One door closes another opens

Joshua came to see me last week, it is always a pleasure to meet him. 

He is quietly spoken, but always has some interesting insights into what is going on and cares deeply for his clients.

He told me that several well-known banks were reviewing their clients and for those, who may have been with a bank for many years, but for whom the bank has insufficient information about their source of funds these clients were being asked to take their business elsewhere. Many of these people in his opinion were not laundering suspicious monies; they merely did not have the necessary paperwork about transactions and deals, which may have happened many years ago, to substantiate their claims as to the source of funds.

What were they doing about securing new banking relationships I asked. From his knowledge these people were seeking out smaller foreign banks which did not have a full banking license in the UK, with which to open an account. Without a full banking license these banks were subject to the banking laws of their home country and in some cases could take a more pragmatic approach to the evidence as to the source of funds of their clients.

There was another reason why these smaller foreign banks were growing so rapidly. The amount of detail which financial institutions need to disclose to their local authority under the Common Reporting Standard varies from country to country. Whereas some countries need to disclose the beneficial owner of the funds others also need to disclose the value of the funds with that financial institution. For those families for whom kidnap and financial theft are of real concern, the less information disclosed the better. These families are now also taking active steps to seek out banks in jurisdictions which disclose as little information as is possible. As a result these banks have seen a substantial influx of funds.

It may seem harsh that clients who have been looked after by their bank for many years are now being told to take their business elsewhere. The anti-money laundering rules are not new. However, given the extent of the fines many banks have had to pay for flouting these rules to keep their business, it is hardly surprising that they are prepared to shed some business to keep their reputation intact and the risk of being fined down.

Of course some innocent people will be caught up in this activity and that is a pity. However for those who have obtained monies through dubious sources, they will find more secretive places to put their monies. This will merely increase the possibility that these funds and the criminals behind them will remain undetected.

But I do not think these good housekeeping measures are going to keep financial institutions out of trouble. Once there is full and automatic exchange of information, I fear that financial institutions will come under heavy fire. Without doubt tax authorities around the world will have the information they need to start investigations into all manner of structures and transactions. However, given that there is no right of compensation or appeal against an investigation by HMRC and in particular if it suspects evasion – even if none had occurred, the only place these hapless people can turn for redress is the financial institutions with whom they had their money.

Everyone who comes up against HMRC knows how disruptive, painful and expensive an experience this can be. These people will be particularly angry if the financial institution to which they have over the years paid extensive fees is now responsible for a prolonged and in some cases unnecessary investigation. They will want to sue for wrongful disclosure and compensation for costs and loss of earnings. Litigation lawyers I know are already sharpening their pencils to take advantage of what they see as a very lucrative wave of business.

If you have any insights you would like to share or wish to engage Caroline or her team on behalf of yourself or your clients please contact