“De-risking” refers to financial institutions closing customers’ accounts perceived as high risk for money laundering or terrorist financing abuse, such as money service businesses, non-profit organisations forwarding funds overseas to conflict areas, correspondent banks and foreign embassies.
It is often the case that if one bank seeks to close your account, other financial institutions will also be reluctant to open an account. This poses a severe barrier to carrying on business, and the options facing an organisation can be to close, use cash or operate through the personal accounts of the office bearers. This can lead to further legal issues, such as delivering suitcases of money overseas to beneficiary organisations and communities in contravention of various laws and regulations.
Two recent cases illustrate the issues involved, one from Australia and the other from New Zealand.
Human Appeal International Australia v Beyond Bank Australia Ltd (No 2)
Human Appeal International Australia (Human Appeal) is an ACNC registered charity holding about $6.1M in funds.
It is an endorsed tax-deductible, public benevolent institution with objects to improve and relieve the effects of poverty and social injustice. Human Appeal performs a wide range of charitable works within Australia (including bushfire and drought relief and assistance to the elderly and high-achieving students in Muslim schools) and overseas in developing countries. It claims to be the largest Muslim charity in Australia.
Human Appeal banked with Beyond Bank which is a publicly listed, customer-owned mutual bank providing personal, business and community banking services to not-for-profit and community organisations and wealth management and financial planning. Beyond Bank is registered with the Australian Prudential Regulation Authority (APRA) as an Authorised Deposit-taking Institution (ADI).
Beyond Bank advised Human Appeal that it was closing its accounts and refused to give any reasons other than that after a review, it had decided that its business was unsuitable.
Beyond Bank conceded that it was only entitled to terminate Human Appeal’s banking facilities if it had a valid commercial reason.
Human Appeal argued that under Beyond Bank’s trading terms, the Code of Practice adopted by the Customer Owned Banking Association (an industry group consisting of representatives of Australia’s credit unions, building societies and mutual banks) provides that members should fairly balance the interests of the bank and its customers and this had not been done.
The Court agreed that the purported termination of Human Appeal’s account was invalid as the bank’s termination provision did not strike a “fair balance” between the parties’ interests, as required by the Code of Practice.
The Christian Church Community Trust and Others v Bank of New Zealand
The Christian Church Community Trust, more commonly known as the Gloriavale Christian Community (Gloriavale), comprises 16 entities and has 83 accounts across its businesses and entities with the Bank of New Zealand (BNZ). Gloriavale describes itself as a self-sustaining Christian community founded in 1969 by Hopeful Christian, now deceased. It is currently based on the west coast of the South Island of New Zealand.
It operates on a specific set of beliefs. Key amongst these is a belief that everything should be shared. No one owns anything, having surrendered their assets to the community upon entry, and every member is expected to contribute to the community insofar as they can. As a result, the residents of Gloriavale do not own their own homes, manage their finances, or deal with any matters of daily living, such as food, clothing, laundry, furnishings, personal effects and hygiene.
It had banked with BNZ for over 40 years. As a result of their Christian beliefs, Gloriavale did not receive any interest on any of its investments or other accounts over those years despite being a $60m enterprise.
Gloriavale was the subject of a controversy about child employees and payment of wages and other issues.
BNZ terminated the relationship, in reliance on its standard contract, because of human rights breaches by Gloriavale. BNZ gave Gloriavale 3 months to find alternative banking arrangements.
Gloriavale could not find alternative banking arrangements and sought an interim injunction to prevent the closure of the accounts until the matter could be heard in full.
The Court granted the injunction as there were severe issues to be tried, there was no apparent detriment to BNZ in the meantime, and it was in the overall interests of justice.