Unlike the embattled Serious Fraud Office (SFO) the Financial Conduct Authority (FCA) has achieved considerable recent success in the prosecution of financial crime. This fact should put those organisations regulated by the FCA on alert. The regulator has a wide range of disciplinary and enforcement tools in its armoury including private warnings and public censures. However, the imposition of financial penalties is the most frequent sanction it employs. It is worth remembering that FCA prosecutions can and will impose custodial sentences.
Below are the details of three recent high-profile FCA prosecutions and the lessons that can be learned from the cases.
One – Operation Tidworth
In 2018, the FCA sentenced five people to a total of 17.5 years’ imprisonment for their roles in a share fraud carried out through a series of boiler room companies. Investors lost more than £2.8 million. A sixth person, the “controlling mind, instigator, and main beneficiary of the fraud” was sentenced to 11 years’ imprisonment.
The fraud involved cold calling members of the public between 2010 and 2014 and using aggressive sales tactics to persuade them to buy shares in a company that owned land on the island of Madeira. The investors were told that permission was being sought to build 20 villas and once this was granted the value of the shares would increase substantially. Investors were promised guaranteed returns of between 125% and 228%. The investors never received a penny and the money they paid to the company funded the lavish lifestyles of the fraudsters.
The FCA operation involved four separate search operations, one dawn raid, the review of 1.4 million documents, and 142 witnesses.
Lesson to learn from Operation Tidworth
The fact that there were attempts to conceal and destroy evidence strengthened the FCA prosecutions. It is important for anyone being investigated by a regulatory body to cooperate fully with investigators and instruct an experienced solicitor to manage the situation.
Two – National Westminster Bank Plc
In slapping NatWest with a £264.7 million fine the FCA, for the first time, successfully pursued criminal charges for money-laundering offences.
The fine stemmed from the bank’s failure to correctly monitor the activity of a Bradford-based jewellery business that deposited £264 million in cash between 2012 and 2016.
Although several red flags were raised, including large amounts of Scottish bank notes deposited in English banks, musty smelling money, and people acting suspiciously when making branch transactions, those responsible for anti-money laundering compliance at the bank took no action.
In addition, the bank’s automated transaction monitoring system incorrectly recognised some cash deposits as cheque deposits. As cheques carry a lower money laundering risk than cash, this was a significant gap in the bank’s anti-money laundering system.
At the sentencing, a spokesperson for the FCA stated:
“NatWest is responsible for a catalogue of failures in the way it monitored and scrutinised transactions that were self-evidently suspicious. Combined with serious systems failures, like the treatment of cash deposits as cheques, these failures created an open door for money laundering…Anti-money laundering controls are a vital part of the fight against serious crime, like drug trafficking, and such failures are intolerable ones that let down the whole community, which, in this case, justified the FCA’s first criminal prosecution under the Money Laundering Regulations.”
Lesson to learn from National Westminster Bank PLC
As NatWest pleaded guilty to failure to comply with anti-money laundering regulations its fine was reduced by a third. The decision whether to plead guilty should not be considered without obtaining legal advice as although taking such a step may reduce the sentence, the reputational ramifications of pleading guilty can be significant.
This case illustrates how important it is to train staff on identifying money laundering red flags and to have well-communicated policies and procedures setting out the process that must be followed should any suspicious activity be reported to anti-money laundering compliance officers.
Three – Crossfill and Archer Claims
Not all significant fines are issued for fraud and anti-money laundering failures. Crossfill and Archer Claims was fined £110,000 in 2021 for making unsolicited telemarketing calls to:
- People who had opted out of receiving such sales calls
- Those who the firm had no evidence of consent for such calls, and
- People listed on customer data lists purchased from third-party data providers for whom the firm could not identify what consent had been obtained.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:
“Cold calling customers who elected not to receive sales calls is an example of the type of cavalier behaviour claims management firms should not be engaging in. Firms need to ensure they have the right governance and due diligence in place, and we will take action when we see behaviour that threatens legitimate consumer rights and interests.”
Lesson to learn from the Crossfill and Archer Claims
Regulatory responsibility for claims management companies moved to the FCA in April 2019. Claims companies who engage in telemarketing must make certain that their data protection and privacy compliance is watertight and that they have policies and procedures in place to ensure personal data lists purchased from third parties clearly state whether or not consent for sales calls has been provided.
The FCA prosecutions have stepped up. The FCA has increased it’s activity over recent years and the successful criminal prosecution of NatWest puts those regulated by the authority on notice that it can and will aggressively pursue anti-money laundering compliance breaches. However, criminal prosecutions require considerable resources. Work on the NatWest probe took up 30,000 staff hours and involved compelled interviews with 85 witnesses as well as forensic reviews of 300,000 documents. Like most private and public businesses/institutions, the FCA is struggling to recruit skilled staff, therefore, it is likely to undertake criminal prosecutions only in the most serious of cases involving well-known entities.
The key takeaway from all these examples is that if you are being investigated by the FCA you must contact a specialist financial crime solicitor immediately. Not only can they support your in-house team, but they will also manage any media interest in the case, deal with any cross-border issues, and ensure the regulator works within its legal boundaries.
If you are being investigated or have been arrested, our specialist financial crime solicitors can help. You can contact us through our contact page here.