Car Washes, Motels... now the Post Office? Money Laundering hits the UK High Street.

In December 2022 the FCA issued final notice against a UK regulated bank and wholly-owned subsidiary of a major global bank, fining them £107 mln for serious and persistent gaps in its anti-money laundering (AML) controls in its Business Banking portfolio.

Now, some four months later, Thomson Reuters Regulatory Intelligence have reported that the client at the centre of the investigation, “Customer A”, may not only be linked to Colombian Drug Cartels but also specifically targeted the UK Post Office system to launder those proceeds and moved approximately £1.3 bln through the institution.

There have been a number of AML related fines in recent times, including a large high street bank being fined £264.8 mln in December 2021 and an African banking company based out of the UK £5.8 mln in June 2022. It now emerges that Customer A held accounts at both of these fined banks.

This most recent enforcement centred on the bank’s ineffective systems to verify information provided by customers and properly monitor the money customers said would be passing through their accounts. Customer A opened their account as a “small translations business” expecting monthly deposits of £5,000. Six months later and the account was receiving millions in deposits and swiftly transferring the money to different accounts.

Although flagged in 2014 by the banks own AML Team, no action was taken internally until September 2015 at which point law enforcement requested the bank keep the account open. The account was left open but apparently only because the bank lost track of the law enforcement request until the FCA contacted them again in December 2016.

The Thomson Reuters Regulatory Intelligence report now states that Customer A was a company named Beltcastle, which was regulated by the FCA as a payment services provider. The Final notice against the bank states that, despite recognising that false information had been provided by the client at the time of opening the account, and that the amounts passing through the account did not equate to that expected, the bank accepted the regulated status of Beltcastle as being a strong enough mitigant.

A day after the Thomson Reuters Regulatory Intelligence report was published, in which the FCA declined to comment on questions regarding the closing of Beltcastle in 2018, the regulator announced that it was seeking measures to ensure the Post Office could continue to be used for Everyday Banking safely.

A recent Economic Crime Plan noted that the Everyday Banking facilities at the Post Office have been abused by criminals as they rely on Cash-Based Money Laundering (CBML). It is suggested that Beltcastle used contracts with the Post Office where they would collect cash from its customers and bring that cash to the Post Office. The Post Office would then count the money and deposit those amounts into the various bank accounts thus returning the money to the customers.

These recent fines highlight the need for firms to pay close attention to the purported business model of clients and compare that with what is actually taking place.

A December 2021 fine against a UK high street bank related to approximately £365 million being deposited by a jewellery business in Bradford, England, well in excess of the amounts expected. The fine against the subsidiary of the global bank is very similar given the discrepancy between reality and expectation, but what makes this now stand out is reliance of that bank on Beltcastle’s regulated status.

Clearing AML checks by virtue of regulated status has long been a tried and, for better or worse, trusted approach though this case now brings into question the wisdom of relying solely on this status. Firms must take a holistic approach to AML and Know Your Customer (KYC) checks, including continuous surveillance on transactions.

Former Beltcastle directors have been jailed in relation to money laundering and, while of course past performance is not an indication of future performance, information such as this should then form part of an overall risk assessment be it part of investor KYC reviews or transactional due diligence.

The FCA is yet to make any formal notifications regarding the closing of Beltcastle and the announcement on 25 April does not make reference to the overall case though the connections can be drawn. While the authorities look to protect consumers using the Post Office banking services and improve controls and practices associated with this business, you may be forgiven for wondering just what exactly is in the sacks in the back of that red van...

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