Bank accounts for the stateless – money laundering legislation is not an excuse for financial exclusion

by , under Mark

This post follows on from a recent post by Enrique on continued practices of financial exclusion in relation to individuals who have had difficulties establishing their identification with Finnish authorities and have subsequently had problems opening bank accounts. It is also a response to one commentator’s fallacious claim that money laundering legislation is an adequate justification for such financial exclusion.

From what I understand of the EU legislation (Directive 2001/97/EC [FI:,EN:]) that covers this issue of money laundering, the banks are allowed as part of their due diligence to establish the identity of the entity involved and to also establish the purpose and nature of the ‘business relationship’. This involves obtaining supportive evidence, and does not specifically establish what these documents must be, thus giving some freedom to institutions to establish their own practices.

This, my friend Enrique, is probably the key reason that different banks are applying different practices. Also, imprisonment and fine are typical penalties attached to these regulations in member states, though I don’t know the specifics of Finland. This may be another reason for the inflexibility of some banking institutions.

However, in applying those practices, it’s worth exploring the EU Directive in more detail to see exactly who and what this Directive is aimed against:

The further stipulations of the legislation are particularly informative:

1) It sets out in part 2 of Article 3 a benchmark requirement on identification also on the transfer of funds of €15 000 or more.
2) It then goes on to point out that institutions can, where there is doubt about whether the account is being used on their own behalf, take reasonable measures to ascertain the real identity of those on whom they are acting.
3) It goes on to state (part 11) that Member States can take measures deemed necessary to establish the identity of persons particularly when not present face-to-face. The Directive specifically mentions the implications for ‘online commerce’ involved in this part.

So, the issue of money laundering typically involves larger sums of money that would normally be irrelevant to processing social security payments or even salaries. It also establishes that non-face-to-face transactions and those involving individuals working on behalf of other individuals (i.e. lawyers, accountants) as being the key target of the Directive. I.e. stateless persons (inter alia refugees) are nowhere mentioned as a particular ‘target group’ for these money laundering requirements, PS Voter, and of course, why would they be?

“The other key issue here is that this objective of minimising possibilities for money laundering also have to be balanced against the need to avoid financial exclusion!”

This is where interpretation of these requirements would of course allow individuals whose circumstances make ID incomplete to acquire basic banking services.

Guidance on this matter for banking institutions in the UK is provided by the Joint Money Laundering Steering Group (JMLSG). It is worth reproducing here some the key elements of this guidance in summary:

Access to basic banking facilities and other financial services is a necessary requirement for most adults. It is important therefore that the socially/financially disadvantaged should not be precluded from opening accounts or obtaining other financial services merely because they do not possess evidence of their identity in circumstances where they cannot reasonably be expected to do so. Internal procedures must allow for such instances and must provide appropriate advice to staff on how identity can be confirmed under these exceptional circumstances and what local checks can be made.

M3.1.5G states that the exceptions to guard against financial exclusion aim to help relevant firms ensure that where people cannot reasonably be expected to produce detailed evidence of identity, they are not denied access to financial services. Although a relevant firm must always take reasonable steps to check who its client is, relevant firms will sometimes be approached by clients who are at a disadvantage, or who otherwise cannot reasonably be expected to produce detailed evidence that helps to confirm identity. Examples could be where a person does not have a passport or driving licence, or whose name does not appear on utility bills.

ML 3.1.6G states that where a relevant firm has reasonable grounds to conclude that an individual client is not able to produce the detailed evidence of his or her identity and cannot reasonably be expected to do so, the relevant firm may accept as identification evidence a letter or statement from a person in a position of responsibility who knows the client, that tends to show that the client is who s/he says s/he is, and to confirm his/her permanent address if s/he has one.

4.110. ML 3.1.7G provides that examples of persons in a position of responsibility who know the client include solicitors, doctors, ministers of religion, teachers, hostel managers and social workers.

4.111. The list is not exhaustive and other examples might include, for example, district nurses or midwives who have visited the client in their homes, care home managers, prison governors, probation officers, police officers and civil servants, Members of Parliament, members of the Scottish Parliament or the Northern Ireland Assembly, a Justice of the Peace, a local or county councillor, or the staff in the registry of a higher education or further education institution

I’m sure there should be similar guidance available to Finnish banking institutions from a relevant central government agency dealing with money laundering? If not, then why not? Financial exclusion is not a priority or issue for the Finnish government?

