Failure to give reasons for refusal to open or closure of bank accounts – Violation of human fundamental right to lawful freedom of expression and information
09.11.2023
Failure to give reasons for refusal to open or closure of bank accounts – Violation of human fundamental right to lawful freedom of expression and information
All the reasons for financial institutions to failure to give any reasons for refusal to open or closure of bank accounts are provided by the below mentioned paragraph 2 of the Article 10 of the European Convention of Human Rights which however doesn’t cover the reason “high-risk client”. To be a high-risk client doesn’t mean to do something wrong, illegal, or suspicious.
Freedom of expression
1. Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers. This Article shall not prevent States from requiring the licensing of broadcasting, television or cinema enterprises.
2. The exercise of these freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are prescribed by law and are necessary in a democratic society, in the interests of national security, territorial integrity or public safety, for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or rights of others, for preventing the disclosure of information received in confidence, or for maintaining the authority and impartiality of the judiciary.
Financial institutions act in such a way as not to commit the crime offence “tipping off” violating the section 48 of the Law No. 188(I)/2007 The prevention and suppression of money laundering and terrorist financing Law of 2007 which occurs when any person discloses, either to the person who is the subject of a suspicion or any third party that information relating to suspicious transactions has been transmitted, is being transmitted or will be transmitted to the Unit, in accordance with the provisions of section 69 or that an analysis of such information or of suspicious transactions is being carried out or may be carried out, with respect to money laundering or terrorist financing.
Accordingly financial institutions are entitled to fail to give any reasons only in case of suspicion, however being a high-risk client do mean a high risk that such client presumably could do something suspicious, but it doesn’t mean that he will do it and in respect of such clients the Enhanced Due Diligence (EDD) procedure is provided under the abovementioned AML Law which should be performed for higher risk categories of clients, business relationships or transactions but not granting the power to fail to give explanations to financial institutions violating their human right to lawful freedom and information.
It’s also crucial to note that generally being a high-risk client can’t be the reason at all for closure of bank accounts since it doesn’t fall under the conditions for termination of a framework contract under the Article 19 of the EU Directive 2014/92/EU of 23 July 2014 on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features.
2. The credit institution may unilaterally terminate a framework contract only where at least one of the following conditions is met:
(a)the consumer deliberately used the payment account for illegal purposes;
(b)there has been no transaction on the payment account for more than 24 consecutive months;
(c)the consumer provided incorrect information in order to obtain the payment account with basic features where the correct information would have resulted in the absence of such a right;
(d)the consumer is no longer legally resident in the Union;
(e)the consumer has subsequently opened a second payment account which allows him to make use of the services listed in Article 17(1) in the Member State where he already holds a payment account with basic features.
The UK is the first to take control of the “tipping off” matter after a case of former UK Independence Party leader Nigel Farage vs the private bank Coutts in July 2023. Coutts closed Nigel Farage bank account due to his PEP status without giving clear explanations.
The new UK government policy statement issued on 21 July 2023 provides that the financial institutions should not terminate contracts or payment account facilities violating the right of users to lawful freedom of expression and information. “The government strongly supports this fundamental right afforded to all people in British society and will take the action necessary to protect it”. The new rules will give customers a 90-day notice period. So, customers will get more time to challenge the bank’s decision with the Financial Ombudsman Service or find another bank. The financial institutions will be obliged to give clear reasons why they’re closing an account.
Freedom of expression
1. Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers. This Article shall not prevent States from requiring the licensing of broadcasting, television or cinema enterprises.
2. The exercise of these freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are prescribed by law and are necessary in a democratic society, in the interests of national security, territorial integrity or public safety, for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or rights of others, for preventing the disclosure of information received in confidence, or for maintaining the authority and impartiality of the judiciary.
Financial institutions act in such a way as not to commit the crime offence “tipping off” violating the section 48 of the Law No. 188(I)/2007 The prevention and suppression of money laundering and terrorist financing Law of 2007 which occurs when any person discloses, either to the person who is the subject of a suspicion or any third party that information relating to suspicious transactions has been transmitted, is being transmitted or will be transmitted to the Unit, in accordance with the provisions of section 69 or that an analysis of such information or of suspicious transactions is being carried out or may be carried out, with respect to money laundering or terrorist financing.
Accordingly financial institutions are entitled to fail to give any reasons only in case of suspicion, however being a high-risk client do mean a high risk that such client presumably could do something suspicious, but it doesn’t mean that he will do it and in respect of such clients the Enhanced Due Diligence (EDD) procedure is provided under the abovementioned AML Law which should be performed for higher risk categories of clients, business relationships or transactions but not granting the power to fail to give explanations to financial institutions violating their human right to lawful freedom and information.
It’s also crucial to note that generally being a high-risk client can’t be the reason at all for closure of bank accounts since it doesn’t fall under the conditions for termination of a framework contract under the Article 19 of the EU Directive 2014/92/EU of 23 July 2014 on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features.
2. The credit institution may unilaterally terminate a framework contract only where at least one of the following conditions is met:
(a)the consumer deliberately used the payment account for illegal purposes;
(b)there has been no transaction on the payment account for more than 24 consecutive months;
(c)the consumer provided incorrect information in order to obtain the payment account with basic features where the correct information would have resulted in the absence of such a right;
(d)the consumer is no longer legally resident in the Union;
(e)the consumer has subsequently opened a second payment account which allows him to make use of the services listed in Article 17(1) in the Member State where he already holds a payment account with basic features.
The UK is the first to take control of the “tipping off” matter after a case of former UK Independence Party leader Nigel Farage vs the private bank Coutts in July 2023. Coutts closed Nigel Farage bank account due to his PEP status without giving clear explanations.
The new UK government policy statement issued on 21 July 2023 provides that the financial institutions should not terminate contracts or payment account facilities violating the right of users to lawful freedom of expression and information. “The government strongly supports this fundamental right afforded to all people in British society and will take the action necessary to protect it”. The new rules will give customers a 90-day notice period. So, customers will get more time to challenge the bank’s decision with the Financial Ombudsman Service or find another bank. The financial institutions will be obliged to give clear reasons why they’re closing an account.