Banking secrecy rules under siege?


The peculiar nature of banking business has ensured that over the last few centuries, secrecy and confidentiality have been essential pillars across the industry.

The preservation of these core elements of banking business has promoted the industry and insulated customers from the prying eyes of adversarial competition and even perceived persecution from state institutions.

To place banking secrecy and confidentiality rules in a proper perspective, it is helpful to trace the traditions of the Swiss banking sector as far as these twin characteristics of the banking industry are concerned.

In the global space, Swiss banking has been touted for their ferocious protection of   secrecy and confidentiality rules over the centuries. Social and political pressures were mounted soon after the Second World War to break down these rules to permit more transparency and chase down oligarchs who ostensibly benefitted from the crises illegally.  These, however, crashed like on shore sea waves reverting to their former position across the deep sea.

Thus, Swiss banking has continued to be a haven for wealth management and a global financial hub. The country holds an estimated 25 percent of all global cross-border banking assets, even as international efforts continue to be made to track criminals and tax evaders across the globe. Its neutrality during and after the cold war era and fierce attachment to the banking sector and  national sovereignty were part of the reasons for the establishment of the Bank for International Settlements in Switzerland.

With banking assets constituting such a huge proportion of the country’s gross domestic product, attempts to water down banking secrecy and confidentiality rules which were perceived to lead to capital flight were expectedly met with fierce resistance by the Swiss banking authorities.

Disclosing client information in banks has remained a serious criminal offence across the financial space. In Switzerland, banks continue to jealously guard client information even to the annoyance of other states, especially in Africa, Saudi Arabia, South America and Asia, which allege that their corrupt leaders have siphoned off much of public wealth into these Swiss banking and financial institutions.

The emergence of the Foreign Corrupt Practices Act of the United States government and a myriad of laws promulgated across various jurisdictions, particularly targetted against the scourge of money laundering and its destabilising influences on state security and political institutions, have had relatively minimal effect on Swiss banking secrecy and confidentiality.

Indeed, it was only in 2013 that the Swiss authorities allowed the signing of the Foreign Account Tax Compliant Act (FATCA) with the United States. The objective was to force all Swiss banks to inform the Internal Revenue Service of undeclared, offshore accounts in reciprocity for similar disclosures between the two nations.

It is not surprising, therefore, that the Swiss banking sector remains a dominant and resilient sector in the economy of this relatively small country by geographical size. It has leveraged on diverse language, political ingenuity and strong protection of secrecy and confidentiality rules to prop up the domestic economy pivoted on banking and finance.

The events surrounding the bombing of the then Twin Towers in the United States in 2001 and subsequent investigations that pointed to how the perpetrators were illegally financed through money laundering, reinforced measures to trace funds movements across the global financial space.

Anti-money laundering rules became very focal among many banking regulators, spearheaded by the Basel Committee on Banking Supervision. As a result, a plethora of legislations were promulgated, the effect of which largely impacted banking secrecy and confidentiality rules in these jurisdictions.

Beginning from 2019, Swiss banks have been obligated to share details of bank accounts held by foreigners, as integral to the automatic exchange of information. This obligation flows through recording of the beneficial owners of all assets they handle worldwide.

This duty is however masked by the difficulty in jurisdictions where third parties can hide through the aegis of shell companies and trust funds (a weakness Ghana has sought to cure with the new Companies Act 2019)

Over time, since 2019, however, it has been instructive to note the veil of secrecy and confidentiality rules have been invaded by calls for more transparency, leading to the emergence of strong advocacy for transparency and accountability.

The Swiss NGO, the Public Eye, for instance, has been at the forefront, advocating for openness in the banking and financial system in Switzerland. Their pioneering roles in the fight for transparency and accountability has been geared toward the establishment of a national task force and a register of beneficial owners of front companies.

This NGO has spearheaded efforts toward imposing a reporting obligation on lawyers who have been largely insulated from disclosures in this sphere, provided they merely help in creating trusts and other financial relationships, rather than handling assets.

Back home in Ghana, the banking space has been inundated by a maze of laws which may confound banking students and even some lecturers who most likely gained their certification before the 1970s and have probably lost touch with contemporary developments in the local banking privacy space.

Anyone who learnt the basics of the banker-customer relationships in Ghana some fifty years ago would remember the core duties of a bank to its customer. These in summary form were, and mostly still are;

(1) To receive customer’s cash for deposit and cheques for collection and credit to           customer’s account.

(2) To repay on demand in accordance with the customer’s written instructions during    advertised banking hours.

However, the bank is justified in refusing to pay a customer’s cheque or instruction;

  • When customer has insufficient funds, or customer wants to draw against uncleared effects, unless such has been agreed beforehand with the bank.
  • When the cheque is defective (has a technical irregularity).
  • When there is a legal bar to pay the cheque, such as insufficient mandate, or notice of death, countermand of payment, or a garnishee order from a court.

(3) To give reasonable notice before closing a credit account (United Prosperity Ltd. V Lloyds Bank Ltd. (1923).

(4) To maintain secrecy in respect of a customer’s account and affairs. (Tournier V National Provincial and Union Bank of England (1924).

(5) To advise the customer immediately of forgery of his signature or any fraud on the account which has come to his notice.

(6) To provide regular statement of account to the customer and to supply the balance on the account on request,

7) To abide by any express mandate from his customer, eg. standing order must be paid provided there is sufficient balance on the account.

(8) To exercise proper care and skill in carrying out any business he has agreed to transact for his customer, eg. safe custody items.

