Nat West – The cash case for the people

In December 2021, Nat West Bank paid a fine of £264.8 million after pleading guilty to three offences of failing to comply with money laundering (prevention) regulations. Pursuant to the guilty plea and penalty, a substantial Agreed Statement of Facts was published. Notwithstanding the offences committed by the bank, the losses to shareholders and the potential harm posed by the money laundering failures, there was some good news.


Most importantly, the Agreed Statement of Facts presents information related to the handling of cash and dealing with relationship managers who firmly believe in and support their customers, albeit not always honestly and openly.
 

In 2011 an accountant introduced a business called Fowler Oldfield (FO)1 to the commercial business unit of Nat West Bank. It is reported and agreed, FO had previously been a customer of a different UK high street bank. The original ‘know your customer’ (KYC) information for FO stated:

  • ‘It was a buyer and seller of gold, with plans to purchase assay equipment’
  • ‘It bought gold for cash obtained from Travelex,….that day’
  • ‘FO sold this gold the same day by pre-arrangement, receiving payment by electronic transfer’
  • ‘The Bank would not handle any cash for the business’
  • ‘Future sales were predicted to be £15m per annum’

 

The information presents a precise and confined image of the business of FO. Note there is reference to a single party FO buys gold from, albeit the purchase method is challenging. My immediate reaction to this proposal was, where does the cash come from? In addition, the business presented is simple, closed and involves only a small number of parties. There are many questions as to why and how. Including, why is Travelex paid in cash? And how are the purchases and subsequent sales coordinated?
With the foundation of the relationship in place, business commenced. It was sometime later that there was a significant change and essentially Nat West did not react to or subsequently manage the risks presented by these changes.


Ultimately a series of failures within the bank led to the potential laundering of GBP hundreds of millions, including £264 million in cash. There were system failures; system errors; inadequate quality assurance; poor supervision; no follow up, missed periodic reviews of KYC and the incorrect risk classification of FO, twice. In addition, some lies were told, opportunities were missed, records were not properly maintained and there were undoubtedly AML training issues within the bank.

As well as the case against the bank, 11 people have pleaded guilty to money laundering and a number of others are awaiting trial. The relationship banker was arrested and at the time of publication of the Agreed Statement of Facts, he remained under investigation, but his employment has been terminated by the bank. As the other trials unfold, there will be more information revealed and further reports. This was far bigger than a single business premises laundering money in the city of Bradford.
 

In the beginning

Notwithstanding the information recorded within the customer file, FO did undertake a lot of cash business, but initially, the cash was withdrawn from the bank (£25+ million January 2012 to November 2013). Of course, this did not accord with the line:-

'The Bank would not handle any cash for the business’

There is no indication within The Agreed Statement of Facts that FO was ever challenged over the cash withdrawals and offered alternative financial products/services with reduced costs and risks. The unaudited, abbreviated accounts submitted by FO, for the year ending 31st December 2013, do not reflect a business with a multi-million GBP turnover.

 

The change

The account activity changed significantly in November 2013 when substantial cash deposits started to be paid into the FO account. These deposits increased over time and reached a peak of £1.8million/day. The cash was deposited in three different ways:-

In-person, over the counter of branches using bags, including £700,000 in bin liners which split
Subscribing to a special service, which facilitated the expedient payment of cash at branches using an automated deposit facility which did not require engagement with bank staff. The system called BDQ – Business Quick Deposit is currently advertised by Nat West Bank as being suitable for customers paying sums between £1,500 and £10,000 into their business accounts.

Thirdly FO used ‘Direct cash’ and ‘Bulk cash’ facilities which ensured cash was collected by a cash in transit security company and delivered directly to Nat West Bank cash depots.

There was no clear explanation provided as to why the operation of the accounts changed. Following subsequent transaction monitoring alerts generated because of the high volumes of cash paid into FO accounts, the relationship manager offered some explanation and stated the activity was actually in accordance with the cash volumes anticipated when the relationship was initiated. Of course, there is no record of anticipated cash activity when the relationship was initiated. In addition, the relationship manager stated FO’s “stringent AML systems” were reviewed regularly, albeit it is agreed there is no evidence this actually took place2.

The cash deposited included significant quantities of Scottish bank notes, which did give rise to some concerns and suspicions. Ultimately this case is all about people, cash, risk and suspicion, which are detailed and to some extent examined below.
 

