AML-related complaints
We had loads of anti-money laundering complaints after the 2008 financial crisis when banking regulation got tighter. As one of the novelties, all transactions over 600 thousand roubles had to be supported by documents explaining the source of funds and the purpose of the transaction. Front office was encouraged to follow a one-size-fits-all script. Customer complaints helped to implement practices based on common sense and professional judgement. Sometimes it was impossible not to laugh listening to the recordings of call centre conversations:
AGENT: “Hello, I am calling to ask you to submit documents explaining the purpose of ATM withdrawal in the amount of 900 thousand roubles.”
CUSTOMER: “Why? It’s my money; I’ll spend it as I will”
AGENT: “According to banking regulations, we have to ask all customers to explain withdrawals that exceed 600 thousand roubles.”
CUSTOMER: “Okay, I am going to buy a mink coat and a diamond ring for my girlfriend”
AGENT: “Thank you for the information. Kindly present the documents for these purchases.”
CUSTOMER (laughs): “What documents?”
AGENT: “Payment receipts…”
CUSTOMER: “I see… Please wait a minute, I’ve changed my mind. You know what, I am going stage a performance burning the money on the Crimea bridge in front of the Central House of Artist. What documents am I to submit in that case?”
Funny as it was, we suggested that he makes the same statement in writing. We filed the handwritten doc, closed the case, and moved on.
My complaint, Porto, May 2022
I believe complaints help to change things, so when Millenium bank in Porto refused to even consider opening an account, I wrote this:
I would like to begin with two facts about myself: first, I have been working in /for commercial banks and international financial organisations for 30+ years, 9 of those as Head of division which included Complaints department, so I know Compliance rules and practices perfectly; second, I am against the Russian war in Ukraine, and that is precisely the reason I am here in Portugal with my laptop and one suite case since March 15th – you can view my page on FB and my website https://en.ninawechsler.com.
I was in the Millennium BCP branch on Julio Dinis street today, and front-office customer manager R.S. told me plainly that he is sorry but the bank does not open accounts to Russian nationals. “That’s the rule”, he said. I told him in person and I am telling all Portuguese bankers with this letter: dear colleagues! This is not a rule, this is a practice, and in the case of “this is the right and the choice of a commercial organisation” please be reminded about the option of professional judgement.
I had to deal with Iranian citizens, students of Moscow Conservatoire whose bank account applications were rejected due to the US sanctions against Iran, and I defended their right to be treated as a musician not as uranium dealers. Here, I complain: Millennium BCP does not empower employees to make a professional judgement. The staff member I talked to did not even try to identify my personality and get info on the reasons for my request. I complain: by making it a “new normal” to reject all requests on account opening from Russian citizens instead of establishing an “on-individual-basis” process The Central Bank of Portugal takes a course to violation of human rights.
My question: can the Central Bank of Portugal recommend a bank, that would open an account for me after performing all necessary KYC procedures? Looking forward to hearing from you and thank you in advance for your attention to my complaint and question. Faithfully, Nina Wechsler, May 12th, 2022. I placed this complaint on bportugal.pt, after registration on that site.
Same day, I shared my frustration on Facebook, and a friend from Denmark commented: “We don’t work with Russian customers as per government instructions” is in reality a simplistic approach to business, driven by lack of knowledge and fear. We, too, work with compliance and have seen a situation where a dialogue nuanced the decision making. Solutions are possible and depend on the will of individuals and how well we work together.”
Inspired, I made another try the day after, went to the same bank branch and talked to the branch manager. He was rather condescending and confirmed they say “no” just because they can.
On June 6th, this response from the bank came to my email box:
QUOTE Copy to Banco de Portugal Dear Mrs., Nina Wechsler, We hereby refer to the exposure dated May 12, 2022 on the subject mentioned above, which deserved our best attention. First of all, we would like to apologise for the situation reported, which we believe was a misunderstanding. Please allow us to clarify that Nationality or Naturality is not a decision criterion in the Opening Account process at Millennium BCP. We have maintained and will maintain the signing of contracts to open accounts with Customers of all and any Nationality, including the Russian Federation, with whom, by the way, we have signed multiple agreements since the end of February 2022. We hope we can count on your understanding and present our best regards. Best regards, Customer Care Centre END OF QUOTE
The basics of banks’ Compliance
Financial literacy is dear to my heart, so let me share some simple truths about banks before I start quoting respectful sources studied in 2018 during work on educational materials for client managers. “Know Your Customer” (KYC) principle suggests bankers should know the answers to two questions: first, “where does the money come from” an, second, “where does the money go” plus information on the primary beneficiaries, physical persons as well as legal entities.
The reason business structures get complicated is tax optimisation, and the line between clever practical solutions and schemes can be thin. To assess the risk of financial watchdogs’ sanctions the client can become subject of, bankers should understand the ownership structure and the relationships perfectly. Clients, in their turn, deserve to know why so many questions are asked.
For clarity, I omit quotation marks but list all the sources at the end of this article.
Tax havens
The term was coined in the 1950s, but the concept originated in the late 19th century, when the American states of New Jersey and then Delaware eased the business registration and tax laws, to attract revenues. After the First World War, Switzerland and Liechtenstein began to offer tax, banking and incorporation benefits.
