Algorithmic debanking

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pmbug

pmbug

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Penny Crosman writes, "One is a heavy reliance on AML software to monitor transactions overseen by decision-makers who don't know individual customers. Another is outdated rules used to determine which transactions are suspicious. A third is a set of incentives that push banks to rush and not take the time to understand individual cases."

It's true that algorithms alert financial institutions to transactions that appear suspicious. Thomson Reuters found the number of suspicious activity reports (SARs) filed by banks surged by 50% in just two years. Rather than investigate the flags, however, there's a growing tendency to close accounts and shut customers out.
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... In a risk/reward trade-off, we're led to believe it's too expensive to include customer input and losing a "minuscule" number of customers is preferable to the inevitable "regulatory headaches."
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The human impacts of SAR processes gone wrong were captured by the New York Times in a recent examination of over 500 cases of customers being dropped by their banks. Small businesses can't make payroll, credit scores take a hit, people can't pay their bills on time — it's all very messy.
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www.americanbanker.com

The rise in account closures reveals banks must rethink their processes

Banks cannot shrug off the impact of sudden account closures as inevitable collateral damage involved in fighting money laundering.
www.americanbanker.com www.americanbanker.com

So anti-money laundering (AML ) software flags accounts that deal with cash. Banks then close the accounts for these customers (including perfectly legal coin shops) rather than spend any thought or effort to discern whether the AML software is flagging legitimate concerns.

Whoever controls that AML software holds the reigns to a stealth Operation Choke Point on all cash heavy businesses. The drumbeats for the cashless society beat on. Is America listening?
 
I went digging a bit deeper on this story:
... AML software vendors include ACI, Nice Actimize, ComplyAdvantage, Feedzai, Quantexa and Thetaray. ...
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www.americanbanker.com

Rushed anti-money-laundering calls backfire. Can AI help?

Bank customers' complaints of sudden account closures track a rise in automated anti-money-laundering decisions and possibly outdated AML rules.
www.americanbanker.com www.americanbanker.com

... Multiple vendors offer transaction monitoring systems, each with varying types and levels of AI involvement, including ... Verafin, ... Manta (now an IBM company) .... Google also began offering anti-money-laundering AI this summer.

Another company offering AI-based transaction monitoring is Featurespace, ...
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www.americanbanker.com

When AI suspects money laundering, banks struggle to explain why

As financial institutions increasingly rely on artificial intelligence for anti-money-laundering and fraud detection, they face challenges in meeting regulators' demands for complete transparency and documentation.
www.americanbanker.com www.americanbanker.com

These are the unelected gatekeepers writing the rules that determine how much cash you can use before you get debanked:

ACI Worldwide (NASDAQ: ACIW) - Florida based - https://www.aciworldwide.com/about-aci

Nice Actimize (NASDAQ: NICE) - Israel based - https://www.nice.com/company/about-us

ComplyAdvantage - UK based - https://complyadvantage.com/about-us/

Feedzai - Portugal based - https://feedzai.com/about-us/

Quantexa - UK based - https://www.quantexa.com/about

Thetaray - Israel based - https://www.thetaray.com/about/

Verafin - Canadian based, subsidiary of Nasdaq, Inc. - https://verafin.com/verafin-story/

Manta - Acquired by IBM in 2023 - https://newsroom.ibm.com/IBM-acquir...omplement-data-and-AI-governance-capabilities
Mantas - Acquired by Oracle in 2006 - https://en.wikipedia.org/wiki/Oracle_Financial_Services_Software

Featurespace - UK based - https://www.featurespace.com/about/
 
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I was mulling over writing an article on this subject. It's the lynchpin justification for algorithmic debanking and the war on crypto. It's the fulcrum over which the seesaw of financial freedom teeters between security and liberty.
 
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The report directly addresses the issue of algorithmic debanking:
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De-risking refers to the situation where financial institutions choose to restrict or terminate their business relationships with specific clients or categories of clients, opting to avoid risks altogether rather than managing them. Several interconnected factors contribute to these decisions, including risk perception, profitability, compliance costs, the risk of sanctions, reputational risk, and a lack of proper understanding of AML/CFT requirements. The relative importance of these factors varies on a case-by-case basis. However, concerns about profitability play a primary role in driving de-risking. High compliance costs, even if unrelated to AML/CFT, can directly impact profitability and contribute to the decision to de-risk. It is important to note that the FATF recognizes the significant contribution of improper implementation of FATF standards within the AML/CFT framework to the exacerbation of de-risking in the financial sector (FATF, 2021b).
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The Consumer Financial Protection Bureau received 2,941 complaints about bank savings and checking account closures in 2023, about a 50% increase from 2022 and nearly double what it was in 2020. In addition, journalists at The New York Times have received more than a thousand complaints about sudden bank account closures in the past year.

Insiders chalk the increases up to a combination of aggressive AML rules, the automation of AML and the quest for efficiency and cost-cutting which leads to quicker investigations of suspicious transactions, if they are investigated at all. ...
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www.americanbanker.com

To reduce bank account closures, AI needs data — and humans

The anti-money-laundering systems that are automatically kicking customers out of their accounts need to be tempered with rich customer data, human involvement and perhaps quick requests for information from customers.
www.americanbanker.com www.americanbanker.com
 
An ongoing inquiry by Britain's cross-party Treasury Committee said that eight of the country's top banks shut almost 142,000 accounts held by small businesses in the last year, amid concerns some companies are struggling to access financing.

