Nigel Farage and the great anti-Brexit unbanking plot
LONDON — Like most banks these days, the Strand offices of Coutts, one of the U.K.’s most prestigious private banks known for banking British royalty, are open plan and mostly devoid of custom. Real-life engagement with its wealthy clientele, if it happens, is by appointment only.
Standing inside the bank’s inner atrium on Tuesday its privileged customer base would be forgiven for having little idea the centuries-old institution was at the time being embroiled in a larger than life political scandal that could soon undermine its hard earned reputation for offering elites with complex finances white glove services.
“Haven’t heard about it,” one female cashier told POLITICO by a desk bearing an ice bucket flanked by bottles of champers.
The online storm began on Friday when former Brexit Party leader Nigel Farage took to Twitter to reveal he had been unbanked by a prestigious subsidiary of a large banking group he had banked with since 1980. He didn’t name the institution directly but it didn’t take long for Coutts, which is owned by Royal Bank of Scotland, to start trending on Twitter. Farage has since confirmed Coutts was the bank in question.
“I got a phone call a couple of months ago to say we are closing your accounts,” he said in the online video last Friday. “I asked why? No reason was given. A letter came through … we are closing your accounts and we want to finish it all by a date.” He added the decision was deemed commercial.
A quest to open new accounts with seven other institutions then failed, with little explanation, leading Farage to suspect the cause of his banking troubles must be political. Possibly, he speculated, he had been classified as a “politically exposed person” or PEP without his knowledge, implying a politically-motivated attack could be underway by the establishment in retaliation for his role in bringing about Brexit. Alternatively, he suggested, the bank had taken false allegations that he had received large sums of money from the Russian government at face value.
It didn’t take long for the testimonies to trigger widespread condemnation online and complaints about the scourge of “woke banking” suppressing establishment-challenging but democratically protected political activism or opinion.
What’s a PEP anyway?
The PEP classification hails from legislation introduced to comply with international standards on combating money laundering and terrorism financing set by the Financial Action Task Force (FATF). In the U.K. the latest flavor of the legislation comes in the shape of the Financial Services and Markets (FSM) Act, which became law on June 29.
The rules recommend that any “individual who is entrusted with prominent public functions, other than as a middle-ranking or more junior official” be exposed to enhanced due diligence standards. That ensnares a wide catchment of political appointees, MPs and members of the House of Lords — along with their “family members” and “known close associates.”
Concerns brimmed over in a Lords debate on the incoming Act last month, with hereditary peer Merlin Hay, the 24th Earl of Erroll, complaining that an investment trust was refusing to pay out to his wife. “I personally find it offensive that I am deemed to be a risk and a crook. I thought that in this country we were innocent until proven guilty,” he said.
Lib Dem peer Susan Kramer, meanwhile, was told by her bank to hand over payslips for her husband — who had died 17 years earlier. She said: “I do not know how many people still have their payslips from 17 years ago, never mind those of a dead spouse.”
Conservative peer Daniel Moylan also told the same debate peers were unaware when they were being investigated due to “tipping-off provisions” in the money-laundering regulations. “If you try to have an intelligent conversation with them about what is going on, you are completely blanked,” he said.
But not everybody was convinced Farage’s case was necessarily linked to the PEP issue, not least because the Brexiteer is not technically serving in any government role, even if he is still in charge of the Reform Party’s finances through control of Reform UK Party Limited.
Alternative theories circulating in the press on Tuesday, albeit stemming from unnamed sources, suggested Farage had instead been unbanked because he no longer met the minimum £1 million wealth threshold requirement for a Coutts account.
Farage denied this could be the case, saying the bank had never mentioned this in the previous 10 years of business. Companies House details for Farage’s company “Thorn in the side” show capital and reserves in excess of £1 million as of an October 2022 filing, while other U.K. banks Farage would have approached have much less onerous wealth thresholds than Coutts.
Coutts did not reply to emails from POLITICO.
That leaves either a genuine anti-Brexit conspiracy — or something far more mundane and technical as the motivating factor, a banking expert at a British think tank told POLITICO. They were granted anonymity in order to speak freely.
