Innocent bank customers are suspected of money-laundering

OVERZEALOUS bank officials are wrongly suspecting customers of money-laundering and freezing the accounts of innocent people, an investigation by the Law Commission has found.

It said banks, lawyers and financial services staff were wasting time and money producing too many “low-quality and unnecessary” reports on suspected money-laundering. One in seven was judged unnecessary.

The commission said this risked serious organised criminals escaping detection because law-enforcement officers were tied up sifting the reports, and also cited “fanciful” cases where people’s accounts were frozen.

In one example, a barrister who ran a small business had his accounts frozen at Christmas, with just £20 cash. When he phoned his bank, it refused to say why the steps had been taken.

Fearing he would be unable to pay his employees and meet a mortgage payment, he hired a solicitor who was prepared to pay the fee needed to submit an application for a court injunction.

“Although his accounts were unfrozen, the bank provided him with notice of closure and informed him that they were terminating the business relationship,” said the Law Commission report.

Another bank customer had their account frozen for the purchase of an item from a retail business in Amsterdam because an official decided there was a “theoretical possibility” that the products could interest a drug user.

The Law Commission said although money-laundering costs the UK billions, “too many low-quality [reports] are submitted to [investigators] undermining the entire process.” Prof David Ormerod, the criminal law commissioner at the Law Commission, said: “Enforcement agencies are struggling with a significant number of low-quality reports.”

The commission recommends a new advisory board, statutory guidance and an online form for reporting.