In the UK, the advice also goes further in stating that a bank branch will typically have a ‘money laundering reporting officer’, whose responsibility it is to oversee these policies at branch level, and that a direct meeting with this individual in problematic cases will more easily lead to a solution, as they can make decisions in regard to ‘non-standard’ cases.

It should now be quite clear to you PS Voter that this issue of ‘money laundering’ cannot be offered as an excuse for continuing an inflexible practice of financial exclusion!

  1. JusticeDemon

    I can only reiterate the point that the refusal of normal service was a prima facie act of discrimination. As such, it should be referred to the police and public prosector.

    If the bank feels that the views of ill-informed and prejudiced online cretins constitute an adequate justification for its policy of excluding customers on the basis of national origin, then they are free to offer that defence when the case reaches the criminal court.

    • Mark

      JD

      While I agree that ill-informed cretins are happy to make a link between money-laundering, terrorism and certain ethnicities, I don’t think this is actually the issue for the banks.

      How can they be excluding on the basis of national origin if that origin isn’t in itself verifiable? The issue is not one of national origin but of identification. The banks are given some freedom in deciding these issues, but it is the job of overseers and governments to issue guidance to the banks in order to safeguard against financial exclusion.

    • JusticeDemon

      The element of identification that is missing is a national travel document issued by the country of citizenship or habitual residence. That makes this a matter of national origin. Stateless Palestinians are a perennial example of this phenomenon.

      None of this changes the point that the bank is refusing normal service to an individual based on a feature that the individual has no power to change. A Palestinian refugee cannot force the government of any country to issue a passport or other travel document. Discrimination arises when a service provider interprets this as an impediment to normal service. Whether this alleged impediment is justified is a matter for the courts, and the simplest way of testing such justifications is a criminal prosecution. Everything else is pure prevarication in the hope that the victim will not challenge the discrimination.

      I am quite sure that no banking official is willing to risk getting a criminal record over this matter. The sooner the offence is reported, the sooner we can expect to hear that the whole thing was merely a misunderstanding etc. etc. and please don’t look any more closely at our race relations record.

    • Mark

      JD

      The element of identification that is missing is a national travel document issued by the country of citizenship or habitual residence.

      Yet this is only one example of a document that can serve as adequate identification for the banks. Also, the country of habitual residence is the country in which the stateless person typically now resides, and so is not ‘the country of origin’. Again, I think you are stretching this to make the connection with national origin.

      None of this changes the point that the bank is refusing normal service to an individual based on a feature that the individual has no power to change.

      And this definition isn’t of itself a definition of discrimination, is it? In many instances, the individual may have a passport, but that its stated in the passport that the identity cannot be confirmed.

      Discrimination arises when a service provider interprets this as an impediment to normal service.

      Your ‘this’ is unclear, JD. You mean that a citizen has been refused the issue of a passport? How is this relevant to the actions of the bank official? The key thing for the bank is that they have a duty of care to establish the identity of the individual. What is missing here is appropriate national-level guidance. I very much doubt a prosecution would be successful given the current EU Directive that is in place and which informs most bank policies.

      I am quite sure that no banking official is willing to risk getting a criminal record over this matter.

      Well, there’s the irony, because the other pressure operating on bank officials are those that protect against money laundering.

    • JusticeDemon

      Mark

      Yet this is only one example of a document that can serve as adequate identification for the banks.

      The type of identity document issued by a recognised foreign power is really beside the point, but standardly this will be a travel document when the objective is to identify an alien in another country (that’s why the border guard asks for a passport). The document could equally well be a fishing licence or a senior citizen’s concessionary bus pass, but what really matters is that no such document can be obtained from anywhere. The most common reason for this is that no competent issuing authority exists in failed States.

      A country of habitual residence may also issue identity documents to whomsoever it chooses. For example it may issue birth certificates and identity cards to alien children who are born to stateless parents within its territory. All of this is indissolubly linked to national origin.

      this definition isn’t of itself a definition of discrimination

      The usual formulation of a generalised non-discrimination provision refers to a “reason related to the individual”. For example subsection 2 of section 6 of the Finnish Constitution prescribes that “no one shall, without an acceptable reason, be treated differently from other persons on the ground of sex, age, origin, language, religion, conviction, opinion, health, disability or other reason that concerns his or her person.”

