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What reputation do the banks have left to risk?

ByRobert Silverman

The Author

Robert Silverman is the pen name of a journalist and academic with extensive Australian and international experience in teaching, researching and writing on politics and history.

No one has done more damage to the reputation of banks than themselves, as established by the 2017 Royal Commission inquiry into their misconduct. The results were shocking. Account holders, including those who were dead, were being fleeced. Dishonesty and greed characterised the banks’ behaviour, which extended to money laundering and the probable transfer of money to paedophiles in the Phillipines and elsewhere. 

The commision found that the Commonwealth Bank of Australia (CBA) had breached the Anti Money Laundering and Counter Terrorism Financing Act 53,700 times since 2012. Using the bank’s ATMs, four criminal syndicates had been able to breach the transaction threshold withdrawal of $10,000 on 1640 occasions, withdrawing a total of $17.3 million.  $625 million in questionable transactions had been made through ATMs, which the CBA put down to a software fault. It was subsequently fined $700 million on the money-laundering charges. 

Westpac was found to have breached the same law on 23 million occasions, with transactions linked to money laundering and child exploitation in the Philippines and other countries. It was fined $1.3 billion for these offences in 2020 and $113 million by a federal court in 2022 for compliance violations, including $40 million for charging advice fees to 11,800 dead customers.  

Other cases arising from the Royal Commission inquiry involve the National Australia Bank (NAB), fined $57.5 milliion for misleading and deceptive conduct, including charging fees for no services, and the ANZ, fined $236 million in 2022 for failing to provide promised benefits to about 689,000 customers over 20 years. 

In all these cases, no one walked away individually out of pocket.  CBA head Ian Narev saw what was coming and stepped down before the Royal Commission got down to work. Over five years he had earned (if that is the correct word) almost $45 million. 

(Pictured: A busy crossing in Sydney’s CBD. Image: Laura Crocs)

The Royal Commission refers to “misconduct,” not crimes, which is surely how they would be regarded by the man and woman in the street, massive financial crimes committed not by the pirates of the Caribbean but by men (mostly men) in horn-rimmed glasses, grey suits and club ties. Jack Sparrow would be wondering how he could get in on the act. Heads did roll but there were no criminal prosecutions and while the institution was fined, it is the customers who will foot the bill, through the profits made from their accounts by the predators who descended on them. 

Having confirmed that they are not just as bad as most people think they are but far worse, the banks are now shifting the focus of ‘reputational risk’ to their customers.  Freezing an account or closing it permanently – ‘debanking’ – is how it protects itself against customers it has decided it no longer wants;

‘Debanking’ is now widespread wherever there are banks.  In the UK, the Financial Conduct Authority (FCA) had to acknowledge, after the granting of a FOI request, that 45,000 accounts were closed down in 2016/17.  By 2021/22 the number had soared to 343,000, or almost 1000 a day.

In Australia, the federal government’s Transaction Reports and Analysis Centre (AUSTRAC) says that in 2021 remittance agencies, digital currency exchanges, not-for-profit organisations and financial technology (FinTech) ventures disproportionately faced account closures, causing considerable distress to their holders.  AUSTRAC does not favor debanking, which it says only increases the threats of money laundering and terrorism, more or less by driving such activities underground.  

In December 2022, Blockchain Australia carried out a survey of 73 digital currency businesses, of which number 55 said they had been debanked, sometimes with personal accounts closed, too. Eight were given reasons for the debanking, 44 were not; four were able to dispute the bank’s decision, 50 were not. 

‘Debanking’ has had severe effects on the remittance industry in Australia, which both receives and sends money, often to developing countries where the beneficiary may not have a bank account for a bank transfer.

In a 2017 submission to the Productivity Commission, the Australian Remittance and Currency Providers Association (ARCPA) said 90 per cent of its remittances were sent to developing countries. It said the closure of remittance agency accounts had had a severe effect on money being sent to family and friends in Pacific Island nations. In the case of Tonga, “now almost financially isolated from the global financial system,” money was being sent in cash by boat. 

