High street banks MUST do more to combat fraudsters
APAYMENT of £3.8million suddenly arrives at the NatWest branch on Brixton high street in London, transferred to a bank account that has never previously received more than a few thousand pounds.
The money has come from Saudi Arabia. Almost as soon as it arrives, the person controlling the account starts transferring it to accounts in Eastern Europe and Hong Kong.
To most of us, that would sound pretty suspicious. Yet NatWest did not freeze the account when the Saudi money arrived. It also allowed the outward payments, despite the fact they triggered fraud alerts.
By the time the bank’s fraud team took decisive action, it was too late. The Brixton branch account was empty, and the funds had been dispersed offshore, probably into the hands of organised criminals.
The money had been stolen from Maire Tecnimont, an international engineering conglomerate, which is suing NatWest in a case due to commence at the High Court in London in December. The bank denies liability, and the court will decide where blame lies. But what is clear is that our high street banks are the unknowing conduits for a widening torrent of fraud and money-laundering. And that should worry all of us.
Regular readers of The Mail on Sunday’s Personal Finance pages will be familiar with ‘authorised fraud’, in which people are duped into transferring money to criminals or sharing bank details with them. But now businesses, including large and sophisticated ones like Maire Tecnimont, are falling victim to the scam as well. And as financial transactions move increasingly online and working from home makes citizens and organisations more vulnerable to hacking, experts are predicting a new ‘pandemic of fraud’.
It feels like that pandemic has already arrived. Banking association UK Finance says ‘authorised fraud’ rose by 71 per cent this year, creating 106,000 victims.
A new bank fraud hotline for concerned customers has just been launched, sponsored by the banks. But in doing this, the banks are admitting their own weaknesses. Their old-fashioned anti-money laundering (AML) controls are no longer enough to contain the threat.
Our protection blanket is patchy indeed. It consists of AML monitoring at banks which is often based on outdated technology, and cannot detect fraud swiftly. Yet while high street banks remain stuck in their ways, a host of fintech companies have been springing up with powerful data-crunching abilities and a can-do approach.
I have no doubt that banks could copy their example and integrate a vast supply of datapoints, crossreferencing quickly and intelligently to detect suspicious activity – if they were willing to spend the money required. This isn’t about what’s possible, as the banks might claim. Rather, it’s an issue of incentives. Under the industry’s voluntary code, when a bank’s systems are used to channel the proceeds of a fraud, banks only pay compensation if the victims are their own customers. There is no automatic compensation for customers of other banks, or if the victim of the fraud is a business.
That has been a huge financial letoff for the banks. No wonder they aren’t really motivated to invest in prevention, and develop the ‘big data’ solutions already common in other industries. The tide may now be turning. This month, prosecutors secured their first criminal conviction against a bank for AML failures when NatWest pleaded guilty for failing to prevent a huge alleged money laundering operation.
This case is unconnected to the Brixton one I have described above. The bank faces a fine of up to £340 million – which is big money for a business that reported quarterly profits of £1.1billion on Friday.
Meanwhile, MPs on the Treasury Select Committee are investigating the problem of economic crime. I hope they and the Government will consider putting banks on the hook to compensate all fraud victims, both citizens and businesses, let down by their antimoney laundering controls. My hunch is that such a move would finally spur banks to invest properly to fight the fraudsters.
As Business Secretary in the years following the 2008 financial crisis, part of my job was to help restore the public’s faith in our banking system. My successor Kwasi Kwarteng and his Treasury colleagues face a similar challenge today. They need to make banks truly accountable for bank fraud.
‘All victims should be compensated’