      This formulation is deliberate. Instead of a “reason related to the individual” (“henkilöön liittyvä syy”), we could have said “an element of individual identity”. In other words, something that a person either cannot change (such as history or origin) or cannot properly be required to change (such as hair colour or shape of nose). The case of unconfirmed identity is precisely of this kind, as the individual is not in a position to change the passport entry.

      Prima facie discrimination arises when this feature that the individual cannot change is cited as grounds for refusing normal service.

      I very much doubt a prosecution would be successful …

      This is a matter of prosecutorial and judicial discretion. You are entitled to your general opinion (with which I disagree), but it’s the view of the public prosecutor and the judiciary regarding the concrete case that counts.

      … given the current EU Directive that is in place and which informs most bank policies.

      From the point that money laundering regulations do not affect all banks in the same way, we may surmise either that some banks have unlawful policies in this regard, or that they have room for discretion in this respect.

      Non-discrimination is both a Treaty and Charter principle in Community law and a Constitutional principle in Finnish law. It is hardly likely that the Directive has been transposed into Finnish law in a manner that infringes this very fundamental principle, and if this has indeed happened, then at least the parliamentary Committee for Constitutional Law was asleep at the switch (which would be a very serious question in and of itself). This suggests that the mode of applying money laundering regulations remains a matter of discretion in Finland after all, and the exercise of that discretion is specifically constrained by criminal and human rights law.

      It seems obvious to me that anyone whose identity has been established sufficiently well for the purposes of immigration and social security procedures should be recognised by all branches of private commerce.

    • Mark

      JD

      The type of identity document issued by a recognised foreign power is really beside the point

      What do you mean by ‘foreign power’ here? Foreign to Finland? The question surely is what ‘identity document’ will serve to satisfy Finnish financial institutions to set up a bank account. In which case, the type of document is of course relevant.

      but standardly this will be a travel document when the objective is to identify an alien in another country, unless by alien you mean the immigrants home country

      Did you read the article JD? I already pointed out that the list of suitable documents for identification in these cases according to UK practice is actually quite long. I offered this as a suitable model for the Finnish institutions to follow. In which case, focusing exclusively on the issue of ‘national documents’ or their lack would a mistaken way of formulating the problem if another solution that already sidesteps that issue is available. To state it again, the issue is not the national origin – the issue is what classifies as suitable identification of the individual, and that identification does not relate specifically to their nationality or their origin.

      It is discrimination to deny them financial services, but it’s clearly not based on their national origin. It’s based on their vulnerable position as people without adequate documentation.

      The document could equally well be a fishing licence or a senior citizen’s concessionary bus pass, but what really matters is that no such document can be obtained from anywhere. The most common reason for this is that no competent issuing authority exists in failed States.

      Again, look at the way the problem is set out by the UK’s Joint Money Laundering Steering Group: it does not require even this level identification – it merely takes an upstanding member of society willing to vouch for the person. These references can be obtained readily within Finnish society. So, talk of ‘failed states’ is still locating the individual as if residing still in the failed state. I really fail to see why you would present the problem like this?

      A country of habitual residence may also issue identity documents to whomsoever it chooses. For example it may issue birth certificates and identity cards to alien children who are born to stateless parents within its territory. All of this is indissolubly linked to national origin.

      While a failed state may be the reason for the person’s lack of ID, this is not specifically the reason why a bank may not be satisfied with the level of ID provided. Likewise, if the Finnish banks followed the practices of other European countries, then the issue of a ‘failed state’ having been the reason behind any kind of lack of official documentation becomes irrelevant. The ‘discrimination’ is not made on the basis that the individual HAS a specific national identity, the problem is that the individual appears to have NO IDENTITY at all that is verifiable. So, making this an issue of discrimination against a person on the basis of national origin, when no origin is actually known for certain, would be a mistake.

      “no one shall, without an acceptable reason, be treated differently from other persons on the ground of sex, age, origin, language, religion, conviction, opinion, health, disability or other reason that concerns his or her person.”

