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In the old days, banks existed to serve the needs of their clients. You opened a bank account for the purpose of holding funds, whether in cash or another form, as well as to receive funds and send funds out. Transferring money out of an account involved no more than sending a short instruction to your banker. The receipt of funds required no interaction with a bank except for checking an account statement.
All of this has changed.
While your bank will still refer to you as its "valued client", you may have in fact become more of a suspected money launderer.
Nowadays, it is your task to serve the needs of your banker, before he attends to yours. What your apprehensive, confused and often paranoid banker needs most is constant reassurance and proof that your transactions fall within the legal guidelines as set by his new masters at the Financial Action Task Force on Money Laundering (FATF). Be ready to use your best skills in psychology to help him out here.
"Hold on," you might say, "I'm not a money launderer!" You are quite right -- the vast majority of us are not. But as you know, the world is at war against international crime and money laundering -- and "guilty until proven innocent" is the new line of thinking. Actions of those who still naively believe that they can deal with their own money however they please could be compared to taking a leisurely walk through a minefield: taking the wrong step can have serious consequences.
Although your banker will still discuss "private banking services" and "your investment goals" with you, other issues will be on his mind, too: "unusual account activity", "source of funds" or "suspicious money-in -- money-out patterns" have become the new dark buzzwords in the financial community.
Fortunately, there are some common-sense rules and strategies you can follow in order to avoid stepping on one of the metaphorical landmines. Those wishing to stay in control needn't feel deterred.
While this kind of discussion in itself may appear underhand, remember that it is a situation which has been forced on us not through the ballot box or by international law, but by a consensus among high-tax nations concerned about the erosion of their tax bases.
According to rule 14 of the Financial Action Task Force on Money Laundering (FATF)
"14. Financial institutions should pay special attention to all complex, unusual large transactions, and all unusual patterns of transactions ... The background ... of such transactions should ... be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies."
 | | | In practice, unusual bank account activity refers to financial transactions that appear atypical when compared to the bulk of previous account activity, or when judged against the account holder's assumed lifestyle or business, or when not in line with the bank account's stated or assumed purpose. |
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While bankers are being told to watch out for any unusual activity or transactions being executed on clients' accounts in order to identify funds of criminal origin, no definite or reliable explanation of what exactly should be considered "unusual" exists.
In practice, unusual bank account activity refers to financial transactions that appear in some way atypical when compared to the bulk of previous account activity, or when judged against the account holder's assumed lifestyle or business, or -- particularly for new accounts -- when not in line with the bank account's stated or assumed purpose.
The underlying criterion for the "unusualness" may be the size of transactions, their frequency, pattern, or their destination or source. The obvious vagueness of the term "unusual" allows your banker to exercise his own judgment and add his own criteria.
It is difficult to offer a broad guide as to what constitutes "unusual" financial transactions. Policies vary across countries and banks and, ultimately, each account officer's judgment and diligence plays a part.
In general, the following is most often considered "unusual":
Naturally, "unusualness" must always be judged in the context of a specific bank account -- what may be "large" for one may not be so for another, and what may be a common financial transaction for one type of business may raise the alarm if it occurs on another account.
To give a fairly obvious example, a sudden receipt of a seven-digit amount in an account that for years maintained a modest saving of say US$200,000 is just not going to go unnoticed as its size stands out when compared to the previous account balance. Supporting documentation confirming the source of the funds will be sought by a vast majority of banks worldwide.
Nowadays, even the origin of such a small amount as say $100,000 may be questioned should it be received in a very new account. In some jurisdictions, "large amounts" are defined as those over $10,000!
| | | Establishing an effective line of communication with your banker is the best line of defence. |
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If you are expecting a large incoming remittance, whatever "large" may mean in your own circumstances, be sure to talk to your banker before he finds out for himself by looking at your account. Giving an explanation as to how your new wealth came about may save you the trouble of having to produce documentary evidence later, and/or being reported to a Financial Intelligence Unit (FIU). Remember that your bank has strict due diligence procedures to follow, and thousands of people each year get reported even though their transactions are entirely within the law.
The same common-sense principles apply to large outgoing payments, or "unusual" frequency or out-of-the-ordinary patterns of transactions. Establishing an effective line of communication with your banker -- prior to the occurrence of any transfers that might be seen atypical -- is the best line of defence.
In fact, talking to your banker is crucial if your account is to be used for frequent incoming remittances that are subsequently followed by outgoing payments, or if your financial transactions involve offshore jurisdictions or countries on the FATF blacklists.
Providing an explanation for any "unusual" financial transaction beforehand -- before your banker starts wondering -- is essential if you wish to avoid being reported.
But it should not be a one-off matter. Those who enjoy hassle-free banking know that today's bankers need regular attention and frequent reassurance that account transactions fall within the guidelines set by the FATF.
It is irrelevant how you keep your account officer informed, as long as you do it, and do it whenever an opportunity arises.
