UK court fining NatWest £264.8million in December 2021, after the bank pleaded guilty to failing to monitor the suspicious activities of a customer who deposited hundreds of millions pounds in cash over five years. CEO Alison Rose said at the time that NatWest regretted the failure and that he takes his responsibility to prevent and detect financial crime “extremely seriously”.
The sentencing was a “huge victory” for the FCA and will likely give it the confidence to pursue criminal actions in the future, said Julian Hui, senior partner in the practice of financial services regulation at the law firm. Baker McKenzie in London.
“The FCA is demonstrating that it can actually do these big criminal executions and get big results. [The NatWest conviction] will probably embolden him a bit,” Hui said.
The regulator told the FinancialTimes it has about 40 active anti-money laundering cases, the newspaper reported on January 17. Of these, 29 are regulatory investigations, two are criminal investigations and three are civil investigations, while six are “dual track”, meaning they could end up being criminal or civil action.
Fines imposed by the courts can be much larger than those awarded directly by the regulator, Hui said. Concern for reputation of banks found guilty of criminal offense ‘is massive’ wyatt said, adding that once faced with criminal law, directors of a bank can also become personally liable.
Hui expects the FCA to pursue at least one other criminal lawsuit related to anti-money laundering regulations over the next two years. The big unknown is whether reported staffing shortages could start to bite, Hui noted. The FCA had to turn to private law firms to help process applications and spent nearly £1million on headhunters in 2021 amid high vacancies, the FinancialTimes reported in December.
Asked about the regulator’s willingness to use its power to pursue criminal convictions, an FCA spokesperson said by email that anti-money laundering cases “remain a strategic priority” and that it “will take all necessary enforcement action based on the evidence”.
New European Narrative
Europe, the Middle East and Africa was the only region where the value of financial penalties increased in 2021 to $3.45 billion from just over $1 billion in 2020, according to Fenergo.
Three of the top five money laundering penalties in 2021 came from Europe. These include a €1.8 billion fine imposed on UBS AG after a French court found it had covered up serious tax evasion and illegal banking activities in the country, and a settlement of 480 million euros between ABN AMRO Bank NV and Dutch prosecutors for anti-money laundering violations. NatWest’s fine in the UK was the fifth highest penalty of the year.
The United States continued to be a top emitter of financial fines, although penalties fell to $1.20 billion in 2021 from $4.40 billion a year earlier, according to Fenergo. While US regulators have in the past imposed significant fines on non-US banks, 2021 has seen a greater focus on local banks, with penalties generally of lower value, said Woolley.