Enabling financial crime

The UK government wants to force banks to explain why they close accounts. This will make financial crime in the UK easier.

From page 8 of the government document referenced above:

Government intends to make changes to existing regulations with the objective of:

1. Improving transparency for users in receiving a clear understanding why their payment account contract has been terminated, by stating in regulation that a clear and tailored explanatory reason must be given, unless to do so would be unlawful.
2. Requiring that payment account providers must provide at least 90 days’ notice when choosing to terminate a contract, unless for a serious and uncorrected breach (such as non-payment) or other serious occurrence and clarifying that clauses in user agreements purporting to allow termination for other matters (such as brand protection) cannot be used to circumvent this.

Lesser termination periods would exceptionally continue to be allowed, for example where a provider is obliged to terminate the contract to comply with the law, in particular, financial crime law.

This will, directly, make financial crime easier in the UK. Here is an example of how it will do so. Under the laws about money laundering, there is an offence called ‘tipping off’ which is exactly what it sounds like: if you tell someone that you suspect of laundering money about your suspicions then you are tipping them off and this is, not surprisingly, illegal as it would allow them to take appropriate action to avoid being caught. In particular in this official document is this description:

Tipping Off
Under section 333A it is an offence for a person to disclose information, likely to prejudice an investigation, where that information came to the person in the course of business in the regulated sector.

A person guilty of an offence under this section is liable on conviction on indictment to imprisonment for a term exceeding 2 years, or to a fine, or to both.

This makes it illegal for a bank (which is a regulated organisation) to tell a customer that they suspect, or more likely have been told by the authorities is under suspicion, of money laundering about those suspicions. Since they can’t just leave their account or accounts open, which would, obviously, support the money laundering activities directly if they’re happening, they must close the account with no explanation.

Now here’s something which banks have worked out, but which the UK treasury apparently hasn’t. That means that they can never tell anyone at all why they are closing an account unilaterally. If, for instance, they tell everybody except people under suspicion of money laundering or other criminal activity why they are closing their accounts then, if a bank closes your account and refuses to tell you why you immediately know that you are under suspicion of criminal behaviour. You have, in fact, been tipped off by the bank. So they can’t tell anyone why they’re closing their account.

But that is exactly what the above proposal requires banks to do. It will require

[…] that a clear and tailored explanatory reason must be given, unless to do so would be unlawful.

and it will require banks to give

at least 90 days’ notice when choosing to terminate a contract, unless for a serious and uncorrected breach (such as non-payment) or other serious occurrence [except] for example where a provider is obliged to terminate the contract to comply with the law, in particular, financial crime law.

In other words this proposed legislation will require banks to tip off their customers: if your bank closes your account without explanation and/or does so with less than 90 days’ notice, you will know they’re doing so because you are under suspicion of some criminal behaviour. If you are indeed a criminal you can then act accordingly.

Despite the confected indignation of Nigel Farage and his enablers, banks are not, in fact, run by of people who are ‘woke’: they’re run by people who are very interested in money. Bankers are not generally very nice people. Indeed, banks would very much like to be able to profit from criminal activity and have done so with gleeful abandon for much of history. That is, for instance, what the entire history of banking in Switzerland is about:

These secrecy laws have linked the Swiss banking system with individuals and institutions seeking to illegally evade taxes, hide assets, or generally commit financial crime.

If banks can, deniably, profit from financial or other crime then they will do so. The UK government is in the process of enabling just that activity. Is this through stupidity or intentional action?. To paraphrase Gary Kasparov: one comforting thing about the 2023 UK government is that you aren’t forced to choose between malice and incompetence. It’s always both.