Don't just talk about amounts and account numbers. Talk about your business, your reasons, and your goals, and do it often. A number of short, casual remarks made at every possible opportunity, whether by phone, fax, or in person, work better than a long, manufactured presentation delivered at the odd formal meeting.
The key is to ensure that your account officer feels that you are interested in maintaining a good, long-term banking relationship. The key is to ensure that he feels comfortable knowing what you are doing.
Remember, others are telling him to be suspicious of everything you do. It's you against them, and he's in the middle.
Fail to keep him happy, and he'll turn to the other side in search of comfort. He will not be penalised if he reports an innocent person -- but he will lose his job or worse if he fails to spot a money launderer.
Fail to keep him happy, and he'll be clicking "Report" where he could have clicked "Cancel".
Computer software is now operational in most banks to aid in the detection of unusual account transactions. Unless you actually tell your banker otherwise, a legacy from a will, the repayment of a debt, the proceeds from a sale or any other legitimate but large or otherwise "unusual" remittance to an everyday account may trigger an automated alarm and you may be reported to your national Financial Intelligence Unit as a possible money launderer.
And once the automated STR gets sent, it might be too late to reverse the process of bureaucracy.
A closer look at your tax returns may follow. Your assets might get frozen. As a suspected wrongdoer, you might even be placed under police surveillance or have your telephone tapped. Assumed guilty until proven innocent, it will be up to you to produce the evidence that your money is of non-criminal origin.
Whatever the final outcome, your government will forever hold a file stating that you were once suspected of money laundering.
You think this can't happen to you? Out of the tens of thousands of Suspicious Transaction Reports (STR) filed annually in the United States and the United Kingdom alone, less than one percent is actually found to relate to criminal activity. STR statistics for other countries are harder to come by but there is nothing to suggest that the figures are much different.
The number of apparently suspicious transactions reported is sure to rise in the coming years.
Even today, the size of transactions is not the only trigger that sets alarms. Sophisticated fuzzy systems are already in use that can analyse all manner of complex transaction patterns and detect apparent irregularities. (Searchspace and Mantas are the current two favourite suppliers of such software to banks heavily investing in the new technology.)
Less high-tech tools are also used to train your banker in his new job as an informant.
Bank employees receive guidance in the form of verbal presentations, and even printed manuals of instructions that explain how to not only spy on their customers, but also on their colleagues' lifestyles -- fast cars and fancy clothes being a sign that they may be the recipients of bribes! From time to time, such literature leaks out and provides a shocking insight into the obscene brainwashing that financial professionals are being subjected to.
One particular financial pattern deserves special mention, not least because it excites the passions of bureaucrat and banker alike to the degree that it has been placed at the very heart of the bogus battle against money laundering. It is the rapid transfer of money through accounts.
Under the guidance of the FATF, today's bankers are going out of their way to detect and report transactions that -- they would claim -- serve no other purpose but to move funds away from origin.
A substantial percentage of banks go as far as to bluntly warn new clients that so-called "pass-through bank accounts" -- that is accounts used for frequent inward remittances that are swiftly followed by outward payments -- are held to be "suspicious" and are not encouraged.
Why all the hullabaloo? Apparently because such account activity indicates layering, a procedure by which criminals seek to disperse funds. Not surprisingly, suspected layering is responsible for a sizable portion of the Suspicious Transaction Reports (STR) currently being filed.
But like most things in the upside-down world created by the new financial police, things are not what they seem.
Rapid movements of funds are one of the most unsettling aspects of the global economy for the high-tax cartel who wish to keep their booty -- a.k.a. your assets -- in sight.
| | | Rapid cross-border movements of funds unsettle the high-tax regimes that naturally benefit if your money remains within reach. |
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Tax-hungry administrations naturally benefit if funds remain within reach and are not wired through multiple jurisdictions. Creating obstacles -- whether real or perceived -- for any funds in transit is an effective deterrent against capital flight.
But their underhand schemes don't end here.
In the new climate of paranoia, even funds that make it out of the bureaucrat's reach often end up within his sight, as bankers often feel compelled to file a Suspicious Transaction Report (STR) that notes the money's destination.
Of course, if your banker detects a pattern of frequent money transfers destined for offshore tax havens, it's no longer a matter of just "feeling compelled to report" -- it's pretty much a done deal.
This proves very convenient for the bureaucrat and those who side with him: The client is denied his right to financial privacy. The onshore administration avoids the cost and effort of legally gaining access to offshore bank records through overseas courts. The offshore jurisdiction, on the other hand, avoids damaging publicity as the whole process is clandestine.
It is worth noting that Suspicious Transaction Reports can be shared amongst governments -- Brussels-based Egmont Group even plans a private web-based system for this purpose!
