Lloyds Banking Group froze the accounts of about 8,000 offshore banking customers as part of a crackdown on money laundering, after asking them for three years to prove their identity.
The move to meet more stringent “know your customer” requirements highlights the growing pressure on global banks to meet tougher rules on financial crime by regulators. Deutsche Bank warned 1,000 of its largest corporate clients last month that they faced a similar fate to meet money laundering rules.
Britain’s largest retail bank by market share was forced to take action at the end of 2018 to meet the money laundering rules in Jersey, where its international business is based.
Rivals HSBC, Barclays and Royal Bank of Scotland have also tightened controls in Jersey, according to people briefed on the situation, sending similar letters to check the identities of longstanding customers. Authorities and people in the banks have said that only a small percentage of accounts were forced to close.
News of the move comes as the wider financial transparency of Guernsey, Jersey and the Isle of Man has come under heightened scrutiny. The islands have agreed to provide clearer information about company ownership in the tax havens, after British MPs and transparency campaigners criticised its broader efforts to keep out dirty money. Earlier this month, the Jersey Financial Services Commission proposed further revisions to strengthen its local anti-money laundering requirements after a year-long consultation.
Lloyds Bank International provides consumer and private banking services and financial advice for Channel Island residents and expatriates. LBI does not publish customer numbers, but it is understood that the frozen accounts represented less than 5 per cent of its total number of expatriate accounts.
The bank had no specific concerns about the customers but had to block thousands from accessing their accounts after they ignored repeated messages about the rules.
The bank needed extra information such as certified copies of identification documents, and Lloyds staff were working 12 hours a day and extended hours on weekends to deal with the issue, according to an internal memo seen by the Financial Times.
A spokesperson for Lloyds said: “Over the last three years we have made multiple attempts to contact these customers, asking that they provide us with the necessary information.
“Unfortunately, where a customer has not provided us with this necessary information we have had to freeze their account until we get the information. This is also to protect the customer, as it prevents anybody else trying to use the account if the customer has stopped using it or has moved address.”
Banks are being pushed to carry out more thorough due diligence on their customers after a spate of scandals engulfed European lenders such as Danske Bank in Denmark and Latvia’s ABLV.
More than €200bn of suspicious money from Russia and other former Soviet states flowed through Danske’s tiny Estonian branch over a nine-year period, while ABLV was wound up last year after being accused of a litany of breaches including helping to finance North Korea’s nuclear programme.
Lloyds has received fewer big reprimands over money laundering failures since the financial crisis than peers such as HSBC and Deutsche Bank. However, in 2009 it was forced to pay a $350m fine after violating US sanctions by enabling Iranian and Sudanese clients to access the US banking system.
The European Banking Authority, the continent’s top banking regulator, was recently given greater powers to combat money laundering, but its new chief said that they would not be enough to ensure even defences across the EU.
Late last month authorities recovered $267m from accounts belonging to the late Nigerian dictator Sani Abacha, in a move that officials said proved Jersey’s “commitment to tackling international financial crime and money laundering”.