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Bank lawsuit warns all lenders

The Financial Conduct Authority (FCA) is getting tough on financial institutions failing to take effective action against dirty money.

This is the clear message of the regulator’s first-ever criminal prosecution, which recently resulted in a fine of £ 264.8million for NatWest for anti-money laundering failures.

The court case marked a significant departure from the FCA’s historic practice of imposing civil financial penalties and serves as a warning to all financial institutions to clean up their systems to avoid exploitation by criminals.

The more robust approach taken by the FCA comes amid growing concern about how criminals use professional services to launder money.

Mortgage fraud

This includes mortgage lenders, who are increasingly targeted by organized criminals who seek to use mortgage fraud as a cost-effective and relatively low-risk means of laundering money obtained through illegal activities such as smuggling. drug.

The pandemic has heralded a spike in fraudulent activity, with criminals taking advantage of the lack of face-to-face contact during shutdowns and ineffective systems to identify and investigate suspicious activity to submit false documents online such as passports.

This has led the FCA to write to banks reminding them of their legal obligation to ensure their anti-money laundering (AML) procedures are compliant.

The importance of having effective measures to detect and prevent money laundering and other fraudulent activity was underscored in a court case last month, in which two men were sentenced to a total of 33 years of death. imprisonment for carrying out a £ 70million, £ 10 money laundering program. millions of which came from fraudulent Covid loans.

Review reports

Later this year, HM Treasury (HMT) will publish a comprehensive review report of the evidence submitted in response to its call for evidence on the overall effectiveness of anti-money laundering regulatory and supervisory regimes (AML). ) and the financing of terrorism (CTF) of the United Kingdom. .

The report, which HMT has pledged to release by June 26, will hopefully be an opportunity for the government to show that it is taking into account the findings of the Chatham House think tank in its recent publication “The UK’s Kleptocracy Problem”. He detailed how the UK has become a global magnet for money laundering and called on the government to address systemic weaknesses in the fight against organized crime.

These systemic weaknesses had been highlighted months earlier in the wake of the leak of the Pandora Papers, which contained revelations about hidden wealth, tax evasion and money laundering – including how more than 1 500 UK properties have been purchased using offshore companies.

Given that the current UK anti-money laundering regime is clearly ineffective in curbing money laundering, it is arguably time for the government to take a stance that matches the stricter stance of the FCA and make electronic verification mandatory for transactions such as real estate purchases.

Not only would this solve the fact that we are now living in the digital age, but it would also significantly reduce the risk of fraud and money laundering, as screening individuals would use credit checks and global sanctions lists.

It would also help protect professionals – including those in the mortgage industry – from being duped by criminal gangs and, therefore, exposed to the risk of financial penalties and even criminal prosecution.

Martin Cheek is Managing Director of Smartsearch