Good news and good people

There were numerous people at Nat West Bank who filed internal suspicious activity reports (SARs). They determined the cash transactions were suspicious, they sought to protect the bank and shareholders, they tried to stop the money laundering. One member of staff within the SARs investigation unit resigned, in part because of this customer, asserting their line manager was pursuing a policy of speed over thoroughness. In other words, the manager advocated the expediently resolution of SARs over the complete investigation of the suspicion presented.


Outside of Nat West Bank, there were other people who identified suspicions related to FO. These included a member of the National Crime Agency (NCA), who advised AML staff at Nat West Bank to file a SAR related to the customer and the prevalence of Scottish banknotes. Unfortunately. senior AML employees within the bank decided not to do so. Then there were AML professionals from another bank who advised suspicion had been identified in relation to their customer who had received funds from the FO’s Nat West account. Once again, Nat West did not file a SAR related to the account, specifically the cash activity of FO.


There were Nat West Bank employees at the cash depots who raised concerns and suspicions, but ultimately in isolation and without aggregation none of the concerns and suspicions led to the submission of a SAR to the financial intelligence unit. Some Nat West Bank branch employees raised concerns, suspicions about the cash deposits. In one instance, a person depositing £5,000 made up solely of £50 notes kindly advised the Nat West Bank employee it could not be money laundering because it was less the £10,000. Of course, the smart Nat West Bank employee determined this was suspicious, but once again, no SAR was filed.

There are a lot of good people out there confronting these issues and taking action, this case should further motivate them and inspire them. In the event they were previously unaware, this Agreed Statement of Facts clearly tells them, you were right, so more of the same please, keep up the good work and don’t let others deter you.


The Agreed Statement of Facts posits the relationship manager fabricated the nature and content of some meetings with FO and between FO and regulators. In multiple instances the relationship manager rejected suspicions and provided explanations for the cash activity being processed through the FO accounts. In each instance the explanation was accepted and as a result, notwithstanding the increasing number of internal SARs, as well as transaction monitoring alerts, the aggregated activity did not lead to the filing of any SARs with the financial intelligence unit.
 

Cash

Cash is one of the most dangerous commodities on Earth, people kill others to steal cash, which is why many businesses pay others to move and store their cash, as well as other valuables. This case has been named by some commentators as the Bradford Laundromat, which suggests the laundering took place in Bradford, but this is not true. The Agreed Statement of Facts informs readers, cash deposits were made into FO accounts in 50 different Nat West branches spread across England.


The BDQ service enabled customers of FO and third parties to deposit cash into any branch equipped with a BDQ service, whereas other parties paid cash over the counter, presenting themselves as customers of FO, making payments. Between July 2014 and September 2016, some £14 million in cash was deposited at the Park Royal branch of Nat West Bank in London. Between January 2015 and March 2016, £42 million of cash was paid into FO accounts at Nat West Bank’s Southall branch in London.
Cash paid into the FO accounts using cash in transit security companies was delivered to five different cash depots, ranging from Washington in Tyne & Wear to Maidstone in Kent. In contrast to all of this, only a mere £12 million of cash was paid into the Bradford branch where FO held its accounts.

Some Nat West Bank staff complained about the scale and volume of cash paid into various branches. In some instances, there was insufficient room within the safes to store the cash, pending collection by a cash in transit, security company. The value of cash paid in using BDQ far exceeded the £10,000 upper limit currently referenced within the bank’s own advertising.

There is no reference to the FO using alternatives to cash or being advised to instruct their customers/third parties to do so. The cash presented logistical problems and risk to Nat West Bank, as most branches are insured to hold limited cash, commonly £50,000 or less. Moving the cash from a branch to a cash depot costs money and whilst the costs are substantially pushed back on to the customer, there are resource implications for Nat West Bank.

FO were presented with significant charges for the handling of the cash paid in and withdrawn from the FO accounts. Consequently, FO became the biggest fee-earning account, not only within the Bradford branch but within the wider region. There can be no doubt this added more challenges to Nat West Bank, the AML officers and other managers.

There were times when Nat West Bank staff requested the customer make more use of cash in transit security companies and Nat West Bank offered to reduce some of the charges to encourage this. Nonetheless, the cash continued to flow through the BDQ system and to be presented over the counter. There is no reference within the Agreed Statement of Facts to any cash being rejected because limits were exceeded, or unacceptable risks were presented.

