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RBC moves to quell fury
over account closings
Andrew Willis and Tavia
Grant. Globe
and Mail, Canada, January 18, 2007.
From Thursday's Royal Bank of Canada went
into damage-control mode Wednesday, trying
to wrap its arms around customers with dual
citizenship while at the same time giving
a nod to harsh U.S. banking regulations.
Gordon Nixon, chief executive officer at
Canada's largest bank, moved to quell controversy
over the bank's policy on immigrant clients
by saying that RBC offers all services,
including U.S.-dollar-denominated bank accounts,
for customers who are citizens of both Canada
and countries on a U.S. government blacklist,
providing they live in this country.
In recent months, RBC quietly closed U.S-dollar
accounts held by several hundred customers
who hold Canadian citizenship and passports
from countries "sanctioned" by
Washington: Iran, Iraq, Sudan, North Korea,
Cuba and Myanmar.
The move was meant to apply to customers
who are not living in Canada, though it
tripped up several long-time residents.
RBC, which has 600,000 U.S. dollar-denominated
accounts, went out of its way Wednesday
to explain the steps it is taking to meet
the post-9/11 American rules.
Mr. Nixon has made winning immigrant clients
a centrepiece of the bank's growth strategy,
and said he was concerned these customers
would feel the bank did not value their
patronage.
"The message to clients is we will
open U.S.-dollar accounts for dual citizens
of any country, so long as the customers
meet the 'know-your-client' rule and anti-money-laundering
statutes, and are residents of Canada,"
Mr. Nixon said.
He was upset by the way the account closings
have played out both with clients and in
the media. Mr. Nixon said where clients
feel they have been treated unfairly, they
should appeal to branch managers and other
executives who will try to put things right.
"The issue the banks face comes from
Canadian citizens who don't reside in Canada,"
Mr. Nixon said. "Royal Bank is no different
from other financial institutions when it
comes to dealing with those customers."
Bank of Nova Scotia and Toronto-Dominion
Bank confirmed they have similar policies
in place, with monitoring of clients who
are dual citizens of U.S.-sanctioned countries;
other banks declined comment. On a case-by-case
basis, with residency being the primary
concern, Scotiabank and TD would not offer
U.S.-dollar accounts to dual-citizen clients
who are not Canadian residents, as doing
so violates U.S. regulations.
RBC's crackdown on accounts held by clients
with dual citizenship came after the U.S.
Treasury Department asked last year that
the bank be a "leader" on compliance,
while warning that other foreign banks had
been fined for running afoul of the rules,
according to an RBC spokesman.
Two European banks have been fined in recent
years for allegedly violating American rules.
ABN Amro, a large Dutch bank, was docked
$80-million (U.S.) in 2005, while Switzerland's
UBS was fined $100-million in 2004 in connection
with U.S.-dollar transactions with Cuba,
Libya, Iran and Yugoslavia.
The British Bankers' Association said those
two cases "have led some banks to question
whether the U.S. has, in fact, embarked
on a campaign of informal pressure to squeeze
out foreign financial contacts with regimes
on its blacklist for terrorism, WMD proliferation
or other reasons."
In a September submission to the House
of Lords, the British banks also said they
suspect the penalties for foreign banks
are heavier than those for U.S. banks.
In Britain, banks face "difficult
choices" when it comes to sanctions
that have been unilaterally adopted by countries
such as the U.S., the submission said.
It highlighted the difficulties of trying
to comply with "blanket sanctions"
against, for example, Iraqi nationals, given
that banks didn't historically record nationality.
It called the appeal process "long
and very labour intensive" and said
those types of sanctions were "costly
and ineffective."
RBC's actions illustrate the tough situation
banks have faced since the Sept. 11 attacks,
which resulted in the U.S. dramatically
ratcheting up rules to combat money-laundering
and terrorist financing.
"The banks are really in a hard position,"
said Mohammad Fadel, an assistant professor
at the University of Toronto who worked
as a New York attorney in the regulation
of financial institutions.
"The United States unfortunately uses
its financial system as a big lever for
its foreign-policy objectives, and banks
are stuck in this situation where they're
being used as a tool."
If the Canadian banks don't comply, there's
always the threat of fines, damage to reputation
and potential loss of business, Prof. Fadel
added.
RBC says it is required to ask the citizenship
of its holders of U.S.-dollar chequing accounts.
For accounts that don't have this information,
the bank is going back and getting it.
In the U.S., meantime, banks are required
to act if they have any sort of suspicion
that the account is being used for unlawful
purposes.
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