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Barclays, Dahabshiil and De-risking

by: (Financial Crime Compliance Course Director) on

In May 2013 Barclays said it would close the bank accounts of Somali remittance company Dahabshiil and a number of other money transfer companies (between 100 and 250 depending on what you read). This was a considered decision as part of Barclays’ risk-based approach to its obligations under UK anti-money laundering legislation.

They did not single out Dahabshiil – they decided that dealing with money transfer companies, which are designated as higher risk from a money laundering perspective, was outside its risk appetite. With de-risking high on the regulatory agenda, a number of institutions have been reassessing their risk appetite and controls frameworks, and taking decisions to exit relationships that are perceived to pose a higher risk such as accounts held for politically exposed persons (PEPs), embassies and money services business. (See previous Blogs declining customers, diplomatically and AML – dealing with rejection by Dave Robson for further info).

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Dahabshiil fought back and managed to get an injunction to prevent the closure of its accounts pending further decision by the court. Dahabshiil’s claim was about “preserving competition in the market. Dahabshiil is small compared to the multinational giant Barclays. The core of Dahabshiil’s case was that a dominant firm should not be allowed to push its customers out of the market or treat them differently without objective justification” (www.dahabshiil.com). It has been reported that Barclays settled its dispute with Dahabshiil by agreeing to allow its accounts to remain open for a period of time (unspecified from what I can see) whilst Dahabshill makes other arrangements.

moneyThis case has been a particularly emotive one and I have witnessed this first hand in various workshops I have taught over the last couple of weeks. Dahabshiil serves a Somalian diaspora that remits subsistence payments back to family that have little, if any, other income and cutting off access to the banking service would sever this, in some cases, lifelines to poor communities in a country ravaged by conflict.

 

Who Should Decide?

The question I ask initially is, is this a matter for judicial review? Is a company not able to make a commercial decision about who it offers services to, as long it exits any relationship in a lawful manner? And secondly, more importantly, is this not about more than a dominant firm pushing its customers out of the market without objective justification – is this not about a firm, in an industry under increasing scrutiny, making a decision to exit relationships with customers it perceives as higher risk from a money launder perspective? (a perception that is not solely that of Barclays – the Wolfsberg Group highlights money transfer business as being higher risk). What happens to the risk-based approach to anti-money laundering if firms can be forced to keep open accounts they would prefer to exit due to perception of the associated risk being unacceptable to them?

Credit crunch notwithstanding, the banking sector has been under the cosh to clean up its act following various high profile issues (rogue traders, Libor scandal, mis-selling of certain products and services) and the UK Regulator has been very clear that in the area of financial crime prevention they will not allow the UK financial systems to be used for financial crime. To quote Tracey McDermott, “they will be intensive and intrusive” in their approach to this - so is it surprising that a banking institution would choose to exit relationships that are considered higher risk?

Commerciality and Consequences

In my humble opinion, to force a bank to keep open an account it is trying to close due to potential money laundering (and let’s not forget terrorist financing) risk makes a mockery of the risk-based approach in a regulatory environment in which firms are having to increasingly justify their assessment of risk. (Remembering that this action was not directed specifically at Dahabsiil, but rather at the industry in which they operate).

Yes, the situation in Somalia is desperate - but must this necessitate an institution being forced to take on/retain what it considers unnecessary risk from a money laundering perspective?

Of course one does have to consider whether by shutting accounts for money transfer services, any money laundering or terrorist financing that was occurring would simply be pushed into the underground banking system - but by coming to an arrangement with Dahabshiil, did Barclays’ make a calculated decision to head off a judicial decision that would have set a precedent that would have countermanded the risk-based approach and an institution’s right to apply this when choosing its clients?

It’s a sensitive issue where there may be no ‘clear’ answer. It will be an interesting subject to follow though – as it will doubtlessly re-surface.

 

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