In 1957, the Bank of England allowed sterling deposits held outside Britain, and dollar deposits outside the US; part of cross-border lending became unregulated. International banks embraced this idea over the next decade, transforming Panama, Cayman and the Channel Islands into offshore financial centres.
The 1960s to 1990s were golden years during which dozens of new havens sprang up. Caribbean havens in Britain’s sphere of influence were particularly active, using their suzerainty to write laws that would attract mobile capital.
In the 1960s, Singapore emerged as a regional haven in Asia, offering incentives to banks to set up Euromarket-type operations.
In the 1970s and 1980s, the number of offshore centres increased to more than 50 and the assets and holding structures they offered became more complex. Fiscally strained islands in the Pacific and Indian oceans came in, hoping to become less dependent on tourism. From the 1990s they were joined by a handful of Gulf and African countries and post-Soviet republics.
Some of the newcomers focused on e-commerce or internet gambling. It was only a short time before these offshore centres had become conduits for at least one-third of all international lending and foreign investment and ever larger amounts of undeclared income and ill-gotten gains.
Alarmed by this, OECD countries began to push back in the late 1990s. A crackdown on “harmful” tax competition turned into a war on tax evasion. Many havens were put on blacklists. When the global financial crisis struck, they were forced to provide more information about their users. But despite the change in sentiment, few of them have disappeared. Regulators require that banks monitor transactions not only of companies but of private individuals as well. The monitoring is aimed to detect money laundering.
- Unusual transactional patterns that software detects as linked to money-laundering:
- Cash deposits to an account via far-flung, distant branches
- Jumps in size or frequency of transactions
- Dubious round sums rather than exact ones
- Unusually regular payments between individuals
- Payments for commodity imports coming by unusual ship itineraries
- Spikes of price to a commodity while the commodity’s price goes down.
- Transactions involving Russia or areas under Russian influence
- Transactions to charities in areas of conflicts
No more customer privacy
In 2013-2015, under pressure from countries such as the United States, France and Germany, Swiss banks have been giving up their secrets, in some cases handing foreign tax authorities the names of their account holders. To avoid being blacklisted by the Organisation for Economic Cooperation and Development, the Swiss government has agreed to share more information with foreign authorities hunting tax cheats.
Before that, there were big discussions on banking secrecy in Switzerland and Liechtenstein. The pragmatists like big banks, UBS AG and Credit Suisse Group AG argued that to survive they had no choice but to surrender more information about their customers and close the accounts of some of them. A conservative old guard, including right-wing politicians and the heads of smaller private banks, saw such a surrender as a betrayal not just of clients but of core Swiss values.
Client confidentiality – the “duty of absolute silence” – has been part of Swiss law since 1934 and a tradition for centuries. It is past now.
Harsh lessons have been learned by some banks. Remembering this can make one more tolerant and sympathetic towards banks and their rules. Just one example. Danske bank, Denmark’s largest bank, has lost its chief executive and saw its share price halve in 2018. Danish prosecutors revealed that the bank’s Estonian branch processed over €200bn ($227bn) of suspicious transfers originating in ex-Soviet countries. The bank was accused of failing to report suspicious transactions, not training staff in anti-money-laundering procedures, and having no senior manager responsible for compliance.
Nothing personal
Today, governments want to know everything not only about money launderers but about taxpayers as well. Russia signed and ratified, in November 2014, the OECD Convention on Mutual Administrative Assistance in Tax Matters. This means that Russia is still seen as integrated in the world financial system, and it explains why banks in Portugal, especially the state banks, ask Russians who came to Portugal, about sources of income and property in Russia. This set of questions has nothing to do with sanctions.
In general, the attitude towards holders of Russian passports changed in the last six months, though. Virtual banks like Revolute, or the money transfer system WISE do not open accounts for Russian citizens. An applicant with a Russian passport cannot pass the identification process: Russia is not in the drop-down list of countries.
Sanctions and costs
The Western response to Russia’s invasion of Ukraine is without parallel. Sanctions programmes utilise elements of those imposed on China, Cuba, Iran, Venezuela and even narco-traffickers. In America alone they are being issued by four separate agencies: of (financial sanctions), the Commerce Department (export controls), the State Department (visa bans) and the Justice Department (anti-kleptocracy measures). Compliance-tech firms are busier than ever, too: software that helps users weed out entities and individuals hit by sanctions is flying off shelves. Global spending on sanctions compliance by banks alone (no reliable figures exist for non-banks) reached a record $50bn or so in 2020. The two latest years must have been above that.
Sources:
- Enduring charms, A brief history of tax havens. The Economist, Feb 14, 2013.
- How financial firms help catch crooks Software scans transactions for signs of money-laundering, Nov 28,,2017.
- The battle for the Swiss soul. Emma Thomasson, Apr 18, 2013, St.Gallen, Switzerland (Reuters).
- Legitimise this, The Economist, Dec 8, 2018.
- Banks and firms face a mammoth sanctions-compliance challenge, The Economist, Mar 19, 2022.
Photos from Unsplash, in the order of appearance: Anders Jilden, Tingey Injury Law Firm , Michal Jakubowski, Mark Duffel
