HAS GIBRALTAR GOT IT RIGHT IN ITS EFFORTS TO DETER CRIMINALS FROM ABUSING OUR FINANCIAL SYSTEM?
Marcus Killick, Commissioner, and David Parody, Chief Operations Officer, Financial Services Commission respond to recent comments on part of Gibraltar’s anti money laundering regime.
In a recent letter to the Chronicle it was commented that it was far harder to open a bank account in Gibraltar than it was in either the United Kingdom or Spain and blaming the Financial Services Commission for this. This letter followed comments from the Chief Minister on this issue. Whilst the Chief Minister’s comments were directed at the banks rather than the Commission, the message was the same - why is it so hard to open a bank account in Gibraltar?
Before setting out to respond to these concerns it is important to explain the background to why proof of identification (commonly known as “Know your customer” or KYC) is needed when someone opens a bank account. Such proof is required as part of the process of deterring criminals from using Gibraltar as a location for “laundering” the money they derive from crime.
Money laundering is a common term used to describe the process by which the proceeds of a criminal activity get disguised so that the criminals may make use of this money. Money Laundering used to be associated with drug trafficking but the term includes every type of criminal activity including the financing of terrorism.
The more a criminal can distance themselves from the crime itself, the less the chance of getting caught and the more freely that money can be used to purchase legitimate goods and services. Money laundering is an industry in its own right.
To disguise the perpetrator of the crime using false identities is one of the main armouries of the professional money launder. For this reason, money launderers will frequently use identity theft (i.e. pretend that they are someone else) as a means of hiding ill gotten gains. That is why financial services providers place so much emphasis on identifying and seeking documentary proof of your identity, For more reading on why financial services providers need to have such details about you, readers may be interested in an excellent leaflet produced by the Gibraltar Bankers’ Association called “You and your bank” which most banks will have or which is available on-line from (http://www.gba.gi/images/gbabrochure.pdf)
Of course just requiring identity when an account is set up is, by itself, an insufficient deterrent. That is why, in line with international standards and European Union requirements; we also require financial institutions to be vigilant on the subsequent use of the account and on the source of funds paid in. Where the account is being used in a suspicious way then the institution is required by law to report the matter to the police,
Yet the vast majority of account holders are honest, law abiding citizens. There is therefore a need to balance the need to protect Gibraltar from abuse by criminals and the right of an individual to conduct his or her affairs in privacy, with the minimum of bureaucracy.
We have therefore attempted to balance these by imposing a requirement based upon the risk that an account may be misused. Launderers try and make their use of an account appear as legitimate as possible; however some factors, such as the nature and location of the client or the activity of the account may make it more at risk. We therefore require that financial institutions prioritise these types of accounts. We have also asked institutions to review existing business to check that they have basic KYC information on all of their clients rather than just new ones.
However, the legislation is not prescriptive as to how these apply on a day-to-day basis. That role is reserved for the Anti-Money Laundering Guidance Notes (AMLGNs) also available on-line (http://www.fsc.gi/amlgn).
The main complaint from clients relates to the type of information sought, in particular the address verification (one of the components of the KYC process). The regulatory requirement is that the address of a customer needs to be independently verified by the institution itself. Clearly, if a bank is lending on the property to which the account is registered, there needs to be nothing else sought as the mortgage process has adequately identified the property in question! Customers also frequently get asked to provide a copy of a utility bill for the address in question. This is not a regulatory requirement as the independent verification talked about above can be achieved, in most instances, from the Register of Electors.
To assist even further, the FSC is also shortly to introduce into the AMLGNs an amendment which categorically states that the same document that is used for verifying identity can also be used to verify the address if the document contains both sources of information (e.g. Gibraltar ID Card).
Another element of a KYC process relates to the customer’s source of income or wealth. Clearly, where the customer receives a salary or wage that is to be paid into a bank account from a known employer, the requirement can be easily satisfied and there should be no further need to seek documentary evidence in support of this. However, where savings accounts are opened to receive irregular payments, for example from abroad the documentary evidence may be more onerous.
Yet what has been outlined above is merely the minimum.
Many institutions choose, as a matter of group policy, to implement higher standards than what is required by the FSC.
The higher the standard, the less of a chance that your money is mixed with that of criminals. The downside of these higher standards is that more questions are sought from customers. Whilst a decision to impose these higher standards is one for the institution it is important that any additional imposition, particularly on low risk customers, must be proportionate and not such that it undermines the credibility of the system to the public at large. Unfortunately some requirements imposed by certain institutions do give the impression that they are more formula driven than thought driven.
So is our approach far stricter than the United Kingdom’s? To test this argument two UK institutions were approached last week at random by Commission staff whilst in the UK seeking to open an account. Neither would accept applications from non UK residents. For a UK resident whose name appeared on the voters’ roll and who was the customer of a utility company the process was very quick (15 minutes from entering the door to the account being opened). No documentation was required. This is because; in the UK many financial institutions are linked up to data providers such as CallML. These providers enable an institution to immediately verify the address details provided. Unfortunately no similar service exists in Gibraltar.
Therefore observations that it is easier to set up an account in the UK, for a UK resident appear to be correct. However where a person is not the utility bill payer or on the voters roll such fast track checking is not available. Similarly the UK does not have Gibraltar’s percentage of customers outside its jurisdiction and for non residents the position taken by some UK institutions in refusing to open non resident accounts clearly is stricter than ours
Customer identification, like airport security is a fact of modern life. The fight against crime is in everyone’s interest, and depriving the criminal of the benefit of his or her crime is a vital part of this. But this has to be balanced against the rights of the law- abiding majority. We therefore welcome contributions to determining this balance and hope this article will assist in this debate.