Financial Supervision Authority’s Anti-Money Laundering Guidelines Unreasonably Tough

The Chamber has turned to the Financial Supervision Authority to address the guidelines ‘Organisational solutions and preventive measures for credit and financial institutions to take against money laundering and terrorist financing’. In our letter we asked for explanations wishing to know on which circumstances the examples, set out in the guidelines, have been based, indicating suspicion of unusual financing and money laundering or terrorism financing.

Accounts of long-standing Estonian companies are closed as well

The increasingly strict rules for the prevention of money laundering have made Estonian banks close accounts of companies, refuse to open accounts or suspend payments, and in the Chamber’s opinion such trend has been growing since last year. Account closing and suspension of payments is a reality not only for non-resident companies, but also for Estonian companies, many of whom have been operating for decades. Every month, the Chamber receives many inquiries from companies whose accounts have been closed in Estonian banks and whose further business activities are therefore greatly interrupted or even impossible.

According to international standards, the guidelines for preventing money laundering should primarily focus on control and management. Banks base their risk assessment on the recommended guidelines from the Financial Supervision Authority, guidelines from the Financial Intelligence Unit and the policy and guidelines for the prevention of money laundering and financing of terrorism from the Banking Association. Unfortunately, we find ourselves in a situation where instead of controlling and managing risks, a direction towards prevention of risks has been taken.

Address of activity in an apartment building may lead to closing of account

Considering the examples, methods and instructions set out in the guidelines, the suspicion of money laundering may arise with respect to many persons. Even where there is no reason at all, because the behaviour of a business corresponds to normal business practices, but according to the guidelines, it should be considered as suspicious. For example, if the address of activity of a person is in an apartment building, if a company has no necessary special equipment for transporting of goods or if a company is connected to countries or the neighbouring countries of the countries that are considered to have higher risk of money laundering. As a result, banks may close the accounts through which an unusual transaction is made. Upon closing, the bank has followed the rules established for them. In the Chamber’s opinion, the set examples from the guidelines allow suspecting a disproportionally large amount of people and transactions in connections to money laundering or financing of terrorism and are therefore not appropriate.

Closing of bank accounts has forced entrepreneurs to use other channels

Furthermore, we highlighted in our address that closing of accounts (terminating customer relation) has forced companies to use less regulated or unregulated channels. For example, companies are forced to use more cash (including transporting money across state borders) and that decreases the probability of having an overview of how money is handled. Additionally, companies are using private accounts for a fee to perform their transactions. Therefore, ending a customer relation quite often does not help preventing money laundering.

The Chamber of Commerce agrees that considering the openness of the Estonian economic and business environment, globalisation of the financial sector and technical development of the financial services, it is important to establish clear principles and control mechanisms for preventing money laundering, which would help to prevent the use of illegal and nontransparent financial schemes. However, we find that the risks of money laundering and financing of terrorism are not the same in all cases and therefore it is important to implement risk-based assessment for each client. A result of assessing the money laundering risks should not be any prevention (or minimising expenses related to due diligence measures), instead it should be established what is the risk profile related to a client or business relation.