Caution Advised: Anti-Money Laundering Regulations in the UK

By Joshua Ng


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HSBC and NatWest were recently fined £64 million [1] and £265 million [2] respectively for lapses in anti-money laundering protocol. This comes amidst a renewed crackdown by the UK’s Financial Conduct Authority on money laundering. Notably, the NatWest incident is the first instance of the FCA choosing to bring a criminal case instead of a civil one. [3]


The law on anti-money laundering


Given that the cases here are breaches of anti-money laundering safeguards (and not money laundering itself), it is likely that the applicable legislation is The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. This statutory instrument provides for either civil or criminal penalties to be imposed on an entity in breach of regulations. Civil penalties relevant to corporate entities include financial penalties (fines), [4] Publication of a statement censuring the entity, [5] and the suspension of the entity’s licence or authorisation to carry out its activities. [6] On the other hand, criminal penalties relevant to corporate entities simply encompass a fine. [7]


Civil v Criminal: Why are criminal sanctions worse?


At the surface level, it appears that the potential civil penalties are far more severe than the criminal penalties. This does not make sense—criminal sanctions should, by common sense, be more severe than civil ones given the higher standard of proof required. [8] This disparity can be reconciled if we look at the non-material penalties associated with a criminal case. Criminal penalties entail a summary conviction. [9] This is likely to cause lasting reputational damage to the convicted entity. Said damage will affect the acquisition and retention of both customers and investors, significantly impacting long-term operations. Furthermore, a conviction is also going to have a greater impact on investor confidence. Despite having made preparations, NatWest’s share price fell by 0.7% upon publicisation of its conviction. [10] These are non-material penalties that are more difficult to rectify than the material civil penalties. Companies subject to anti-money laundering regulations should be more cautious, now that the FCA has demonstrated its willingness to up its ante and bring criminal proceedings against suspected offenders.




References:

[1] Iain Withers, ‘HSBC fined $85 mln for UK anti-money laundering failings’, Reuters, https://www.reuters.com/business/hsbc-fined-85-mln-uk-anti-money-laundering-failings-2021-12-17/, accessed 26 Dec 2021

[2] Iain Withers, ‘Bin bags of cash: NatWest fined for dirty money breaches’, Reuters, https://www.reuters.com/business/finance/around-50-natwest-branches-involved-money-laundering-case-fca-2021-12-13/, accessed 26 Dec 2021

[3] Ibid

[4] The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, 76(2)

[5] Ibid

[6] Ibid, 77(2)

[7] Ibid, 86(1)

[8] Incorporated Council of Law Reporting, ‘Burden and standard of proof’, https://www.iclr.co.uk/knowledge/glossary/standard-and-burden-of-proof/, accessed 26 Dec 2021

[9] The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, 86(1)(a)

[10] Withers (n 2)