Integrity issues in opening and closing bank accounts

It frequently happens that a bank terminates a company's bank account (or financing) because of integrity issues.

Banks play a major role in the payment system. They have an important function where integrity issues of their customers are concerned and have a gatekeeper function. If they do not perform that function properly, banks themselves run great risks of being called to account by their regulators. A number of well-known major Dutch banks have been fined heavily in recent years for failures to combat money laundering.

The magnifying glass under which banks lie means that they themselves are also looking more critically at their new and existing clients. Opening a business bank account is far from simple. The bank must conduct a customer due diligence and the potential customer will have to provide, among other things, insight into the origin of funds and his cash flows. In fact, for a number of sectors, such as payment service providers, electronic money institutions and third-party foundations, as well as the coffee shop industry, opening a business bank account is extremely difficult. While these are legal sectors, they are denied access to the regular payment system and thus trade, due to the (restrictive) policies to be applied by banks.

The tightening of integrity laws and regulations and their interpretation means that banks regularly monitor the actions of their existing customers and also conduct customer due diligence during the relationship. This also applies to sectors that, although engaging in legitimate business activities, are nevertheless under the magnifying glass of banks. One such sector is that of coffee shop owners. Although the sale of soft drugs is tolerated, their cultivation is prohibited. Coffeeshop owners must therefore do business with parties who engage in prohibited activities. In addition, the purchase of marijuana is often paid for in cash, which increases the risk of money laundering.

In a recent case (Amsterdam District Court January 28, 2021, ECLI:NL:RBAM:2021:241), the interim relief judge ruled that the bank accounts of a number of affiliated coffee shops had been rightly closed by Rabobank. The customer research conducted by the bank on the existing customers was intensive because of high cash deposits, large amounts of unusual denominations of €500.00, closure of the coffee shops by order of the municipality, and because the customers were active in the coffee shop business. According to the preliminary relief judge, the coffee shops failed to provide sufficient information to the bank about the origin of the funds. As a result, Rabobank was unable to complete its customer due diligence and the bank was justified in terminating the banking relationship, the court said.

Incidentally, Rabobank has stated in another procedure that it does not categorically exclude coffee shops from business bank accounts. It is therefore important, and not only for coffee shop owners, to provide the necessary information to the bank, especially where the origin of funds is concerned.