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Blocked accounts and misuse of AML policies

Contributed by Giovanni Caporaso Gottlieb, Caporaso & Partners Law Office
07 April, 2022

Financial institutions enforce blocking of accounts and abuse of anti-money laundering policies. How to defend yourself?

Banks, wallets, and financial institutions have been blocking their customers' accounts, often without a convincing reason. As a justification they claim that these are AML policies and accuse their customers of not having completed the KYC.

One of the strongest measures against Russian oligarchs, allies of Vladimir Putin, has been the freezing of bank accounts. This decision has affected the multi-million fortunes of these men and their business.

Among the most notorious of these is the English soccer club Chelsea. Without any warning, Barclays bank froze the accounts of the club, which was owned by Russian Roman Abramovich. As a result, Abramovich immediately put the world-famous and current holder of the UEFA Champions League club up for sale.

Blocking accounts, often, is an abuse of know-your-customer (KYC) and anti-money laundering (AML) rules. With these illegal strategies these companies often manage to keep millions of dollars of funds from people all over the world. Sometimes for months, sometimes forever. How can you defend yourself?

"We inform you that, as long as you do not send the requested documentation, we must proceed to block your account". Messages like this one reach thousands of people every day. Using this communication, without prior notice, banks and financial institutions prevent their customers from accessing their accounts and cards.

Why do banks and financial institutions impose these blockades? And when are they arbitrary? Their most common reason is that they consider that customer to be in breach of KYC or AML rules.

Another possible legal rationale is a court order, for precautionary measures, in case of a criminal investigation. A third reason would be a court order, for civil claims or debts.

The problem is that these policies, which financial institutions must apply, are not regulated. For instance, if you have several accounts with the same company, one bank may ask you to update your documentation in January, another in May and another in August. This is costly for the account holder because they require the documents to be recent.

Generally, they give a short notice of their requirements and sometimes the technical times to produce the documents are much longer. Therefore, why don't the Superintendencies establish one month of the year to be able to do this? Besides, communication with financial institutions is rarely efficient.

You may lose your money overnight due to an account blockage

Blocked accounts can become a serious problem. Most people do not expect to have their funds frozen. Therefore, if you have no other financial reserves, you could face a debt default scenario. In fact, you may not even have the funds to pay for an attorney to help you unfreeze the funds.

There are several examples of damages caused by banks and institutions for the arbitrary application of KYC and AML policies. Among the most disreputable is PayPal.

This payment processor charges high fees for each transfer. Nonetheless, the company has millions of users in every continent. PayPal is known for freezing accounts for no apparent reason.

The discontent with PayPal has reached the courts. A lawsuit was filed against the platform in California and Chicago. Three of its customers claimed that after six months with frozen accounts, they had lost all the money they had previously deposited after regaining access.

I have solved PayPal account blocking problems through the Attorney General's Office in several states in the USA.

The problem does not only concern banks and card processors. The world of cryptocurrencies is going through something similar. As an example, the Binance exchange started to implement more restrictive AML rules. In response to this, there has been a significant increase in the number of frozen accounts, and many customers have been unable to recover their funds.

The company responded to an article published on my website: "Binance has reported that security is a priority for the company and that it always works in full cooperation with the authorities, even in cases of police investigations".

My response, to which they have not replied, was: "Thank you for your statement which we will gladly publish, but it is incomplete. I would appreciate it if you could answer a few questions."

My questions to Binance and to all financial institutions

"While we understand the rules, the article is about decisions made by the company, without the support of a court order. We would like to know, based on your anti-money laundering policy, after how long and on what suspicions can you block an account? Also, in case they are not satisfied with your investigation, within what period do you refer the case and the blocking of the account to the appropriate authorities? Thank you for clarifying the matter for our readers and your users."

Other financial institutions, such as Intercash, have found another way to defraud their customers. Their modus operandi is simple. The company temporarily freezes the account of a customer for an alleged violation of the AML.

The customer logically demands the return of his funds. Intercash claims it needs to investigate. After several months of waiting, the company agrees to unfreeze the account, but thousands of dollars will be missing from the account. According to the company, this money, without producing a receipt, was used for "legal expenses".

What to do in case of a blocked account?

Experts agree that most of all account lockouts are based on illegal grounds. There are two possible ways to regain control of the account. The first is to go to court, although this can be a slow and costly process. In addition, banks and financial institutions have a powerful legal team backed by extensive financial resources. Winning the battle in court is possible, but never easy or cheap.

Alternatively, you can hire a specialized law firm with extensive experience in dealing with this type of situation. The law firm will mediate with the bank or financial institution and can help you unfreeze that account in less time and at a lower cost.

Three tips to avoid having your account frozen

Account lockouts are unpredictable. Many people think it will never happen to them. Unfortunately, the sad reality is that they do happen at any time and without a warning. As we have already discussed, banks and financial institutions will look for any excuse to enforce KYC and AML non-compliance. However, there are some tips that could help you prevent the freezing of your funds.

The first tip is to always open an account with full documentation. Always make sure that you can renew this documentation. Failure to do so may result in an additional KYC request, in which case you will not be able to comply with the bank's requirements and you could lose all of your funds.

It is also advisable to diversify your capital in several bank accounts, in different institutions and countries. This will guarantee that you will always have access to funds in case of an emergency. Although this is likely to cost you as each financial institution can ask you for documents whenever it wants.

Before you open an account, conduct a detailed investigation, or hire a professional who will do it for you, concerning the reputation of the bank you have selected. If the bank has several complaints against it for arbitrarily freezing accounts, it is best to look for a different one.

My opinion regarding frozen account

Financial institutions must be regulated within the framework of the application of AML and KYC rules. In the case of account blocking, which is already a restrictive measure, it is necessary to inform the judiciary and the supervisory body. This provides transparency to these measures. In the event of a dispute on the part of the account holder, it opens a legal avenue for a claim.

It is also necessary to establish modalities and time frames for requesting the renewal of documents. This regulation must be accepted internationally to avoid the possibility of being asked for a document in one country that does not exist in another. For instance, if it takes 3 months to renew a passport in one country, it should not be possible to block an account in another country because it has expired.

These are only a few examples, though I have seen the most absurd cases all because there are no regulations. Each financial institution has its own without any control from the authorities.


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