“Lots of banks are using AI and open source intel and adverse media screening, and flagging their own customers for enhanced due diligence,” the expert said. “But a lot of it is that the computer says I can’t bank you, and they stop. And they can’t say, well the computer said we couldn’t because we paid for this fancy software and we don’t want to expose that it doesn’t work.”
But “too often ‘Enhanced Due Diligence’ means using Google,” said Martin Walker, director for banking and finance at the Center for Evidence Based Management.
These sorts of screenings have a disproportionate effect on PEPs or other high-profile individuals because their names appear so much more frequently in the media, often linked to flagged or contentious activities just due to the nature of their jobs.
With banks increasingly edgy about being deemed in breach of money laundering regulations, and Coutts itself having already been fined £8.75 million in 2012 for breaches, this often sees them err on the side of caution to avoid being slammed with operation-ending fines. This is especially the case if questionable activity is related to yet-to-be-clearly-regulated sectors, such as cryptocurrency, which Farage has in recent months been prominently endorsing.
Collateral damage
Even so, what banks deem risky or not is mostly considered proprietary, meaning there can be little recourse for those classified as risky to understand why they have been deemed as such.
The growing propensity for high-profile individuals or non-profits who are politically vocal to be swept into such dragnets, has sparked concerns among free speech activists and politicians that human rights may be being abused. “It’s the emergence of the Chinese social credit system,” said Toby Young, who heads the Free Speech union and whose own accounts were suspended by PayPal last year.
He told POLITICO he has been lobbying the government to introduce amendments to the FSM Act to ensure banks give a clear reason to customers as to why they have been unbanked.
There are enough other cases of officials not being sufficiently warned to warrant concern that bank compliance may be running amok.
The first time one former U.K. MEP knew of their bank accounts being shut down was when their contactless card wouldn’t work on the London Underground.
“I thought at first I was a victim of fraud,” the politician, who asked not to be named due to talking about their personal bank accounts, told POLITICO.
The politician had already left the European Parliament when they were asked by their bank to give additional verification of their financial affairs. The bank then decided the politician had not given the right documents.
The ex-MEP said: “Politicians in general were having problems out in Brussels, as British banks were trying to impose rigor to prevent money-laundering and it was less understood what an MEP really was.”
A U.K. peer, meanwhile, had two long-dormant accounts shut down when they joined the House of Lords. But they thought little of it until their partner — a pensioner — twice lost access to accounts he’d held with the same bank for 20 years.
By chance, the well-connected peer knew the chairman of the bank so raised the case privately. The first time, the peer’s partner received a hamper by way of apology. The second time there was no hamper.
The peer claimed banks were closing accounts of PEPs or their family members either because they fail “14-page forms” asking about their sources of income — or because the banks don’t want to run the checks at all.
Government fight back?
On Monday, the Telegraph reported Chancellor of the Exchequer Jeremy Hunt was “deeply concerned” about the unintended consequences of overly prudent bank systems on free speech and political or non-profit fundraising.
The government is already investigating the issue by way of a call for evidence, which was launched in January as part of looking at whether “payment services regulations” strike the right balance between customers’ freedoms and banks’ responsibilities to manage risk.
The document refers to the case of Paypal, which hit headlines after closing and later reinstating the account of Young’s Free Speech Union.
“The government believes that free speech within the law, and the legitimate expression of differing views, is an important British liberty,” the document states, adding: “The government does not support ‘cancel culture’ — the censorship of views due to an intolerance of dissenting opinion.”
A British government official — granted anonymity to discuss unpublished work — said the consultation will report back soon, with the FT reporting the response could come as soon as the end of July. While PEPs are not mentioned explicitly in the consultation document, the same official confirmed they could be affected by it.
Separately, the new Act will compel ministers to amend the regulations to make a distinction between domestic PEPs, who are viewed as lower risk, and non-domestic PEPs by June 2024. It also requires watchdog the Financial Conduct Authority (FCA) to review by June 2024 whether guidance for banks on PEPs is appropriate, and whether they are following it properly.
Chancellor Jeremy Hunt has also asked City Minister Andrew Griffith to look at the issue of PEPs’ treatment more broadly after recent news reports — including about Farage. Griffith is due to speak to the FCA about this.
But whether we’ll ever know exactly what happened to Farage? Now that’s another question.