In contrast, during the early stages of the first lockdown, I broke open my sealed money box. Times were not hard; it was more a case of the counting all of the coins gave the family and I something to do. When restrictions were eased and I was permitted, I went to my local bank (not Nat West Bank) to deposit the multiple bags of coins, only to be told I was limited to depositing ten bags per day. Not for one moment do I believe this was AML related, rather it was customer care. The bank was managing queues and determined it did not want a coin bag bearing customer to take too much staff time, to the frustration of other customers.

The point being, the bank took control, dictated the terms of business and rejected my cash. Well not quite rejected, but controlled the style, frequency and as a consequence, the value of the deposits I could make. Needless to state, I am not the highest fee-paying customer of the branch
 

Risk

Imagine an organised crime group being made aware of huge sums of cash, in excess of £1million being held at a specific Nat West bank branch and or the movements of a cash in transit security company collecting such sums from a branch of Nat West Bank. Staff within one branch complained to the management of the risks presented by BDQ and over the counter cash deposits paid into the branch. Essentially staff were concerned, worried, perhaps even frightened.


There have been instances of criminals making cash deposits into accounts, only for the same branch or sub-post office to be later robbed or burgled, meaning the same cash was stolen.


Too much cash held for too long could invalidate a bank’s insurance cover and further increase the risks posed by the cash, but what about the customer’s risk. The 2013 unaudited accounts for FO show a profit of £57.600, so how does a business with such a small profit withstand a cashflow loss of £700,000 (the money within two bin liners deposited at one branch of Nat West Bank)? What other risks do the owners and controllers of such a business take? Do they apply adequate due diligence to the cash and their customers who present/pay with the cash? Do they accept the risk, some of the cash may be the proceeds of crime?

Jeffrey Robinson, the author of The Laundrymen stated, "Dirty money is like water, it seeks the course of least resistance". Thus, a substantial risk with such large volumes of cash, sometimes delivered in person, is the appearance of little, perhaps no resistance. This is something the AML professional should look for, because the money launderers and organised criminals may already have found it. In this case, it appears criminals found Nat West Bank to be a place which presented minimal (there were some challenges to FO) resistance to their dirty money.
 

Suspicion

AML regimes around the world require banks and regulated firms to train staff to report suspicious activity, internally and externally by AML professionals. Thus, we are encouraged to be suspicious, after all, we are often investigating financial crime and managing financial crime risks. Consequently, we train colleagues and we constantly seek to learn more in order to deter, detect and ultimately defeat money launderers. The training includes indicators/red flags for suspicious customers and activity.


As referenced above, there were a number of instances when Nat West Bank staff were suspicious and reported the same. The training worked, but not completely. Two external parties shared their concerns and suspicions with Nat West Bank AML professionals. This presents the question; can a person transfer their suspicion to someone else?


In June 2016, West Yorkshire Police (WYP) engaged with the bank and advised a large-scale money laundering investigation was being conducted upon FO. The bank started to cooperate with WYP, filed a number of retrospective SARs and sometime later the FO accounts were closed. Thus, we learn, suspicion can be transferred, given at this stage, no one had been convicted of money laundering.

The filing of the retrospective SARs proposes Nat West Bank AML managers determined prior suspicions should have led to the filing of the said SARs. In other words, there always was enough suspicion and it was only the intervention by WYP which caused the AML managers to look again at the prior internal SARs and transaction monitoring alerts. Nothing had actually changed, after all, the NCA had previously advised the bank to file a SAR, but AML managers declined to do so. Perhaps pushing back against the transfer of suspicion.


Pursuant to all of the above, Nat West Bank self-disclosed concerns to the FCA, related to AML controls and a potential failure of the same.

There were a lot of suspicion indicators/red flags attached to the FO accounts, transactions and wider relationship management, but central to all of this was the large volumes of cash. Cash remains king in the world of crime, so say the policing experts, which is why banks and regulated firms need to be vigilant and present resistance to the dirty money flows presented by criminals.
 

Record keeping

There were a number of record-keeping issues which arose in this case, not all of which were bad. Some of the internal SARs recorded information provided by the relationship manager and the customer, which would later prove to be false, which is very helpful to law enforcement when they are seeking prosecute offences of dishonesty.

In other instances, there were no records, sometimes, because there was nothing to record and therefore, nothing to supervise, assess or consider when investigating an internal SAR. Essentially the relationship manager did not undertake scheduled periodic KYC reviews for FO and this was not identified within any supervisory or quality assurance process.

