British Banks Grapple with Double Liability Concerns Over Frozen Accounts Scheme

British banks fear exposure to double liability by using money in frozen “criminal” bank accounts to fight money laundering and fraud.

The UK’s Criminal Justice Bill’s “suspended accounts scheme” allows for the transfer of frozen funds to the state to counter economic crime.

Financial institutions have been calling for such an initiative for some time. However, lenders fear the proposed law is unworkable and moreover would expose them to “double liability.”

Accountancy experts have been called in to try to resolve the impasse with so far no easy solution in sight.

Under the Criminal Justice Bill, lenders should suspend accounts or transactions suspected of involving criminal funds. However many accounts are suspended indefinitely because authorities neither authorise the bank to unfreeze the account or investigate the case fully.

Unlike dormant accounts, suspensions follow a proactive decision by banks’ AFC teams.

On the other side officials believe it was not practical for the state to take on liability for potentially unfair suspensions or adjudicate on customer complaints.

The Criminal Justice Bill is currently at report stage in Britain’s House of Commons and much of the detail will be set out in regulations.

The Home Office said the goal of the initiative was that “criminals should never benefit from the proceeds of crime.”

The justice ministry added that it was “committed to developing a scheme that works for industry, whilst protecting the rights of innocent customers” and would “continue to work closely with the financial sector and technical accounting experts” on the details.

UK Finance estimates some £220M sits in suspended accounts, with another £30M-£40M suspended annually.

The main block to the proposal lenders complain is that the suspended accounts on their balance sheets even after the funds were transferred to the government.

Sources said the bill amounted to asking banks to make “donations” to the government, as accounting rules meant institutions would still be unable to unlock the suspended assets.

Under the Criminal Justice Bill, the scheme would be voluntary and cover bank accounts suspended for at least seven years, applying where the owner had not come forward.

Britain’s Home Office does plan to pay banks a rebate if a customer makes a claim to recover funds, subject to a cap.

“At present, the proposals for the release of these funds do not come with a proportionate level of risk transfer, due to issues with liability and accounting treatment,” said Aminah Samad, director of financial crime at UK Finance told the Financial Times.

Banks would continue to work with the government in search of a solution, she said.

Alex Norris, Labour’s shadow Home Office minister told the FT he backed the principle of a suspended accounts scheme to channel “money obtained by illicit means to good use”.

But he added: “The government have given strong undertakings that they have secured the buy-in of our financial institutions. Once again it seems reality doesn’t match the press releases.” By fLEXI tEAM