Banks Caught in the Middle: Balancing Compliance with Customer Relationships

A delicate dance is underway between banks and their customers as financial institutions strive to prevent money laundering while maintaining relationships with clients. In some cases, stop-the-transaction orders are issued by authorities to prevent criminal activity from proceeding.

Combating Financial Crime

While combating financial crime, authorities may ask banks to hold onto suspicious transactions, allowing investigations to continue or gathering evidence for prosecution. Banks can also assist in disseminating warnings and knowledge to customers to raise awareness and prevent financial crime.

The Challenge of Identifying Criminal Activity

However, distinguishing between breaches of the Danish Criminal Code and the Danish AML Act is crucial. Under the former, persons guilty of money laundering or terrorist financing are penalized, while under the latter, breach occurs if a business fails to implement strong anti-money laundering/counter-terrorism financing (AML/CTF) measures.

The challenge lies in identifying criminal activity amidst legitimate transactions. Banks must reject customers whose identities cannot be established and verified. Yet, financial criminals often blend in with regular customers, making it difficult to detect their intentions.

Money Laundering: A Broad Concept

Money laundering encompasses the unlawful obtaining, receiving, or storing of financial proceeds derived from criminal activities. The Danish AML Act defines money laundering as:

• Unlawfully receiving or obtaining funds obtained through criminal offenses
• Concealing, storing, transporting, assisting in disposal, or securing profits or means obtained through criminal offenses
• Attempts at or participation in such actions
• Arrangements made by individuals who committed the offense

Money laundering occurs when illegal funds are placed into the financial system and their origin is disguised through transactions, making it appear legitimate.

The Process: Placement, Layering, Integration

The process typically involves:

• Placement: Illegal proceeds are introduced into the financial system
• Layering: The illegal proceeds are disassociated from their source through financial transactions
• Integration: The illegal proceeds are returned to the money launderer in a form that appears legitimate

Balancing Compliance with Customer Relationships

The anti-money laundering framework aims to combat serious crime, including human trafficking and terrorism, at a global level. While strict rules exist, money laundering also encompasses smaller-scale financial crimes, such as undeclared work and social fraud.

Banks must navigate this complex landscape, balancing compliance with customer relationships while preventing criminal activity from proceeding. As the battle against financial crime continues, it is essential for banks to remain vigilant and adapt to changing regulations and threats.