#77: Bank relationships

The pressure on banks has increased tremendously by various regulators. These days banks are taking their anti-money laundering controls very seriously. After being firmly reprimanded a number of times by the Public Prosecutor’s Office and having paid their dues by high transactions, banks have set up extensive departments to carry out checks on the origin of transactions. These departments conduct numerous and intensive checks by asking customers a variety of questions based on extensive Know Your Customer (KYC) checklists. If the answers to those questions show that the customer is not complying with all the rules and requirements or if not all the questions are being answered, termination of the customer relationship can follow. And additional stricter legislation for banks is already forthcoming. This way of working is not only criticized by the bank’s customers, the banking world itself is also critical. Is the method overshooting its goal?

An example in which we believe the banks’ KYC controls are beyond the legal requirements is a case of a dermatologist who had been banking with ING Bank for over 40 years, both privately and professionally. During a Know Your Customer (KYC) investigation it was established that over a period of seven years more than € 200.000 of cash had been withdrawn from the private account and almost € 500.000 of cash from the business account. It is also important to mention that the dermatologist in question had been linked several times in the media to an infamous criminal in the Netherlands. Partly for this reason, the doctor was asked how he spent the cash money he withdrew.

His answer is clear. He used the cash payments in particular for the restoration of a building in France. He no longer has the invoices or receipts. The ING response is that the bank cannot verify the cash expenditure and for this reason the banking relationship will be terminated. The discussion in these proceedings was whether the bank may terminate the relationship if the purpose for which the cash was spent remains unclear while it is certain that the money was legitimately earned. According to us, the fact that the money was earned legally means that the money cannot be laundered. Money laundering is about concealing or disguising the criminal nature of the money, trying to bring ‘black’ money back into the white economy. Whereas in this case the suspicion is about the opposite situation, namely that ‘white’ money is supposedly used for criminal activities. According to us in this situation the bank is overachieving in its KYC controls, but it also shows that cash money is viewed as something criminal in general. Also the Court decided that the bank could terminate the relationship given the fact that the dermatologist could not proof where he spent his cash money on.

With new legislation coming up banks can even go a step further in which highly sensitive information about private life can be monitored through (PIN) transactions. This means that the bank takes an intrusive look into someone’s life. Examples include paying a therapist’s bill or pinning a drink at a specific bar. According to the Dutch Personal Data Authority (AP), the current proposals do not make it sufficiently clear which of the highly sensitive data may be used. Incidentally, the AP is not the only one concerned. The rest of the European privacy regulators, united in the European Data Protection Board (EDPB) also support the criticism.

In our practice we also see the effects of the anti-money laundering measures at banks. In some cases, the bank’s investigation is the starting point for other investigations by the Public Prosecutor’s Office and sometimes the Tax Authorities. Even in cases where there are no indications that criminal money laundering might be lurking, a discussion about money laundering can surface with far-reaching consequences. And that is unnecessarily harmful as far as we are concerned. It is good that more and more parties recognize that the controls cause a lot of unnecessary ‘collateral damage’, while there is no serious risk of money laundering. Preventing the possibility of certain data being involved in these investigations would be step forward.

What are your experiences in the rest of Europe?

If you would like to know more about the case-law we refer to, please reach out to us at boezelman@hertoghsadvocaten.nl or boer@hertoghsadvocaten.nl. We are happy to share an English translation and discuss any questions you might have on the topic.