It did not specify how many accounts had been closed but said it had seen 200 letters notifying remittance agencies that their business and personal accounts had been closed, in all cases without the bank saying why. The situation was made more humiliating “by the fact that for the majority of remittance businesses the bank will not engage with (even speak with) the remitter.”  

ARCPA says that in 2013, 80 million transactions to two million customers were arranged through remittance agencies. In 2012/13, this involved the transfer of $30 billion, so one motive for debanking remittance agencies could be that the amount of money is too large for the banks not to want a share. One at least, Westpac, had by 2017 opened its own remittance ‘product,’ LitePay. 

(Image: Mirza Kadic)

A particular target of debanking since 9/11 has been Muslim organisations and charities. In the US ‘debanking’ has been followed in some cases by prosecution and imprisonment of account holders accused of transferring money to government-proscribed ‘terrorist’ organisations.  

‘Debanked’ Muslim charities in the UK include Islamic Relief, which sends aid around the world to victims of natural disasters. In 2016, the Cooperative Bank closed the accounts of the Friends of Al Aqsa, the Palestine Solidarity Campaign and 25 other pro-Palestinian organisations without giving an explanation. Fadi Itani, the head of the Muslim Charities Forum, says about 50 Muslim charities have been debanked.  One in 10 British Muslims no longer have bank accounts. 

In June 2023, the Cordoba Foundation, whose single brief is the improvement of relations between the West and the Muslim world, was debanked by NatWest and a subsidiary, the Royal Bank of Scotland, with Barclays, Lloyds and Santander UK following suit.  The debanking applied to the personal accounts of the organisation’s chair, Anas al Tikriti, as well as business accounts. His accounts with HSBC had already been closed, in 2014, along with those his wife and two sons, without the bank explaining why.  

In 2019, Al Jazeera found that Mr Tikriti’s name appears on a World Data Bank list of three million Politically Exposed Persons (PEPs) regarded as being vulnerable to corruption and among one million suspected of having a terrorist connection.

The names are listed on the basis of an algorithm, with the data bank having had to apologise on several occasions for false connections to terrorism.  

The banks also debank not just on the basis of proven or suspected criminal activity but because of ‘reputational risk’ arising from a negative media profile. A recent high profile case involved Nigel Farage, the rightwing UK politician, former leader of the UK Independent Party (UKIP), former member of the European parliament and opponent of the European Court of Human Rights (ECHR). 

Farage was debanked by the Coutts Bank on the basis of failing to meet their financial criteria. The Financial Conduct Authority (FCA) subsequently issued a report saying there was no evidence that he was debanked because of his political views. On the basis of a 40-page internal dossier on Farage prepared by the bank, this is hard to take seriously. The dossier begins by saying that as soon as Farage has paid off his mortgage he should be debanked, but what follows is a collage of hostile media reports on Farage’s political views, not his finances.

They include Farage’s relationship with the Putin “regime,” his alleged “endorsement” of the “illegal” Russian invasion of Ukraine (a false claim as while he has commented on Russian intervention he has not endorsed it), his praise of its “warmongering” leader, his allegedly close connections to (unnamed) individuals who have strong links to Russia, his support for the seizure of assets of oligarchs, his appearances on Russia Today, his appearance on the same speaker’s platform as conservative/rightwing Hungarian Prime Minister Victor Orban, his meetings with the Russian ambassador to the UK and the fact that he was listed as a person of interest by the FBI in its inquiry into alleged (and totally false) Russian interference in the 2016  US election campaign.   

In these media reports he also allegedly compared Black Lives Matter to the Taliban, described Muslim boat people landing on a UK beach as an “invasion,” objected to Muslims “coming here to take us over,” opposed same sex marriage, denied climate change, said men and women are different, supported the tennis player Novak Djokovic against the Australian government, remarked that George Soros is the “biggest danger to the western world” and dismissed Trump’s “pussy grabbing” remarks as “locker room banter.” 

These allegations were made over 40 pages. They have nothing to do with Farage’s finances yet the FCA insisted that he was debanked for financial reasons alone (ultimately Coutts bank’s chief executive was forced to stand down after making a false claim to the media about Farage, leading to his account being reinstated. Ten other banks had refused to open accounts for him).  

