One of the main functions of banks is to provide payment services to their customers. Another, lesser-known role of banks has become increasingly important in recent years, which is to protect the financial system from abuse and crime. After all, crime should not pay. Because by opening an account the bank gives account holders access to the financial system, banks as 'gatekeepers' must ensure that the financial system is not abused. For example, to launder criminal money.
For too long, banks were governed by the 'business over compliance' rule, and the lack of (expensive) supervision of unusual transactions has already cost several banks hundreds of millions in fines. High-ranking bank executives are also currently facing criminal prosecution. The scare is well under way at banks, which are now investing a lot of money and manpower in complying with the rules of the Money Laundering and Terrorist Financing (Prevention) Act in particular. The fact that banks sometimes take a frenetic approach in this regard was demonstrated by the ruling in a case brought by a meat trader after Rabobank wanted to terminate the customer relationship.
Unusual transactions?
An article appeared in the NRC in November 2021 with the headline: "How Brabant meat traders received millions in cash from Congo" The article was to the effect that the trade between the meat traders with buyers in the African country, mainly because of cash payments, was questionable. Also because they were allegedly trading with persons on a US sanctions list. According to the meat trader himself, no rules were violated.
Although the meat trader had been a customer of Rabobank for many years (from 2002), Rabobank saw this article in the NRC as grounds to launch a client investigation. A provisional management order was also imposed, making it impossible to use the account for international transactions. Needless to say, this was very damaging to the meat trader's business, which filed a lawsuit.
No unacceptable risk
The preliminary relief judge ruled this week that Rabobank had not made sufficiently plausible that without the management measure it would run an unacceptable risk that the meat trader would (again) become involved in unauthorised or reprehensible business practices. It would ultimately have been a limited number of out-of-touch transactions. Moreover, the trader had shown willingness to comply with Rabobank's stricter requirements. Also, at Rabobank's request, the meat trader had gone to great lengths to get the NRC article corrected. That this had not succeeded could not be held against the meat trader. Also, the long customer relationship played a role, and more account should have been taken of the fact that over the years, banks simply dare to take fewer risks with customers. Rabobank did not make it plausible that less far-reaching or drastic control measures that more specifically and concretely stated which transactions and in which countries and/or regions would be prohibited were not sufficient. The imposition of the management measure under the given circumstances was contrary to proportionality and therefore unacceptable according to the standards of reasonableness and fairness.
Frenetic money laundering
The ruling indicates that financial institutions are caught between two fires. On the one hand, the Public Prosecutor's Office and financial regulators threatening banks with mega fines and personal liability of executives if insufficient action is taken in response to unusual transactions. On the other, the courts, which whistle back the banks if the bank falls through in this.
In March 2022 pleaded my office colleague Mr David Penn for more consideration of the complexity of the money laundering problem. The government could start by criminalising gatekeepers less but seeing them as an ally in the fight against money laundering. With that in mind, financial institutions may be less likely to take careless yet draconian measures against account holders, which may unnecessarily impede normal trade. This ruling is expected to contribute to that.
Mr I. Bakker