New requirements could apply to foreign banks doing business in the U.S., including big Canadian players such as RBC.Fred Lum/The Globe and Mail
Gus Carlson is a U.S.-based columnist for The Globe and Mail.
For years global financial institutions have adhered to know-your-customer requirements designed to combat money laundering, identity theft, the funding of criminal activities and other fraudulent behaviour.
Now, they are squawking about speculation that the Trump administration is considering requiring U.S.-based banks and those doing business in the country to know their customers even better by making the institutions verify the citizenship of account holders, both existing and future.
On its own, it seems like a rational extension of the know-your-customer concept, known familiarly as KYC. In the increasingly intense war on fraud, fuelled by sophisticated technology, every bit of information can make a difference in enforcement, especially in cases where money is being moved illegally around the world to be laundered.
And, with all due respect to privacy laws, if you don’t have anything to hide – as in, if you are in the country legally – what’s the big deal in complying?
The wrinkle here is, at a time when U.S. President Donald Trump’s war on illegal immigration has generated so much partisan controversy, such a requirement has become highly politicized.
The upshot: The financial services industry is worried that a customer citizenship verification requirement would make banks part of the Trump administration’s hard-line illegal immigration efforts, potentially requiring them to blow the whistle on customers in the country unlawfully and contributing to their possible deportation.
Fanning the flames of controversy – and likely prompting a focus on banking – have been recent high-profile revelations of an allegedly massive fraud in Minnesota involving daycare centres linked to the local Somali community.
The Trump administration has accused members of the community of running a network of bogus centres that served no children, and in the process, bilking the government of up to US$19-billion and funnelling the money illegally back to Somalia, sometimes in suitcases filled with millions of dollars of cash.
The administration has suggested such fraud is not exclusive to Minnesota but is widespread, naming several other states, including California and New York, as hotbeds of corruption that is costing taxpayers billions of dollars.
For the record, the administration has not confirmed that the new citizenship reporting requirement for banks is being considered, suggesting the rumours are “baseless speculation.” Nor has it commented on speculation that it would come in the form of an executive order signed by Mr. Trump.
But The Wall Street Journal, CNN and other news outlets have cited sources who say the new measure could compel banks to ask customers for a slew of never-before required documents, including passports, Green Cards, visas and other paperwork that confirm citizenship.
Presumably, any new requirement would apply to foreign banks doing business in the U.S. Big Canadian players such as TD Bank, BMO, RBC and CIBC have significant retail branch networks in the U.S. offering a wide range of services, including U.S.-dollar accounts, currency conversions and transfers. Like any foreign banks, they would be required to comply with any U.S. rules, including this one.
In the recent past, most big global banks have built internal controls to monitor sources of money and its movement around the globe. Many also use advanced technology KYC systems for compliance, such as Shufti Pro, Sumsub, IDology and World-Check.
And while banks are required to adhere to anti-money-laundering and KYC rules and list where a customer lives, they are not currently required to collect and verify citizenship information.
If Mr. Trump signed such an executive order, it could require banks to retroactively get citizenship information from existing customers and collect it from new customers.
Politics and privacy aside, that task would be Herculean – and expensive. The costs would likely be passed on to customers.
Opponents of such a measure would say that once again, Mr. Trump is overreaching his authority. This has nothing to do with the integrity of the banking system and everything to do with his agenda.
Supporters would be quick to remind detractors that one of Mr. Trump’s top campaign promises was to crack down on illegal immigration. And while not everyone agrees with his tactics, don’t be so naive to think you can do the job by being soft, and this is what the majority of American voters said they wanted.
At the end of the day, it really comes down to the now infamous line from All the President’s Men, the 1976 film about the Watergate scandal.
If you want to shine a light on corruption, “follow the money.” And that, presumably, is what such a measure would be meant to do.