Why Are Banks Required to Be Police Officers?

This post is part of a series examining the global phenomenon of de-risking and its impact on financial inclusion. To investigate this issue, CFI staff partnered with Credit Suisse Global Citizen Rissa Ofilada, a compliance lawyer based in the Philippines, to undertake a literature review and conduct interviews with key players in the conversation on de-risking.

This is not a rhetorical question—I really do want to know. As we’ve put out a modest blog series about de-risking, I’ve been thinking about regulations on anti-money laundering and combating the financing of terrorism (AML/CFT). Are stringent regulations and dramatic consequences for non-compliance really necessary? Is it fair to expect the financial system to bear so large a burden? Would it be better for everyone if the onus were on law enforcement to detect and eliminate illicit activity and financial institutions just had to cooperate where necessary?

[I should pause for a second and mention that these naïve musings are my own and not the official position of the Center for Financial Inclusion at Accion.]

One of our interviewees for our series on de-risking joked that the whole goal of AML/CFT laws is to catch the $200 payment that facilitated the Orlando terrorist attack of a few months ago. In my opinion, and in the opinion of our interviewee, it is unrealistic to think that a financial institution will be able to catch and flag a payment of that size—one which only the recipient knows is earmarked for nefarious activity. Is it just that the banks as opposed to law enforcement officials are uniquely positioned to catch such transactions?

Let’s look for a minute at other industries and modes of communication that terrorists and money launderers use. Such criminals use the internet. For example, they use an email client to send emails and Facebook to promote their cause. They use mobile phones to make calls. They buy materials from stores. No other industries that criminals use are fined in the same way as financial institutions for enabling nefarious activity, and no other industries are called to be officers of the law in the same way banks are.

Sure, the internet is beginning to be called on for more responsibility. Facebook reports that:

Government officials sometimes make requests for data about people who use Facebook as part of official investigations. The vast majority of these requests relate to criminal cases, such as robberies or kidnappings. In many of these cases, these government requests seek basic subscriber information, such as name, registration date and length of service. Other requests may also seek IP address logs or account content.

But Facebook is not fined when someone uses their site for terrorist activity, nor does it have arduous regulatory requirements of knowing a long list of things about its users. It may flag and actively report things to law enforcement, but to my knowledge it is not legally required to do so.

Similarly, mobile network operators may be asked to cooperate in investigations into their mobile phone users (and especially on content of text messages, length of calls, and location of users). In some cases, mobile network operators have cooperated with law enforcement to shut off mobile phone service during a terrorist attack or high security moment. Similarly, however, mobile network operators are not fined when a mobile phone is used to trigger a bomb or when a network of terrorists communicate with one another by phone.

I would imagine that stores from which criminals buy the materials they need to carry out illegal activity are investigated and questioned during criminal inquiries. But I have never heard of one being prosecuted just for selling goods.

Technology is commonly understood as an amplifier. It is neither good nor bad—it is bound (in its present state) to the intentions of its user. It seems clear that the law enforcement community recognizes this and, while finding ways to work with technology companies, does not tax technology companies when illegal activity is facilitated through technology.

Why is the banking industry different? One could argue that finance is also an amplifier. Money is neither good nor evil. It merely amplifies the intentions of the holder or the receiver. The banking industry facilitates financial transactions on a large scale. Sure, a bank can make decisions that are not good for customers, but mainstream banks do not directly and actively promote or carry out terrorist activity.

I admit I may be missing something here, so would love to hear from you on this topic. Feel free to reach out to me at skelly@accion.org to share your thoughts, or make a comment below.

Have you read?

Does Global De-Risking Create “Financial Abandonment”? The Background You Need to Know

De-Risking: Why You Should Care?

Who Is to Blame for Global De-Risking? The United States?


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