      And it’s quite likely that establishing identity for the sake of determining a legal ‘business relationship’ would be deemed an acceptable reason, especially when national and EU legislation places an obligation of due diligence upon the institution in such matters.

      Seriously though, considering how easily this problem could be solved by a quick reference to common practice and SOLUTIONS in other countries, it hardly makes sense to make this an issue of discrimination or of legal cases. What we need is better guidance for the banks from those parties that would be the one’s prosecuting the banks for failing to follow due diligence.

      You are entitled to your general opinion (with which I disagree), but it’s the view of the public prosecutor and the judiciary regarding the concrete case that counts.

      Lol. Well, this applies as much to your opinion as it does to mine.

      The case of unconfirmed identity is precisely of this kind, as the individual is not in a position to change the passport entry.

      And yet this assumes that this is the only means by which identity can be established to the satisfaction of the banks. This is clearly a false premise. A simple letter from a priest, lawyer, local authority or other such person’s of good standing would suffice. The issue is to remind the banks that this is good practice in other countries of the EU also subject to the EU Directive, and is in fact the general advice issued by the UK’s body set up to oversee issues of money laundering.

      From the point that money laundering regulations do not affect all banks in the same way, we may surmise either that some banks have unlawful policies in this regard, or that they have room for discretion in this respect.

      I would have thought it’s quite clear they have room for discretion.

      This suggests that the mode of applying money laundering regulations remains a matter of discretion in Finland after all, and the exercise of that discretion is specifically constrained by criminal and human rights law.

      Well, that was kind of the point in suggesting that there is an easy way out of this and in pointing out that the spirit of money laundering legislation should not be misinterpreted as a justification for financial exclusion. In other words, I guess we agree about this point.

      It seems obvious to me that anyone whose identity has been established sufficiently well for the purposes of immigration and social security procedures should be recognised by all branches of private commerce.

      And on this we also agree.

    • JusticeDemon

      Mark

      You are entitled to your general opinion (with which I disagree), but it’s the view of the public prosecutor and the judiciary regarding the concrete case that counts.

      Lol. Well, this applies as much to your opinion as it does to mine.

      ALL that I have done is recommend reporting the prima facie offence. I would not presume to prejudge the outcome of the investigation or the prosecutorial process, still less to discourage victims from pursuing this option. Au contraire I think that criminal law backed by principles of Constitutional, Community and international law MUST trump the discretionary rules of private businesses concerning their choice of customers, even when these rules are based on an interpretation of statutory instruments.

      The situation is parallel to the famous lament of pub doormen seeking to rely on the principle that an establishment has the right (and indeed in some respects also the duty) to choose its customers. This right famously does not permit the establishment to exclude patrons on the basis of features that the individual cannot change or cannot reasonably be required to change (such as pitch of the voice or whether the penultimate digit in the personal identity number is odd or even).

      “Foreign power” is a relative expression denoting recognised authorities that operate beyond the scope of national law. These include all foreign States together with UNHCR and comparable international agencies. UNHCR issues travel documents that are recognised as proof of identity in Finland.

      There is considerable variation in the form of identity documentation that is acceptable for various purposes in various countries. The UK is exceptional, at least by European standards, in accepting things like utility bills and letters from “persons of standing”. A birth certificate has become the key document required for issuing a UK passport, and partly because of the principle of lex soli there is no requirement to link the applicant to the parent specified in the certificate (e.g. by DNA testing).

      The UK system seeks to reflect identity in terms of current social realities concerning a person, whereas the system applied in Finland and elsewhere in Europe tends to depend on purely formal and technical arrangements for identifying a biological entity.

      My own feeling is that the UK system is more directly useful for practical purposes. In accepting utility bills as proof of address and identity the UK banks are essentially saying that identity for the purposes of banking can be based on evidence that someone defrays the costs of living at a certain address and has entered into an agreement with a business operating at a fixed location. Anyone with these elements of identity has sufficient [social] standing to be a customer of the bank. There are arguments that cut both ways here, but even the northern European approach to identity requires a chain of trust between professionals working for public authorities and businesses (i.e. “persons of standing”). There is nothing magical about a registered name or identity number. These designators identify their bearers by convention only.