In the US, ‘reputational risk’ led to the closure in April this year of the Bank of America account of a Christian organisation, the Memphis-based non-profit Advance Ministries, which is heavily involved in support for orphans in Uganda. The organisation’s anti-abortion and anti-gay marriage views align with the notoriously homophobic views of the Ugandan government. The Bank of America, referring to its risk tolerance profile, said it had chosen to service the ministries’ accounts no longer. 

These are all high profile cases but what surely has to be said is that if the banks, anywhere, decided to close the accounts of customers who are homophobic, anti-gay marriage, anti-abortion, anti-immigration, anti-Soros or are climate denialists, pro-Russia and Putin, and so on, they would have few left. The policy is clearly based not so much on principle but the potential for public embarrassment.

NAB changes, effective from November 2023, allow freezing of an account or debanking when the bank is “made aware” that an account is being used in a financially abusive manner. (Image: Nils Versemann)

In Australia the banks follow the global trend. ‘Reputational risk’ is a big issue, with the focus on customer behavior. NAB changes, effective from November 2023, allow freezing of an account or debanking when the bank is “made aware” that an account is being used in a financially abusive manner, including the resort to coercive or controlling behavior limiting someone else’s access to funds, threats of psychological or physical harm and making derogatory or discriminatory comments.  

Financial abuse can include forms of family abuse, domestic abuse or elder abuse. The question here is how the bank is “made aware” of these issues except through the media/social media or what someone has picked up internally. The bank advises the staff that “while working at NAB you might come across something that doesn’t feel right, may be illegal, unethical, unacceptable or improper so speak up” and it instructs them to call the FairCall anonymous hotline (run by the accounting firm KPMG). The bank also has an automatic scanning service that reviews each transaction against a list of about 1300 proscribed words. The code of conduct of all banks is the same. 

Your correspondent sent an inquiry to the four major banks asking them if the media/social media was one avenue of being “made aware” of or “coming across” a customer’s bad behavior/risk to its reputation. By the time of writing only one bank had replied, but it ignored the specific question.  

Following the UK precedent, almost certainly banks in Australia will be taking information about customers from the media/social media. Generally speaking, the privacy policy of UK banks allows the monitoring of social media. NatWest admits to gathering information on social media, including Facebook and Twitter (now X). Barclays and Lloyds Banking Group use social media, HSBC bank, responding to a media inquiry, refused to deny that it did.  

As long as the banks are not legally required to explain themselves, debanked customers are left in the dark.  As they are not told why they are being punished they cannot defend themselves.  In Franz Kafka’s 1925 novel The Trial, Josef K. never knew what he was accused of either. 

Debanking is justifiable (even if opposed by AUSTRAC) when an account is being used in breach of bank regulations or for criminal purposes but is surely also a weapon that can be used against anyone who creates ‘reputational risk’ through political or social activism or by merely expressing views that challenge public and media perceptions and embarrass the bank. There is already evidence of ‘woke-washing,’ in Canada in 2022, when the banks, in response to a request by prime minister Justin Trudeau, froze the accounts of truckers taking part in the Canadian Freedom convoy.  

Individual cases have been reported of accounts closed because of a customer’s objection to a financial institution’s social policy. In the UK, the Yorkshire Building Society debanked a vicar because he objected to its public support for transgender ideology. The building society proclaimed “zero tolerance” of discrimination. The vicar’s response was “They’re a financial house – they’re not there to do social engineering.” Metro Bank and American Express in the UK have been accused of closing accounts because of a customer’s political views, in both cases, right wing views.  

In Australia, the Commonwealth Bank is refusing to finance new business clients with more than 25 per cent of their revenue coming from thermal coal. In the name of sustainable development this could spread in many directions.  Through debanking or imposing conditions on the opening of new accounts, banking is fast developing as a self-assigned new frontier in the control of social and political behavior, down to domestic, family and elder abuse.

These are surely matters for the police or welfare agencies and not a financial institution. But, in control of your money, the banks are now moving further in the direction of controlling your life.  



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