Customers are getting caught up as banks de-risk due to money laundering laws, and the consequences can be disastrous

Last September Mohammad Rahman won a four-year battle for compensation for disabilities caused by clinical negligence. A court awarded him £500,000, which was paid into the current and savings accounts he held with Barclays. The victory was short-lived: when he withdrew £60,000 of the payout, Barclays froze both accounts.

In vain did Rahman (not his real name) supply evidence that the payment was legal. Two months later Barclays confiscated the remaining £440,000 and closed his accounts. It then charged him £24 in fees when, because of its actions, three payments failed. “I have been treated like a criminal,” says the 26-year-old from Manchester, who has spent more than 30 hours at his local branch trying to gain access to his money. “In all this time I have not received a single letter or phone call explaining what has happened.”

Rahman is one of a growing number of customers who have had their bank accounts closed without warning or explanation. In the past two years the Observer has been contacted by bewildered readers of all backgrounds – including an economics professor, a migraine charity, a prominent campaign group and numerous ordinary householders whose finances involve nothing more exotic than a holiday in Spain.

One family's nightmare as fraudsters ransack Barclays account by phone Read more

Many have fallen foul of a legal clamp down on financial crime after several banks were fined for fraud. Under the EU Fourth Anti-Money Laundering Directive 2015, banks are obliged to vet accounts for possible money-laundering on behalf of terror or crime cartels. The result is they have been dumping accounts with links to certain countries or that show unexpected transactions. It’s a process known as de-risking and Rahman’s sudden windfall would have set alarm bells ringing.

Inevitably, like Rahman, many victims are of Asian or African origin, as is clear from the correspondence to the Observer. It follows that because countries deemed high risk in terms of terror and money laundering tend to be Asian and African, people from these areas may be particularly vulnerable.

The Financial Conduct Authority has warned of potential discrimination as banks run scared of the rules. “De-risking is banks acting in a blanket way … it will make potentially significant parts of geographic, ethnic and business classes unbanked if allowed to continue,” the FCA’s chief executive told MPs in 2015.

The Financial Ombudsman Service, which handles unresolved customer complaints, categorises all cases under the financial product in question, such as current accounts, rather than the nature of the issue, so it can’t tell whether complaints about closures are on the rise or whether certain ethnic groups are disproportionately affected.

Barclays insists its customers’ ethnicity does not make them more vulnerable, and that it’s their lifestyle and spending patterns rather than their name that is monitored by security algorithms. “Customers making and receiving genuine transactions have absolutely nothing to fear,” a spokesperson says. “Criminals attempting to commit fraud and launder funds should rightly be worried as all banks and regulators will detect, disrupt and prevent their activity.”

Except Rahman is not a criminal and has spent three months without access to his money. He might still be without it if the Observer had not intervened shortly before Christmas.

Barclays initial response was staggering. “We took the appropriate action that customers would expect from us when an unusual transaction has been received,” it said in a statement. “On this occasion we are satisfied the transaction was genuine and we are happy to return the funds to our customer.”

Barclays blocked ‘fraudulent’ cheques, but where’s the money gone? Read more

It should have realised the transaction was genuine in early October when Rahman provided the requested evidence. It should have realised after the dozen 80-minute round journeys he made to his branch in Bury and the hours spent on the phone to prove himself.

Instead it send him on a wild goose chase between departments, all of which gave him contradictory information before falling silent. “After my account was closed, I was told that my solicitors’ bank would have to send an electronic swift message confirming that the money it had deposited was legal and I was the intended beneficiary,” he says.

“The solicitors’ bank, NatWest, said it could only do this if Barclays instigated a request, which Barclays refused to do. Instead, when NatWest contacted Barclays, Barclays stated that the money had been transferred elsewhere by me and that it had not debited my account or requested further information.”

Despite its blithe statement, and only after media contact, Barclays realises it has made a catastrophic error and at the end of December it offered Rahman £7,558.30 to reflect loss of interest and benefits, and £250 for “distress and inconvenience”.

It promised to reopen his account within four days and to issue an instant over-the-counter debit card so he could access his money over Christmas. Four days later the account did indeed reopen, but Rahman made two lengthy commutes in vain to collect the promised debit card. First he was told fraud markers were showing on his account, and then that he needed a new pin, which had to be sent by post.

Barclays now accepts that, according to a spokesperson, “the original investigation was poorly managed, and our decision to close the account incorrect”.

It says the case has been flagged up to senior managers “to ensure situations of this kind are not repeated”. It has now increased its offer to Rahmen to £8,323.69 for lost interest and returns and £750 for the “inconvenience”.

The Financial Services Consumer Panel, a statutory body which represents consumer interests in financial policy-making, says the law needs to be changed to prevent such conflicts of interest between banks and customers.

Barclays can behave as though it has no duty of care to this customer because, in law, it has none Caroline Barr, financial expert

“Barclays can behave as though it has no duty of care towards this customer because, in law, it has none,” says panel member Caroline Barr. “The Financial Services and Markets Act says firms should ‘treat customers fairly’. The panel believes the Act should be amended to specify what constitutes a ‘reasonable’ duty of care to ensure banks act in the best interests of their customers. This case highlights the disastrous consequences when they don’t.”

Rahman, who was left without use of his right arm after errors made during his birth, had been about to purchase a buy-to-let property when his account was frozen. Because of Barclay’s incompetence he lost out on the house.

“I have recently finished a master’s in architecture, but have been unable to start looking for a job because of the stress and the hours spent in the branch and on the phone,” he says.

“The court settlement was supposed to make life easier for me given that my disability restricts my movement and causes me constant pain, but it’s had the opposite effect because of the hell Barclays have put me through.”

KNOW YOUR RIGHTS

Banks are closing customer accounts in increasing volumes, according to a Financial Conduct Authority investigation, and they are under no obligation to explain why.

Most include in their terms and conditions the proviso that they can end a relationship with a customer, while FCA rules merely require that sufficient notice is given. However, if criminal behaviour is suspected, facilities can be legally withdrawn.

Government regulations oblige banks to monitor customers’ accounts for potential money laundering or financial crime, and any uncharacteristic transactions can trigger fraud filters. These filters flag up connections with, or payments from, countries deemed risky, and under the Proceeds of Crime Act 2002 banks are not allowed to “tip off” a customer that an investigation may be underway.

Nor do customers have the right to hear the results of any investigation. The consequences for innocent victims can be devastating, for once a name appears on a fraud database it can prove impossible to open another bank account elsewhere.

What banks often fail to tell customers is that they have the right to request any information held about them on the national fraud database operated by fraud prevention service CIFAS. This is known as a “subject access request” and costs £10. They can then appeal through CIFAS if they dispute the data.

The Financial Ombudsman Service will also investigate complaints about frozen or closed accounts, but it can only ensure that a service was withdrawn in accordance with the bank’s terms and conditions. If it wasn’t, it can’t do more than require that the bank pay compensation for the inconvenience and make good any consequential losses.

It has no power to insist the account is reinstated. And although it can require the bank to provide evidence of any illegal activity, it can’t always share that with the customer.

The FCA last year announced that it is seeking to improve the way banks identify risky accounts and how they communicate with their customers.