    • Mark

      JD

      ALL that I have done is recommend reporting the prima facie offence. I would not presume to prejudge the outcome of the investigation or the prosecutorial process, still less to discourage victims from pursuing this option. Au contraire I think that criminal law backed by principles of Constitutional, Community and international law MUST trump the discretionary rules of private businesses concerning their choice of customers, even when these rules are based on an interpretation of statutory instruments.

      To be precise, JD, you want to make this a judicial issue while I think that is unnecessary and clouds the issues at hand. Indeed, it forces us to consider this as a matter of ‘national’ identity when in fact it is simply a matter of identity. While we both agree it is discrimination, the question really is how do we most quickly arrive at a workable solution? I think this approach of calling for prosecutions is unnecessarily adversarial. And I remain unconvinced that the argument can be made. Who am I to make that judgement? For a start, who is going to bring that prosecution? Second, will it have to go all the way to the ECHR? Who pays for that? If we already have a model provided in another country for dealing with this very issue that avoids that kind of process, then why make this about court cases? Or do you simply think the ‘threat’ is enough? While the threat might work in some cases, it would unlikely have any lasting effect on practices. What exists here is confusion and uncertainty over how much the banks must demonstrate due diligence. This negatively affects vulnerable people in society leading to financial exclusion. While that is a form of discrimination, it’s very unclear that it falls specifically into one basket. I would have thought this was not a controversial point, JD.

      The UK system seeks to reflect identity in terms of current social realities concerning a person, whereas the system applied in Finland and elsewhere in Europe tends to depend on purely formal and technical arrangements for identifying a biological entity.

      My own feeling is that the UK system is more directly useful for practical purposes. In accepting utility bills as proof of address and identity the UK banks are essentially saying that identity for the purposes of banking can be based on evidence that someone defrays the costs of living at a certain address and has entered into an agreement with a business operating at a fixed location.

      well, we are in agreement then that the UK does serve as a suitable model.

      Of course, there is nothing wrong in pursuing both courses of action as a response to this situation, one geared to changing practices through national guidance, the other through the courts. I’m certain on the court-related stuff, you are far more knowledgeable than I, JD.

    • JusticeDemon

      Mark

      I took some pains to point out that the formal identity registration systems of Continental Europe are by no means fundamentally unworkable, but that they ultimately depend on a chain of trust in much the same way as the traditional approach taken in English law.

      The law of clubs is a nice example of this. In England any group of people carrying on a communal non-profit activity on a regular basis constitute a club in law, and may organise their affairs in such a way that no single individual who has acted lawfully may be held liable for the obligations of the club as a whole. In other words, the club gains its identity through a social process, and not by registration.

      In Finland, by contrast, clubs gain legal identity by registration, but it is important to notice that registration involves a certain bootstrapping procedure: no entity can register unless it already has legal identity in some sense. The Register of Associations essentially takes that “proto-identity” on trust, based on certain formal declarations made by the founders.

      ***

      For a start, who is going to bring that prosecution?

      The public prosecutor in the first instance, as with all criminal offences. This could occur spontaneously (for example if the public prosecutor reads MT), but is more likely to happen in response to a formal report of the offence concerned. Such reports are normally submitted to the police, who have a duty to investigate the offence and forward their findings to the public prosecutor. Reports submitted directly to the prosecutor will normally be forwarded to the police for investigation before the prosecutor considers them.

      Second, will it have to go all the way to the ECHR?

      ECHR governs vertical relations between signatory States and members of the public. In the event that the State (i.e. the Supreme Court of Finland) takes a general view that banks may practice discrimination, then it is conceivable that an aggrieved party may pursue the point as an infringement of Protocol No. 12 to ECHR, which took effect in Finland on 1 April 2005.

      Who pays for that?

      ECHR has a legal aid scheme of its own, but if a case of this kind reached that stage, then it would have already become the kind of cause célèbre that will not fail for lack of advocacy. I can think of a dozen young lawyers who would jump at the chance of scoring such a point early in their careers.

      If we already have a model provided in another country for dealing with this very issue that avoids that kind of process, then why make this about court cases?

      National sovereignty, perhaps coupled with the more philosophical point made above concerning differing approaches to recognition of individual identity. Frankly I would not relish the idea of using the UK as a model of any kind in a matter of human rights or social organisation, but that is probably my personal prejudice.

