Banking monitoring and privacy

The European Data Protection Supervisor (EDPS) has criticized plans for yet another tightening of anti-money laundering approaches at the European level. In the Netherlands, many experts are also raising concerns about a legislative proposal with similar content, namely the Money Laundering Action Plan Act (Wet plan van aanpak witwassen).

EDPS Warning

Data protection supervisory authorities at the national and European level consider that the tightening of financial monitoring measures (AML / CFT - Anti-Money Laundering / Combating the Financing of Terrorism) grossly violates the privacy rights of customers of banking and other financial institutions. In particular, this can lead to the fact that people will be deprived of the opportunity to open an account without any reason. An already existing bank account can be blocked on the basis of, for example, religious affiliation. However, health information and other similar sensitive data may be shared for no reason.

At the end of March, the European Data Protection Board (EDPS) warned the European Parliament, the EU Council and the European Commission about the risks of tightening anti-money laundering measures: “The new rules involve very large-scale and deep data processing, leading to mass surveillance of customers by banks”, - considers Andrea Jelinek, chairman of this oversight body.

Banks strive for greater efficiency of financial monitoring

Brussels wants to give banks and other financial institutions more opportunities to share data with each other. This would increase efficiency for banks and make it easier to: a) identify suspicious transaction patterns, b) conduct customer due diligence (KYC).

“Currently, we spend 95% of our time investigating signals that don’t deserve our attention.”, - is talking Helene Erftemeijer, Sector Coordinator for Anti-Money Laundering at the Netherlands Banking Association (Nederlandse Vereniging van Banken). “If we combine the resources of banks with the resources of state and investigative bodies, we will be able to better identify criminal cash flows”.

Huge expenses and fines

With the introduction of new approaches to combating money laundering, banks hope to reduce the costs they are currently incurring. According to the latest available data as of the end of 2021, banks employ 13 employees to detect cases of money laundering and terrorist financing. It costs 1,4 billion euros. “As a result, only 368 million euros were seized from the criminals. It's completely disproportionate."Erftemeyer says.

Moreover, banks receive a lot of criticism for failures in their anti-money laundering systems. Like us wrote, ING Bank was fined €2018 million in 775 and now admits its failure to properly vet funds and associations that apply to open an account. All major banks in the Netherlands were accused of improper customer due diligence to prevent financial and economic crimes. In 2019, an investigation was carried out regarding ABN Amro bank: as a result, the bank agreed with the prosecutor's office to pay 480 million euros. The threat of a fine from the supervisory authority did not bypass Rabobank either: after receiving a warning from De Nederlandsche Bank, the state regulator, Rabobank allocated 249 million euros to improve AML control.

Massive Information Sharing

The adoption of legislative innovations to combat money laundering will open up a large-scale exchange of information between companies and government agencies. However, the European Data Protection Board (EDPS) strongly opposes this, calling it a gross violation of privacy rights. Representatives of this oversight body also warn of the risk that banks can illegally blacklist people and completely block their access to financial services.

Risk of religious discrimination

At the national level, the anti-discrimination and racism coordinator joined the discussion on AML/CFT Rabin Baldewsinghwarning of the risk of discrimination against Muslims. In the Trouw newspaper, Baldevsingh cited Ramadan as an example. Donations are often collected at mosques and iftars, but banks regard this origin of money as suspicious. As a result, Muslims are more likely to deal with banks' compliance departments, which will brand them with suspicions of money laundering or terrorism.

Erftemeyer of the banking association, on the contrary, believes that unfounded suspicion is the lot of the current system of financial monitoring. “For example, if someone buys ice cream in Jordan, we should start asking questions. After all, Jordan has been identified by the EU as a country with a high level of risk, so a more thorough study of customer transactions is required. In fact, this person is probably just on vacation. According to banks, the new scheme will be more convenient. “By sharing information with each other, we can better identify where the real risks are and leave good citizens alone.”Erftemeyer says.

Wet plan van aanpak witwassen

Experts have the same objections to the Dutch Anti-Money Laundering Action Plan Act as they do to legislative initiatives at the pan-European level. The essence of the bill is to further expand the powers of banks and other financial institutions. Katya Mur, Chairperson of the Dutch Data Protection Supervisory Authority (Autoriteit Persoonsgegevens, AP), said: "It's great that everyone in Europe is unanimous on anti-money laundering legislation."

For example, AP strongly objects to having all account holders' banking transactions stored in one centralized database. Also, the supervisory authority warns of the risk of "bank fraud" due to the large amount of data to be exchanged. And just like the anti-discrimination and racism coordinator, Autoriteit Persoonsgegevens points out the dangers of algorithms classifying people and labeling people inappropriately.

In particular, the there is a possibility that people who are mistakenly identified as risky customers by one bank will also receive a cross next to their name in all other banks Netherlands. It can become almost impossible for such people to open a bank account anywhere.

So, the discussion around new approaches to combating money laundering and terrorist financing is in full swing. Which will outweigh: the benefits of financial monitoring or the principles of privacy? We'll find out soon!