Why do banks ban customers?
“Debanking” has been around long before culture war arguments, and affects wide groups of people
Nigel Farage’s loss of his Coutts bank account has drawn attention to the ability of banks to deny services to customers, but will come as no surprise to those who have found themselves falling victim to banks’ “reputation risk” assessments.
While Farage provoked a storm that forced senior resignations, not least because of the outrageous misuse of his personal account information, many non-UK nationals or those with links to high risk individuals find it difficult to open bank accounts in the UK, or find it difficult to continue operating following a bout of bad press in from outside the UK. It’s sparked a debate around political speech and access to banking facilities.
It’s very rare to have a bank account refused due to political “speech” – it’s obviously within a bank’s discretion to decide that a particular industry exposes it to too much risk (some banks are now refusing to refinance companies that manufacture weapons for example) – but in terms of individuals, it is rare that such speech results in a withdrawal.
The government commenting on freedom of speech and the closure of bank accounts is really missing the point – bank accounts aren’t being withdrawn due to political speech at all, they’re being withdrawn due to risk.
But what prompts a bank to remove facilities?
Often, negative due diligence results are the answer (which led Farage to his now erroneous assumption that Chris Bryant’s accusations of him taking funds from the Russian state had caused the closure). Individuals often are not told why, just that the facilities are to be withdrawn, or that they cannot open a bank account with no reasoning behind it.
The most likely answer is that there is a negative result appearing against an individual’s profile on a compliance database such as World-Check, which is owned by the London Stock Exchange Group. Compliance databases trawl the internet for online information concerning individuals and compile “profiles” based on what is publicly available, often attributing the label “reported” as fact. You’ll therefore get smear campaigns creeping into compliance databases, or kompromat material – you’ll also get entirely unfounded allegations and information re-published in these “profiles” which inhibits any freedom to operate financially in this jurisdiction.
There’s usually no right of reply provided to these individuals who’s data is being compiled by these databases – which means no opportunity to contextualise, explain or rebut any allegations – often by the time someone realises they’re on this database, the bank accounts have already been withdrawn or refused. Or the database expects individuals to prove a negative to show that the allegations are untrue. This difficulty worsened by the fact that quite often the banks simply do not provide a reason for the withdrawal.
The result is essentially a blacklisting. Operating in western jurisdictions becomes significantly harder, particularly if you have the label of a “politically exposed person”, which Farage also falls under.
Jurisdictions where smear campaigns are prevalent, the press isn’t as regulated or where the press is “pay to play” are essentially treated the same as a well researched and sourced article by a well known broadsheet. These jurisdictions are often known for corruption, but if you’re a national from a country that’s deemed “high risk”, functioning in the west becomes that much harder. Aggregating data indiscriminately causes all kinds of problems – not least due to the fact that the fact of a profile on these databases often means difficulty. There shouldn’t be an assumption that, just because an individual is from a particular jurisdiction or has been the victim of a smear campaign, there’s reason to believe that there’s wrongdoing. The assessment of risk goes against the individual – if there’s some reporting, then instead of understanding what is behind the reporting or allegations, there is simply an instant no – the individual then faces an uphill battle to convince financial institutions that they are trustworthy and not too “risky”.
Currently, the whole system lacks nuance. Information is key here – understanding where the threat is coming from and working back to resolve the issue from source rather than a linear strategy of simply suing a compliance database for example. Traditional media law is no longer an answer to these issues and a nuanced approach is required to resolve problems that an individual may face.