      Or do you simply think the ‘threat’ is enough? While the threat might work in some cases, it would unlikely have any lasting effect on practices.

      I think the threat is certainly enough in this context. I cannot see any business of this size being willing to take on the anti-discrimination lobby by insisting on its right to make life difficult for stateless individuals, or even for relatively privileged internal EU migrants. The lasting effect would be achieved by a change of banking regulations. The obvious topical point of analogy is the turbaned bus driver case that was settled recently. Where was the commercial percentage for the bus company in arguing over this point?

    • Mark

      JD

      I took some pains to point out that the formal identity registration systems of Continental Europe are by no means fundamentally unworkable, but that they ultimately depend on a chain of trust in much the same way as the traditional approach taken in English law.

      Okay. Thank you for your pains. It was a good and valid point, expressed clearly, but not one that I saw as being in contradiction with anything I’ve written.

      In Finland, by contrast, clubs gain legal identity by registration, but it is important to notice that registration involves a certain bootstrapping procedure: no entity can register unless it already has legal identity in some sense. The Register of Associations essentially takes that “proto-identity” on trust, based on certain formal declarations made by the founders.

      This provides an interesting backdrop to this discussion and I’m grateful for your insights here. I’m not sure how this relates exactly to the question of ‘individual identity’, but I trust you have some idea in mind.

      The lasting effect would be achieved by a change of banking regulations.

      But this practice is not governed directly by regulations, unless by that you mean regulations on discrimination. If that were the case, you would have to get banks to accept that this was a case of discrimination as opposed to them exercising necessary due diligence. I’m still not convinced that you have done that, though I accept we will have to agree to disagree on that point.

      The problem with relying upon a ‘threat’ is that very few immigrants will be aware of their rights on this issue and will have very little idea how to argue that point. I think the suggestion to seek out the bank branch’s responsible officer concerning money laundering is a useful suggestion.

      Like I said, I don’t oppose you taking this approach, I’m just not convinced it’s a cut and dried example of discrimination on the basis of national origin. I see it rather as discrimination against a ‘class’ of people who are disenfranchised within society. These can also be natives.

      Your response to the specific and useful advice contained within the UK model with a rather generalised dismissal of UK experience on the grounds of not trusting them on human rights is not particularly helpful. It just appears to be ill-thought out. In this case, it would be useful to deal with specifics at the level of specifics. What about the UK model grates with your conscience?

    • JusticeDemon

      Mark

      I’m not sure how this relates exactly to the question of ‘individual identity’, but I trust you have some idea in mind.

      There are certain philosophical problems with the notion of personal identity, but for legal purposes what matters is not “identity in itself”, but sameness of identity through time. It is important for individual liabilities to attach to the same individual, but there is no magical connection between the bearer of liabilities and the name or other designator used by that bearer.

      It is no defence to criminal liability that the offender was swapped with another infant in the maternity ward, as this kind of misidentification is not relevant. What matters is that the offender is convicted, not that the convicted person is anybody’s blood relative. Compare this with liability for the costs of treatment to retard the onset of an anticipated hereditary illness and of subsequently treating that illness when the “wrong person” falls ill. This illustrates the point that questions of identity tend to be relative to some purpose.

      I suspect that excessively fussy banking regulations arise because the bank gets confused over these “identity not confirmed” entries made by public authorities that are interested in identity for reasons that have nothing to do with banking. It is not all clear how a stateless person relevantly differs from any other new customer with no personal credit history for the purposes of retail banking. It is equally unclear why someone earning a minimum wage should be relevantly different from someone receiving social welfare benefits for those purposes, and one suspects that the difference in policy here has more to do with the wish to avoid inconveniencing employers than with any issues of creditworthiness.

      The shortcomings of the UK system have been vividly exposed recently in cases where undercover police officers stole the identities of dead children. A birth certificate and a (not necessarily regular) source of income are effectively all it takes to build a false identity in the UK. Simply turn up in a district as an itinerant labourer, rent some digs and maybe go to church a few times and you are ready to get your passport. This system has been a cause of annoyance to Continental European police forces for some years, as fugitives can effectively disappear in the UK. Nor is it an offence to claim benefits under an assumed name, provided that you are genuinely qualified for those benefits, because in a very real sense your name can be whatever you choose to be called.

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