25 July 2023

Nigel Farage may just be the tip of the debanking iceberg


‘A bank is like a waiter,’ said the Russian former oligarch Mikhail Khodorkovsky. ‘Its business is to cater to the clients independently of their political beliefs or affiliation’. Khodorkovsky was being provocative, talking in the 1990s about the possibility of managing the Communist Party’s missing billions. The ongoing drama about Nigel Farage’s Coutts account suggests that if the idea of a neutral banker ever existed, it is now well out of date.

Far from being silent footmen, banks are much more like the harried staff you see being barked at by Gordon Ramsay and his ilk. Onboarding teams now need to follow strict rules which govern how they take on high-risk customers, laid out by global watchdogs like the Financial Action Task Force (FATF) or in legislation like the UK’s Money Laundering Regulation Act 2017.

This is the context to the news that the Treasury is now investigating a three further banks over claims that they closed accounts because of their customers’ political views. Banks are in a tricky position here. They are legally required to screen their higher risk clients, not only across sanctions lists and watchlists of Politically Exposed Persons (and note that both the Archbishop of Canterbury and the Pope are regarded as PEPs), but because their proximity to public funds places them at a higher risk of corruption.

The issue is when they turn these searches on customers who are nowhere near being considered high-risk, or if they are using systems designed to detect financial crime to scan for unfavourable political opinions instead. This is especially the case with another legal requirement and one which has caused so much uproar – the requirement for banks to conduct online searches on their high-risk clients against what is known as ‘adverse media’.

At its simplest this is screening the subject’s name against an adverse term such as ‘conviction’ or ‘money laundering’ to see if there are any hits. If so, an investigator receives an alert and can review the article in question, see if it is credible, and decide if this is evidence that an individual or company is using the bank to stash away their ill-gotten profits. 

The work is increasingly automated, and technology giants like Refinitiv have turned over $6bn annually supporting these needs. The advent of AI and more widely available natural language processing capabilities has also created a thriving UK market in fintech dedicated to financial crime. New entrants can offer better and more targeted computing power allowing firms to screen millions of articles across multiple languages at the click of a button.

While I’ve still had financial crime teams proudly tell me that they subject their high-risk clients to rigorous checks using Wikipedia or the first two pages of Google, the consequences of getting it wrong can also be stratospheric. Last week, the US Federal Reserve fined Deutsche Bank $186m over its insufficient anti-money laundering checks, including its monitoring systems.

Deutsche’s problems make the Farage hoo-ha seem small in comparison, but what connects them is the banks’ duty to conduct adverse media screening for higher risk customers. (Coutts knows this only too well, having been fined £8.75m back in 2012 for failing to have adequate anti-money laundering systems and checks on higher risk clients.)

The issue in Farage’s case seems to be an over-officious, not to say extremely subjective, reading of what counts as ‘adverse media’. I was particularly struck by the line, ‘the annual reviews are not sufficient for the amount of adverse press being generated by NF’. I’m not sure what system Coutts was using – it varies widely across the industry – but that line suggests to me the bank’s compliance team were being inundated with alerts generated by their media monitoring on Farage which were not related to financial crime. Farage himself has claimed that Brexit is mentioned 86 times and Russia 144, suggesting some of the keywords being searched against him which were generating these hits.

The sheer volume of these alerts, compiled into a 37-page document, must have been incredibly disconcerting for Farage to read, and you can see why he has likened the Coutts file on him to the Stasi. There was a total lack of sensitivity in handling the required checks on Farage given his status as a PEP, which again is highlighted by the liberal use of both ‘disingenuous grifter’ and ‘useful idiot’ to describe their longtime customer.  

Again, for the reader this mixing of fact with opinion hugely detracts from the document’s reliability. Like journalists, the job of any frontline investigator is to gather the data and let it speak for itself, the art is to show not tell. It would be similar to reading a news report on the war in Ukraine where Vladimir Putin is described as a ‘bloodthirsty dictator’. It might be true, but it reads more like propaganda than fact – and for a bank describing its clients, it looks absolutely terrible when the inevitable Subject Access Request comes along.

Farage claims a further 10 banks have also refused his custom, and the news that more firms are being investigated for debanking customers – few of whom presumably share a status which requires such intrusive ongoing monitoring – suggest the practice may be more widespread across the banking industry.

If so something has gone awry. Adverse media searches are designed to use the wide availability of data and the fintech industry’s ambition to innovate and refine these searches to catch criminals and stop them profiting from their crimes. This is a good thing and offers a great means for tidying up the UK’s poor track record on tackling money laundering and seizing the proceeds of corruption. Repointing these systems to see if a customers’ opinions align with a bank’s ‘purpose’ is, however, much more problematic.

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Henry Williams is Head of Investigations at Themis.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.