Bankers themselves have seen good business sense in siding with the bureaucrat on the issue of money transfers. Naturally, they would much rather have customers who leave funds on deposit -- ideally in long-term money instruments such as Certificates of Deposit or bonds -- than be used as a staging post with some other bank being the final beneficiary.
The FATF's phoney guidelines allow them to hold on to your money under the guise of appearing as responsible members of the international financial community. Fighting the money launderer and profitability can go hand in hand, it seems.
| | | FATF's phoney guidelines allow banks to hold onto your money under the guise of appearing as responsible members of the international financial community. |
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But there is more.
Should the propaganda alone fail to convince you to leave your money where it is, there is a yet more sinister tactic that can turn "money in transit" into a source of compensation for unhappy banks weighed down with the administrative costs of spying on their clients. They can simply refuse to act on your transfer orders, citing "suspect" purpose of the transaction as the reason.
Bankers are well aware that any "suspect" funds they care to freeze will usually remain on deposit with them for a considerable amount of time -- legal battles can be lengthy. And remember: they have no reason not to take their chances. According to the FATF guidelines, forced onto legal systems around the globe, "Financial institutions ... should be protected ... from criminal or civil liability ... even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred."
It has been noticed that some of those banks who have so far refused to adopt policies designed to discourage effective transfers of funds are choosing to profit in another way: they have substantially increased fees for their range of wire transfer services -- some even charge a percentage of the amounts being transferred.
While it pays to be cautious when dealing with those banking institutions that are known to have internal policies of closing accounts without warning or freezing assets at every possible opportunity, it must be remembered that frequent incoming/outgoing transactions are in reality quite usual in everyday commerce. Providing your banker with a proper explanation is essential, however.
Those with a previous history of such account activity, such as established offshore trading corporations or transfer pricing companies, are typically exempt from intrusive questioning by their bankers. Consequently, they are finding a new source of profit as sophisticated privacy seekers turn to them for help with discreetly placing their funds offshore.
It is consequential in the context of banking transactions that the mighty United States dollar might soon become an effective tool with which to intrude into the financial privacy of all, including non-US citizens.
| | | The United States dollar might soon become an effective tool with which to intrude into the financial privacy of all, including non-US citizens. |
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Making a transfer in US dollars is set to become particularly perilous following the publication of a US Senate Report which demands that correspondent banks handling US dollars transfers for foreign banks should not only positively identify the foreign banks' ordering customers and transfer beneficiaries, but also note the nature of each transaction.
This situation has come about due to a few isolated scandals concerning so-called shell banks (mainly from Nauru), caught using New York dollar correspondents for illicit means. However, it is likely to affect all banking transactions that make use of the US banking systems -- and that is virtually all US dollar denominated cross-border payments.
For example, if you hold a US dollar account at a bank in Budapest, your funds will actually be held in the United States, at your Budapest bank's nostro account.
Under the new guidelines, you may be required to provide the US correspondent bank with your personal details such as name and residential address, as well as give a reason for any wire transfer you might care to order. Naturally, your local bank will forward this information on your behalf as a matter of course -- you won't even be told. Few banks are willing to risk having their all-important US dollar correspondent accounts closed for non-compliance.
Effectively, this means that banking in a low-profile privacy haven no longer provides a definite protection from the reach of the US government. In addition to getting hold of your personal data, they can even order the freezing of your US dollar funds if they deem your actions with their currency in some way irregular!
What's more, the US tax department is currently negotiating information exchange protocols with foreign governments. What if your government is among them?
It is obvious to anyone that such a system will deter all those who value financial privacy. Swiss Francs, Euros, Norwegian Kroner, Singapore Dollars and a whole range of currencies as yet do not share this surveillance risk. Discreet Swiss forex dealers have noticed a pattern of US dollar-trades amongst their high net worth clientele that does not make market sense -- is privacy the unknown factor?
A handful of privacy-conscious offshore banks have also begun employing a variety of tactical strategies that enable them to serve their customers without the requirement to report on them at the same time. Some had no choice but to "get out of the US" altogether. As quite a few offshore bankers know, the bullying and blackmail by the US authorities over US-based correspondent accounts can get quite intense.
At first sight, becoming acquainted with the thinking and systems used to scrutinise and seize assets might seem suspect. But while it would have been so five or six years ago, today it is just common sense.
Remember that financial surveillance and asset confiscation are already the accepted norm, and the practice is set to spread in the coming years.
A clique of high tax nations, intent on stopping tax leakage to low tax havens, are successfully subverting the proper process of law. Their professed -- yet ineffective -- battle against the money launderer has achieved nothing but driving crime underground and creating a lucrative business for professional launderers. At the same time, ordinary citizens are being stripped of their traditional rights.
Remember that the enemies of financial privacy will stop at nothing to achieve their goal of total "financial transparency" -- or the demolition of all forms of financial privacy in more direct language.
No doubt the future will bring a form of "financial transparency" that we can only guess at today.
Stay ahead and act now. Protect what is yours. It is your right.
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