Of these cardinal duties of banks, the obligations relating to secrecy and confidentiality is most critical. Some students find it amazing to be told that this duty prevails even when the banker-customer relations terminate at account closure.

It is equally important to emphasise that most banks now require that all staff sign undertakings to comply with and to acknowledge that they are bound by the secrecy rules at the beginning of every year or soon after appointment, even if these are contract staff.

The reason is not far-fetched. Technological innovations are such that it is very easy to breach the secrecy rules, intentionally or otherwise, through gadgets such as the computer, mobile phones or other electronic banking channels.

It is important to note that there are key exceptions to this rule on secrecy and confidentiality. These exceptions essentially restrain the banks from an absolute obligation to keep its customers’ affairs under wraps.

In the same vein, customers’ right to the secrecy and confidentiality of their relations with the banks come under siege.

The ensuing dilemma that this creates is that the wider the exceptions grow, the more the customers’ trust in the bank wanes as far as their transactions and affairs with the bank are concerned.

The exceptions are obviously needed in the public interest, hence, once the legislature promulgates these, the banks, as responsible corporate entities, have a moral and legal responsibility to comply even if this deters customers from fully passing all their financial affairs through the banks.

These rules, as they pertain to Ghana, are explained below for the avoidance of doubt.

Before the promulgation of the Banks and Specialised Deposit Institutions Act 2019 (Act 930), the four main exceptions to the secrecy rules were that the bank is permitted to override the secrecy rules;

(1) Where the bank is obliged by law to disclose the customer’s affairs.

(2) Where there is a public duty to disclose, eg., when bank knows of a fraud involving the customer being investigated by accredited or legally constituted state bodies, empowered to extract such information.

(3) When the interest of the bank requires disclosure, eg., when filing writs in      court for the recovery of debts due from the customer.

(4) Where the customer has given his express or implied consent.

For professionals whose qualification and/or experience pre-date the 1970s, they would be amazed at the multiplicity of exceptions that have largely diluted this secrecy rule, but which must now be complied with by the bank.

Notable among these new legislations is the exceptions to the secrecy rules imposed under the Money Laundering Act 2020.

Money laundering has been used to pierce the ribs of the secrecy and confidentiality rules for the following reasons; it is considered:

  • As a threat to international peace and security, fostering political instability/insurgencies, rebellion, piracy, terrorism – like September 11, etc.
  • As de-stabilising established state institutions like the Customs, Army, Police, Judiciary, Parliament through corruption as in the case of Bolivia, Columbia, Mexico, Equatorial Guinea, and promoting terrorists like Al Quaeda, Boko Haram, ISIS, etc.
  • As protection against fraud, reputational and financial risks.
  • Wrecking of economic systems, eg., the stock exchange leading to jerky price volatility as money launderers do not invest on rational economic basis.

A seemingly onerous requirement under this Act is the duty to report Suspicious Transactions to the Financial Intelligence Unit of the Bank of Ghana without alerting the customer whose transaction is under suspicion or investigation.

A suspicious transaction is defined broadly as any transaction (deposit, withdrawal or other instruction to the bank) which appears unusual on account of its size in relation to the known business or occupation of the account holder or other information gleaned from the customer’s account opening documents.

The Know Your Customer policy is expected to be thoroughly applied at the account opening stage and subsequently, during the conduct of the account. This is to ensure that there will be no infractions of the law.

Naturally, this imposes obligations on the bank during the account opening stage and when any transaction is flagged as being suspicious.

The bank is obliged to interrogate the sources of funds flowing through an account and obtain reasonable answers to clear its suspicions.

Some degree of subjectivity will be involved in a decision to label a transaction as suspicious. Interestingly, it is safer to err on the side of caution and report diligently to the Regulator, failure of which might dispose the bank to sanctions.

It is equally instructive to note that over the last two decades, the country’s banking system has been blacklisted twice (and subsequently gained reprieve) for ostensibly being used as a money laundering hub by criminals.

This arose ostensibly on account of the less than stringent enforcement of global money laundering rules by the Regulator. This, in the strictest interpretation is an affront to the secrecy and confidentiality tenets of banking.

Other legislations that permit the bank to disclose the customer’s affairs with the bank, and which impliedly breaks down the secrecy rules, include the areas mentioned below.

The Banks and Specialised Deposit Institutions Act 2019 (Act 930) has a wide range of exceptions to the bankers’ duty of secrecy and confidentiality.

Under current rules too, The Narcotics Control Act, the Act that established the Economic and Organised Crimes, The Special Prosecutor, all have provisions that create exceptions to the bankers’ duty of secrecy and confidentiality.

Similarly, The Borrowers and Lenders Act, The Credit Reporting Act, 2007 (Act 726), the Ghana Deposit Protection Act, 2016 (Act 931), the Income Tax Act 2015, also have provisions that create exceptions to the bankers’ duty of secrecy and confidentiality, and must be complied with.

The respective bodies mentioned above can, following due process (usually under a court order), force a bank to disclose information about its customers when the need arises.

It is important though to emphasise that the police cannot on their own force a bank to disclose information about a bank’s customer without a court order. Bank staff should, therefore, not feel intimidated to respond to such fishing expeditions without a court approval. When in doubt, it is safer to refer any such requests to head office.

The writer is a Fellow of the Chartered Institute of Bankers and an adjunct lecturer at the National Banking College, a farmer, and the author of “Risk Management in Banking” textbook.

Email; [email protected]  Tel. 0244 324181

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