Cleaning up

[Dave Birch] I opened my first bank account, with Bank X, when I went to university. I walked in to my local branch on the second or third day after arriving in Southampton and opened an account. When I started work, I transferred that account to Cobham in Surrey, near where I was working. A couple of decades ago, that branch was closed and the accounts transferred to Walton-on-Thames, which is where my relationship banker was based when they were first invented about 15 years ago. I’ve probably been to that branch three times since then, about once every five years. I’m a premium customer and pay a few quid per month for my account, so my personal banker would periodically ring up me to see if they could sell me insurance or whatever. I quite liked my first personal banker and probably met him three or four times over the decade. A few days ago I got a letter from my new personal banker, who is based in Leicester. (A note for foreign readers: I live in the south of England, southwest of London, and Leicester is in the midlands, about 150 miles away.)

I’m note sure how “personal” this relationship will be. In any case, the last time I called (in order to get a bank loan to cover some building work we were having done) I had to go through half an hour of questions about name, address, salary, monthly outgoings etc, so having a personal banker (and having had the account for 33 years) didn’t really seem to help. They still wanted to know (as my mother would always say) “the ins and outs of a cows behind” before giving me the money. To be fair to the banks, in this case, they don’t want to annoy and inconvenience customers in this way, they are being made to by the government, because they have to comply with “Know Your Customer” (KYC) and “Anti Money Laundering” (AML) rules. Generally speaking, the banks do not suffer too greatly because of this as everyone has to just grin and bear it. Had I hung up in annoyance and called Bank Y (who don’t know me from Adam) instead, I would still have had to answer the same questions. But there are cases where the implementation of KYC and AML rules may end up costing banks more than customers’ opprobrium.

In the case of Shah and another v HSBC Private Bank (UK) Ltd, the Court of Appeal has ruled that Jayesh Shah and Shaleetha Mahabeer have the right to challenge HSBC Private Bank for having delayed a $28 million transfer… the bank asserted that it had suspected that the transaction constituted money-laundering for the purposes of the Proceeds of Crime Act 2002, meaning that the transfer had to be delayed while reported to the Serious Organised Crime Agency.

Eventually, the transaction was completed and Mr Shah claimed the delay cost him over $300 million. The claimants subsequently challenged the grounds on which the bank’s suspicions were raised but a case brought by Mr Shah for compensation was thrown out at an earlier court hearing. However, last week’s Court of Appeal ruling means that Mr Shah can now pursue HSBC for his losses.

[From HSBC customer claims for anti money-laundering delay]

Interesting. As the article notes, the plaintiffs are questioning the basis on which the bank determined that the transfer was suspicious. But what I’m curious about is the cost/benefit analysis that underlays this whole raft of e-payment regulation.

According to an IFA I spoke to recently, there is not a single case of any would-be launderer being caught by this system. As you’d kinda guess, real launderers are quite capable of cobbling together the necessary fake docs, and ticking all the right boxes.

[From Burning our money: A Problem With The Laundry]

So inconveniencing everyone from billionaire businessmen to peasant farmers has not caught a single money launderer? This seems statistically unlikely, doesn’t it? Surely they would catch the odd one or two by accident given the enormous size of the money laundering market. The latest figure I could find (given only a quick Google, since I couldn’t be bothered to go downstairs to the bookcases) shows that it’s a huge and growing business.

The NCIS ‘United Kingdom Threat Assessment of Serious and Organized Crime’ in 2003 stated that the overall size of criminal proceeds in the country – and the amount that is laundered is unknown. However, customs authorities had estimated that the annual proceeds from crime in the UK were anywhere between £19 billion and £48 billion – with £25 billion being a realistic figure for the amount that is laundered each year.

[From : : Money Laundering Statistics : :]

£25 billion! This is certainly an underestimate and it comes despite all of the rules imposed on the industry.

So why do us e-money types care about this sort of thing? Well, because these rules can really hamper the development of new electronic payment systems. It’s hard to exploit the low-cost infrastructure for m-payments if — to use an example I am familiar with — customers who send in a text message asking to join the mobile payment scheme are sent a SIXTEEN PAGE application form that they have to fill out and send back (guess how many of them did?).

Some of these rules, which are based on an outdated view of what banking looks like, should be relaxed. Allowing institutions other than banks to enter the market makes sense, provided regulatory oversight and consumer-protection measures are in place. Strict proof of identity may not be needed for some customers, given the small sums involved. And existing m-banking schemes set a limit on the size of transactions that is low enough to deter money-launderers but high enough to satisfy most customers.

[From Mobile banking | A bank in every pocket? | The Economist]

Exactly. We need a block exemption for transactions below a reasonable amount. Again, I suggest that we remove KYC/AML restrictions on prepaid accounts with a maximum balance of, say, €500 — whatever Geraint Davies, Labour MP for Swansea West might think about it — and allow low-cost competitors to come in to the market and make new services available for the financially-excluded.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]