AML Measures Gone Wrong Cause Headache for European Bank

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Over 100 customers of European bank N26 woke up recently to discover that access to their banks was blocked with no warning or explanation. Unable to access their funds and unsure as to why it was happening, some spoke to the media to express their frustration.

Amongst them was one Ukrainian refugee who had fled the Russian invasion. They were left unable to access some EUR 15,000 and the only warning they had was an email just saying the account would be blocked. They said they were shocked over what had happened but were also confused about why.

The lockout had a huge impact on those involved, and one woman said she was unable to purchase an apartment after she could not access her funds. Another couldn’t pay utility bills and expressed their faith in online banks was eroded.

Even refugees

Even refugees

Anya Shamaieva from Ukraine left her country for neighboring Romania after the war broke out, accompanied by her mother and pet dog. Just seven days later, an email informed her without prior warning that her account was closed. With a balance of EUR 15,000 that she was relying on to support her after leaving her country, she said she was very shocked to find it locked.

When she contacted the bank, they asked her to prove the money in her account was hers. She explained that as a refugee, she did not have all the documents to hand and could not go back to the tax office in Kyiv, in the middle of a warzone. She still has not received her money back, according to her interview given to Business Insider.

Another client from Spain said he only found out about the situation when an attempt to pay his phone bill failed. He tried to contact the company on 45 occasions with no luck, and when he spoke to an agent on web chat, they declined to provide further information and closed the chat multiple times.

Responding to the outrage, N26 said the incident was a part of some company-wide anti-fraud measures they wanted to implement. However, something went wrong, and it targeted innocent account holders. While it appears several closures could have been legitimate, lots of innocent people were caught in the crossfire, with devastating consequences.

They explained that due to international best standards and rules regarding preventing financial crime, they are not allowed to discuss details with those who have had their accounts closed. For example, if someone is subject to restrictions on their account because of suspicions a crime has taken place, they cannot be informed of the explicit reasons why. This is because it would be considered as ‘tipping off’ by authorities, which is in itself a criminal complaint. For this reason, customer service was right not to provide more information to clients, but of course, in situations where measures were wrongly applied, this causes a big headache.

On their LinkedIn profile, the bank was quick to apologize. They said they have quickly rectified the situation and improved their various measures, so it doesn’t happen again. They said that those affected would be contacted by members of their teams, giving no indication of when funds would be returned.

They did, however, note the ongoing struggle banks face when fighting financial crime. While measures to combat the phenomenon might not always be perfect, N26 said they would strive to make their platform as secure as possible.

All the wrong reasons

N26 has been in the media for all the wrong reasons on another occasion as well. In September 2021, less than a year ago, the bank was slapped with a massive fine by German regulators. The penalty of EUR 4.25 million was levied by the country’s regulator Bafin for failure to meet its obligations in anti-money laundering reporting.

It is essential that all banks and financial institutions, and other companies operating in high-risk industries, take steps to protect themselves from money laundering. One such way to do this is by taking AML in banking seriously and investing in robust software to manage all related matters.

AML is complex

AML is complex

AML in banking is known for being costly and complex, but failure to be compliant can also result in significant penalties, such as in the case of N26. There are multiple layers of protection that can be put in place, including customer due diligence, PEP checks, sanction list checks, record keeping, transaction monitoring, and ongoing client monitoring. But technology also has a part to play. AML banking software and tools can enhance processes and ensure maximum compliance. Features like real-time ID verification and real-time transaction monitoring can automate many tasks that would have previously been burdensome. Additionally, machine learning and artificial intelligence algorithms are being harnessed to identify suspicious transfers and even predict them before they happen.

This level of technological integration and the possibilities it presents have enormous potential to help in the global fight against money laundering, fraud, and terrorist financing. As our digital world grows, opportunities for criminals to abuse the system will increase. This poses a threat to companies, users, and regulators and must be combatted. But by using technology to our advantage, things can become a lot easier without operators having to incur larger costs.

In conclusion, it is getting harder and harder for companies operating online to keep up with money laundering requirements. Regulators are constantly trying to keep up with evolving threats, which results in tighter rules for everyone involved. This can also mean higher costs for companies or big penalties if they slip up. But thanks to new software and advancements, the burden of remaining compliant can be supported, and the war on illegality can be stepped up.

As for N26, let's hope their clients get their funds back soon and figure out the right way to balance their responsibilities with their obligations to their clientele. Failure to do so could result not in significant fines, but a lack of consumer trust and catastrophic damage to their reputation.

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