One of the many fundamental flaws in the anti-money laundering (‘AML’) concepts of the Financial Action Task Force (FATF) is that their recommendations regarding risk profiling and monitoring transactions of customers lead to exclusion of people, organisations and regions (e.g. Eastern Europe) from the financial system. This phenomenon is referred to as ‘de-risking’ [*].
A known example of exclusion are the FATCA-victims, people who are confronted with the Citizenship-based taxation (‘CBT’) system of the US and who are denied access to a payment account, in violation with Directive 2014/92/EU. Reason: not having an American tax identification number is considered to mean not filing a tax return in the US; not filing is considered to be money laundering, even when banks know that CBT violates human rights and no tax is to be expected.
There are other examples, like Europeans that temporarily or permanently live outside the EU and lose their bank account because AML/CFT-monitoring is considered to be ‘to difficult’ by banks. (Directive 2014/92/EU is limited to residents of the EU.)
Other types of exclusion are to be found with companies and organisations that financial institutions (like banks) consider to be ‘high risk’, like not-for-profit organisations and certain types of companies. The so-called quality newspapers seem to be the main source of information for this classification. Dutch example: if your name is negatively mentioned by het Financieele Dagblad (FD) you are sure of having problems with the banks.
RUSI event 30 June 2021
It looks as if FATF and its supporters, like the British Royal United Services Institute (RUSI), have discovered the negative impact of AML-legislation. I am not sure if they really intend to do anything about it.
RUSI is having an online event on Wednesday 30 June 2021, announced in their article Assessing the Impact of the Financial Action Task Force on Financial Inclusion. All those who are confronted with exclusion by financial institutions are advised to join the event.
RUSI author Isabella Chase on inclusion:
- Paper: Walk the Talk: How the Financial Action Task Force Can Prioritise Financial Inclusion, 15 June 2021.
- Policy brief, 15 June 2021.
- Isabella Chase on LinkedIn: How does the FATF framework impact financial inclusion?, 15 June 2021.
[*] Read also:
- Even FATF is aware of the major flaws in its AML-standards – mitigation of harmful consequences, 15 April 2021.
- The EBA takes steps to address ‘de-risking’ practices by European banks | AML, 23 March 2021.
- Measures to diminish excessive de-risking practices by banks | AML, CFT, BIS, 7 September 2020.
- The damage of de-risking | AML, CFT, MONEYVAL, 11 October 2019.
- My posts on de-risking.