Dutch banks applying stricter scrutiny to money laundering risks posed by football clubs
The Dutch press has recently reported that two Dutch professional football clubs have seen attempts to close their bank accounts upon a change of ownership. This comes on the back of a Dutch bank having reportedly announced an internal policy to no longer accept professional football clubs as new clients.
Dutch amateur clubs have also been accused of falling prey to criminal activities, typically by way of club sponsorship, with suspicions of money laundering, drug trafficking and undeclared payments to players.
There is perceived to be an increased risk of money laundering and other financial misconduct in the football sector. In January 2017, the Dutch central bank (DNB) publicly directed banks and trust offices to scrutinise the football sector more closely (and the wider sports and entertainment industry). It highlighted “the possibility that the football sector is exposed to money laundering and other integrity risks (including socially improper behaviour) because of its vulnerabilities”. At that time, 17 of the 19 banks and trust offices surveyed had not identified football as being a specific risk.
New clients and changes of ownership
The EU continues to increase its regulatory response to the risks posed by money laundering. For example in the 5th (and latest) Anti-Money Laundering Directive the EU imposes stricter rules on ultimate beneficial ownership and customer due diligence. Faced with increasing EU-wide scrutiny of bank processes and the financial cost of fines imposed for supervisory failings (single fines of up to EUR 775m), banks are taking a tougher line in processing customer due diligence and implementing anti-money laundering procedures. This inevitably requires more time and expense for the bank in approving new clients and processing transactions. This consideration may alter the cost and benefit of continuing to serve those clients only seeking account bank services.
A change of ownership of an organisation potentially resets the relationship between bank and client. It poses the same money laundering risks to the bank and requires a new customer due diligence process, requiring the bank to start from scratch in gathering a sufficient level of comfort that their clients pose no risk of criminal conduct. This means that applicants for a bank account increasingly face the prospect of being amongst a backlog of prospective clients awaiting completion of customer due diligence or being declined altogether.
The same holds true regarding maintaining or terminating that banking relationship upon any change of ownership of any football club.
Under the general terms and conditions of any Dutch bank account, the bank will typically be entitled to terminate the banking relationship at any time, subject to the bank’s broader standard of care agreed in the banking relationship. Losing access to a bank account not only will temporarily inhibit a client from functioning in its day-to-day business. If it is publicly known that one bank has terminated its banking relationship with a client, suspicions as to the reason why may dissuade other banks from being willing to act as its replacement. For a small- or medium-sized enterprise (including a football club), loss of access to bank account services could threaten its very existence. The Dutch courts have, therefore, historically been known to restrain the ability of banks to exercise these contractual rights under either the implied term of reasonableness or broad interpretation of standards of care. Banks have in particular been restrained, or required to allow the client more time to be onboarded by a new bank, where there were mere suspicions of criminal activity but no immediate proof. It remains to be seen whether this approach can be maintained at a time when banks are being directed by their regulators to go further in preventing money laundering and identifying suspicious banking transactions.
A recent English case in front of the Commercial Court has already confirmed that banks in England and Wales are entitled to terminate a banking relationship without notice based only on mere suspicion of criminal activity.
The consequences of increased regulatory scrutiny are not limited to the football sector, nor to Dutch banks. They are becoming apparent in all banking relationships across the EU. However, the football sector is increasingly being identified by the banking sector and its regulators as being at high-risk of entangling banks with money laundering and the proceeds of crime. Football clubs will, therefore, be at the sharper end of this scrutiny. The DNB has also been notably proactive in scrutinising the anti-money laundering procedures of Dutch banks acting within the football sector.
Any prospective buyer of any football club should equally consider continuity of banking services (or the ready availability of an alternative bank) as part of the acquisition process.
Furthermore, access to banking services should be carefully considered in managing the business operations at any football club. Clubs may already go beyond corporate loans and overdrafts in opting for a particular bank and weigh up access to ancillary facilities, such as letters of credit and bank guarantees. Account bank services should now also fall into that equation.