Investigation of negative side effects of anti-money laundering rules for banks

Do banks prematurely exclude customers from their services, because managing the risks of money laundering and terrorist financing is too difficult? After several signals that this is happening, the European Banking Authority (EBA) is now investigating this question.

According to the watchdog, banks sometimes consciously choose to keep customers away even before they have done something wrong, because they estimate that it is too laborious to keep an eye on them as a customer. This strategy has a name: ‘de-risking’.

These are, for example, NGOs, religious organisations or companies in sectors where money laundering, fraud or corruption are relatively more common. These could be sectors in which a lot of cash is involved, such as the car trade, the trade in expensive jewellery or, for example, the trade in agricultural products. But people who come from high-risk countries, where there is a lot of corruption, are also affected.

Recognizable problem

“I certainly see the problem the EBA is afraid of,” says Yvonne Willemsen, head of security at the Dutch Banking Association (NVB). “Because the regulations are quite complicated and we need to know a lot about customers, we are very strict at the front door. For some parties that means that they have a lot of trouble finding a bank”

The pressure on banks and other financial institutions to combat money laundering has increased considerably. The rules in Europe have been tightened up and in the Netherlands, too, the supervisory authority is chasing after banks. In recent years there have been a number of interventions at banks, ranging from a penalty at Rabobank, to a criminal investigation at ABN Amro and a mega settlement at ING.

Since then, banks have invested considerably more in the departments responsible for combating financial malpractice. Thousands of extra people have been hired in the Netherlands alone. At the same time, banks are more likely to find that supervising some customers is so laborious that they don’t see any bread in it.

Also in the Netherlands

“I know that banks are much more critical and that there are lists of high-risk groups,” Willemsen acknowledges. In her opinion, that does not mean that entire client groups in the Netherlands will be excluded in advance. “We will look at each individual application: can we reduce the risks for this applicant or not?

The fact that it became clear last year that Rabobank refuses customers in professional football in advance because the risks of fraud and money laundering would be too great, is an exception in her opinion. “Yes, that is indeed an exclusion, but I haven’t actually heard that from other groups

According to the Financieel Dagblad, a tour of lawyers in the Netherlands shows that the problem is broader. Banks, for example, are said to be wary of boat brokers, car dealers and watch sellers. Lawyers tell the newspaper to be flattened by victims who cannot go to a bank.

Victims can report

In order to gain a better understanding of why financial institutions choose to exclude customers in advance instead of accepting and monitoring them, and on what scale this is happening, the EBA has been conducting a consultation round since mid-June. Both financial institutions and those affected can make themselves heard until the end of next week.

On this basis, the authority will assess whether the current anti-money laundering and anti-terrorist financing rules have undesirable side-effects and advise whether or not they should be amended.