NatWest Markets, the investment banking arm of London-based NatWest Group, agreed to pay approximately $35 million in a criminal fine, restitution, and forfeiture after admitting to engaging in various fraud schemes over the span of a decade in U.S. Treasury markets.

NatWest Markets (NatWest) pleaded guilty Tuesday in U.S. federal court to one count of wire fraud and one count of securities fraud in connection with historical spoofing conducted by former employees in U.S. Treasury markets between January 2008 and May 2014 and, separately, during approximately three months in 2018. U.S. District Judge Omar Williams of the District of Connecticut accepted the pleas.

NatWest will pay a $25.2 million criminal fine, approximately $2.8 million of criminal forfeiture, and approximately $6.8 million in restitution. Additionally, the bank will serve three years of probation and has agreed to compliance program reviews and improvements, reporting and cooperation obligations, and the imposition of an independent compliance monitor.

The fraud schemes: Between January 2008 and May 2014, NatWest traders in London and Connecticut independently engaged in fraud in connection with the purchase and sale of U.S. Treasury futures contracts. Separately, in 2018, two traders employed at NatWest’s Singapore branch engaged in fraud in connection with the purchase and sale of U.S. Treasury securities in the secondary (cash) market.

The 2018 misconduct constituted a material breach of an October 2017 non-prosecution agreement (NPA) between the U.S. Attorney’s Office for the District of Connecticut and NatWest’s U.S. broker-dealer subsidiary, NatWest Markets Securities (formerly RBS Securities), according to the Department of Justice. The scheme occurred while NatWest (formerly The Royal Bank of Scotland) was on probation following its January 2017 sentencing for conspiring to manipulate the foreign currency exchange market.

In a statement, NatWest Markets noted it “reported the trading upon discovery and, following investigation, dismissed the employees concerned.”

“Company executives should realize that investment in compliance programs can avoid situations like this and take action accordingly.”

Deputy Attorney General Lisa Monaco

Spoofing misconduct: “In each scheme, NatWest traders engaged in ‘spoofing’ by placing orders with the intent to cancel those orders before execution, attempting to profit by deceiving other market participants by injecting false and misleading information regarding the existence of genuine supply and demand in the market,” the Department of Justice stated. “The spoof orders were designed to artificially push up or down the prevailing market price so that the NatWest traders could trade more profitably as a result of these schemes.”

In one example cited, a NatWest trader engaged in cross-market manipulation by placing spoof orders in the futures market to profit from trading in the cash market.

Aggravating factors: The Justice Department stated several relevant considerations contributed to its criminal resolution with NatWest, “including the nature and seriousness of the offense, NatWest’s substantial prior history of other criminal conduct and civil and regulatory actions against it, its breach of a prior agreement, and the state of NatWest’s compliance program.”

According to plea agreement documents, NatWest “had an inadequate and ineffective compliance program and internal controls as they related to prevention and prompt detection of fraudulent trade practices, such as spoofing.”

“As we have previously warned, there will be serious consequences for a company that breaches the terms of an agreement with the government,” said Deputy Attorney General Lisa Monaco in a press release. “… Company executives should realize that investment in compliance programs can avoid situations like this and take action accordingly.”

NatWest stated the plea agreement reached with the Department of Justice and the U.S. Attorney’s Office for the District of Connecticut “will resolve both the spoofing conduct and the breach of the NPA.”

NatWest Markets CEO Robert Begbie said the bank is “pleased to resolve this matter” and that “the behavior of these individuals was unacceptable and has no place in the bank we are today.”

Last week, NatWest was fined £264.8 million (U.S. $350 million) for three offenses of failing to comply with the U.K.’s anti-money laundering laws. The fine marked the first time the U.K. Financial Conduct Authority pursued criminal charges for money laundering failings.

Jaclyn Jaeger is a freelance contributor to Compliance Week after working for the company for 15 years. She writes on a wide variety of topics, including ethics and compliance, risk management, legal, enforcement, technology, and more.

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