Figures supplied by Barclays, HSBC, TSB, Lloyds, Santander, NatWest, Metro and Handelsbanken showed 2.7% of the 5.3 million business accounts held by small companies were closed for reasons including risk appetite and financial crime concerns.

"We can see from these figures that thousands of small businesses fall foul of their bank's risk appetite definition, leaving them without access to a bank account," Chair of the Treasury Committee Harriett Baldwin said in a statement.

Only three of the banks listed "risk appetite" as a reason for closing accounts, with 4,214 cases listed.
Baldwin said this raised questions over whether discussions on 'de-banking', the industry term used to describe a customer having an account closed or refused, may be happening "informally" and not "systematically recorded".
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"It's true that algorithms alert financial institutions to transactions that appear suspicious. Thomson Reuters found the number of suspicious activity reports (SARs) filed by banks surged by 50% in just two years. Rather than investigate the flags, however, there's a growing tendency to close accounts and shut customers out."

Unless your name is Biden. Then they don't give a fuck about SAR's.
 
pmbug said:
I was mulling over writing an article on this subject. It's the lynchpin justification for algorithmic debanking and the war on crypto. It's the fulcrum over which the seesaw of financial freedom teeters between security and liberty.
Click to expand...
It teeters? I'd say it's stuck fully on the so-called security side. With security just being another word for complete financial control.
 
Sal's talking about Wells Fargo here.............

ALERT! Major Bank Closing Down Customer Accounts WITHOUT Warning! SHOCKING Reason​

Mar 18, 2024


11:31
 
I just saw the headline here - I don't know about the details:

 
From a few weeks ago:
Cutting access to our legacy financial system for Bitcoin/crypto companies — even for pedestrian fiat-only services — is still alive and well. On Tuesday, @billcom notified @Lightspark that based on their processing banks requirements, they couldn’t serve us anymore. Yesterday, our account was shutdown.

The terms of service they pointed us to, to describe our “industry”, didn’t even include services we provide. It didn’t matter.

Whether your business is in crypto, or not, don’t work with companies that have a patronizing approach to what’s acceptable or not when your activity is 100% legal and compliant.
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h/t: @Peter89 (who posted this elsewhere on the internets)
 
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Opinion piece, take it fwiw and dyodd.

A Chinese-style social credit system is coming to America​

The ease with which personal banking is conducted in the modern West would surely cause some envy to our mattress-stuffing ancestors. Cashpoint machines abound, plastic is easy to carry, and, most comforting, one’s money is backed by the full faith and credit of the government. Importantly, unless one fundamentally transgresses the legal order, we can be sure our capital is always at a moment’s access.

Put another way, except in cases usually pertaining to national security, banks are rather indifferent to a client’s private life. The good, the bad, and the ugly are all welcome provided they have the right decimal count. And so, it pains me to report that in America, a peculiar phenomenon dubbed “de-banking” is beginning to occur with increasing visibility.

“De-banking” (or “de-risking”) is what it sounds like. A bank will, for legal, liability, or reputational risk, terminate – with notice – an individual account. Normally, this does not grab our attention. Criminal organizations and terrorists, we all agree, should be frozen out. And, of course, banks may choose with whom to conduct business.

More:

 
I'm glad the issue is gaining visibility. I'm sad that visibility is necessary.
 
Customers Bank, which services some of the largest names in crypto including Galaxy Digital (GLXY), Coinbase (COIN) and Circle, has told some hedge-fund clients it can no longer provide them with banking services, according to three people familiar with the matter.

Whilst the extent of the cull is unclear, one person said "a load of funds" were involved. A second person said the action represented the offboarding of inactive accounts rather than the widespread debanking of the industry. A third person said their digital assets financial services firm had spoken to a number of funds looking for new providers in recent weeks, potentially as a result of the offboarding of accounts at Customers.

This latest development highlights the difficulty that some crypto companies have in accessing the U.S. dollar banking system in the aftermath of the collapse of Silvergate Bank and Signature Bank last year.
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More:

www.coindesk.com

Customers Bank Said to Debank Some Digital Asset Hedge Funds

The move is not a widespread debanking of hedge-fund clients, but rather the offboarding of inactive accounts, one person said.
www.coindesk.com www.coindesk.com
 
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Now, however, Florida Chief Financial Officer Jimmy Patronis has come up with an urgent reason for a state to own its own bank – to avoid bank regulations designed to achieve social or political ends that state officials believe are inappropriate or go too far, including “debanking” vocal opponents of federal policy. The concerns are Constitutional, testing the First Amendment guarantees of free speech, freedom of the press and freedom of religion, and the 10th Amendment right of states and citizens to self-govern in matters not specifically delegated in the Constitution to central government oversight.
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More:

scheerpost.com

Ellen Brown: The Florida State Sunshine Bank: How a State-Owned Bank Can Protect Free Speech

National unity can and should be built on local financial sovereignty.
scheerpost.com scheerpost.com
 
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