The case demonstrates the significance of missing information, which in turn presented missed opportunities for the bank to seek more information from FO, before assessing and analysing the same.

It appears there was an inadequate aggregation of information regarding the internal SARs, transaction monitoring alerts and information, concerns presented by external third parties. When all of this is put together, there is a compelling case to file a SAR and close the cash business of FO.
 

Answers/solutions

  • Alternatives – Always offer customers alternatives to cash, alternatives which can simultaneously reduce risks and costs. If such alternatives are rejected, ensure the customer provides a logical and reasonable explanation.
  • Take control – No customer is compelled under duress to initiate a relationship and hold accounts with Nat West or any other bank, they chose to do so, and the banks can choose to reject them and their cash. If not rejected, banks can and should apply robust controls to the handling of high volumes and values of cash.
  • Location – Banks can instruct cash customers to make all deposits under a value such as £10,000 at a specific branch, perhaps the branch where the customer holds accounts. All deposits over £10,000 should be deposited using a cash in transit security company.
  • Set limits – Manage your risks and those of your bank/firm by dictating when, where and how much cash a customer can deposit on a scheduled, daily, weekly, monthly basis
  • Third-party cash deposits – Prohibit customers allowing their customers to pay cash directly into the customer’s account.
  • Terms and conditions (T&Cs) of business – Ensure your bank’s/firm’s T&Cs set out the rules within a customer relationship, including cash handling. Clearly state breaches of the T&Cs can lead to the closure of accounts and termination of relationships. This includes using special cash deposit facilities, such as a BDQ within the limits prescribed and at locations dictated by you, your bank/firm.

All of the above can protect customers, colleagues and shareholders, whilst simultaneously presenting resistance to dirty money.

 

Holding difficult conversations

As AML professionals we are accustomed to holding difficult conversations with colleagues, sometimes customers, occasionally regulators and a number of third parties. Indeed, this is part of our job description and our daily role. When dealing with suspicions of money laundering, we may need to ask blunt and direct questions, when doing so we should always keep uppermost in our minds, how would we answer such questions.


In this case the difficult conversations were between AML colleagues and relationship management teams. It will always be difficult to challenge those managing the highest fee earning customer relationship in the branch, region, country or entire bank, but history has shown, these are often the dangerous relationships, through which funds are being laundered3.


Suspicion should only evaporate when logical and reasonable explanations are provided. Such explanations should be recorded and where necessary supported by independent evidence. When challenging a relationship manager with concerns or suspicions about their customer, you are essentially challenging their judgment. Always remember, you are the AML expert, and you are paid to apply this expertise. Be prepared to request evidence which justifies high volume/value cash activity as well as logical and reasonable explanations as to why alternative financial services are rejected. Know your AML laws and at the same time make yourself aware of the T&Cs with a customer. Think risk, and evaluate the risks being taken by the customer, do they make sense?

 

Conclusion

In 2022, when assessing this case we find ourselves looking at the very basics of money laundering and AML controls, cash, KYC, risk assessments, transaction monitoring, training, SARs and record keeping. As with all cases, we are presented with an opportunity to learn and we must embrace this.
 

Power to the people – the AML people

The primary lesson is control and ownership of control, essentially, we, the AML professionals hold the on/off switch for relationships, transactions and accounts. We can say no, or otherwise, we can impose rules, requirements and controls. We tell customers how to use our services and we do not allow the same to be abused. I have always said, people, not banks launder money and conversely people, AML people have the power, influence and control to stop it. Hence, I posit this case is far more about people than it is about, systems and automation.


As the connected trials unfold within the coming months, we may be presented with opportunities to learn more and ensure we present robust resistance to dirty money/cash.

 

 

1 FO is a UK incorporated company (Co.# 06700438) currently in liquidation, which previously operated as a jewellery business in Bradford, Yorkshire

2 The relationship manager has been arrested and at the time of the publication of The Agreed Statement of Facts, he remains under investigation. His employment with Nat West has been terminated.

3 This was the case with the 1MBD scandal and Goldman Sachs as well as Danske Bank and its Estonian branch, as well as the Bank of New York case, involving Lucy Edwards (a senior bank employee), Peter Berlin (a plumber) and the Delaware companies Becs International Ltd and Benex International Ltd