Complainant

Respondent

Parties

Complainant

Respondent

Anonymised Parties

A Customer

A Bank

Representatives

Act

Complaint/Dispute Reference No.

Date of Receipt

Complaint seeking adjudication by the Workplace Relations Commission under Section 21 Equal Status Act, 2000

CA-00022682-001

02/10/2018

The complainant is an Iranian businessman with connections to Ireland and in 2007, he opened bank accounts with the respondent at a branch in Dublin.  The complainant said that he has Irish residency status and that he intends to rent or buy a house in Ireland.

On August 13^th 2018, the manager of the branch where the complainant had his accounts wrote to inform him that, in accordance with the terms and conditions of his accounts, the respondent was exercising its right to withdraw its service to him within two months.  He was advised to close his accounts, failing which the respondent would close them, and send him any remaining balances.

Since August 2018, the complainant has made strenuous efforts to prevent the respondent from closing his accounts.  In September, he got references from business contacts representing Irish agencies abroad and from the Department of Foreign Affairs and several officials wrote to the branch manager asking him to keep the complainant’s accounts open.  The complainant also made a complaint to the Financial Services and Pensions Ombudsman (FSPO) and, on October 2^nd 2018, he submitted this complaint to the WRC under the Equal Status Act.  However, on October 11^th, the respondent closed his accounts and has done so in the absence of any means the complainant has to transfer his funds to an Iranian bank, leaving him in what he described as “an utterly invidious and unfair position.” 

The complainant argues that by withdrawing its services and closing his accounts, the respondent has discriminated against him on the ground of race.

Commencement of a Banking Relationship

In 2007, the complainant opened three deposit accounts, a current account and a credit card account with the respondent.  He lodged a substantial proportion of his savings into each of the deposit accounts, transferring funds from another Irish bank and from a bank in Germany.  Since they were opened, the complainant has not lodged any more money into the deposit accounts and he has not made any withdrawals.  The only transactions on the accounts have been the application of interest.  The complainant also deposited money into his current account.  No further funds have been deposited into this account since the date of opening and, apart from direct debits to his credit card account, there is only one other annual or bi-annual transaction on this account.  The complainant uses his credit card for travel expenses.  There have been no transactions between these accounts and any bank in Iran and, on behalf of the complainant, Mr Keany said that there is no functioning communication between Irish and Iranian banks.

Around 2010 or 2011, due to the imposition of US and EU sanctions, the complainant was asked by the respondent to provide an address outside Iran.  He then used a post office box address in the USA.  The complainant said that he lived in the USA as a student, where he completed undergraduate and master’s degrees.

Notification to the Complainant to Close his Bank Accounts

On April 26^th 2018, the respondent wrote to the complainant seeking updated evidence of his identity, and two forms of address verification.  On March 8^th 2019, in their final submission following the hearing of this complaint, the complainant’s solicitors included an e-mail dated May 1^st 2018, from the respondent’s senior business advisor.  The business advisor attached to his mail a copy of a document that the complainant was required to sign.  This document seeks information about customers who are companies incorporated in Iran, Syria, Sudan and North Korea.  One section of this document states:

“I acknowledge that (the respondent) will not provide financial services to customers resident in, incorporated in or trading with the following countries (Iran, Syria, Sudan or North Korea) or where (the respondent) is on notice that customer funds either originate in or are ultimately destined for use in such Countries.”

The complainant was requested to sign this document, which required a number of other undertakings including the provision of evidence of identity and his current permanent address.  It appears that he did not sign and return this document, but in July 2018, he met his relationship manager in the branch and presented his passport. 

In documents provided to the WRC before the hearing, the complainant submitted a letter dated August 13^th 2018 from his branch manager.  Referring to five specific accounts by their account numbers, the manager wrote to the complainant at his address at the post office box number in the USA:

 “Dear Sir

“We regret to inform you that  …(“The respondent”) is exercising its right to withdraw its service to you within 2 months of the date of this letter.  Please be advised that this notice is being provided to you in accordance with the Terms and Conditions applicable to your account / product / service. 

“Please arrange for the account to be closed on or before 11/10/2018.  If the account is not closed by this date, then the respondent will take the necessary steps to close the account and will forward any balance due to you at this time, any debit balances need to be paid in full.  Additionally, with effect from this date, any direct debit or standing order instructions that have been set up in connection with the accounts will no longer be processed.  Please ensure that alternative arrangements are made to facilitate such payments as failure to do so may result in the lapse of any such Life Policy and / or credit facilities may fall into arrears.

“We apologise for any inconvenience that this may cause.”

The Complainant’s Efforts to Retain his Accounts

When he received this letter, the complainant contacted his branch manager and asked to meet him.  The manager responded that the decision to close the accounts was not made at branch level, but by a team in the respondent’s head office.  The complainant replied on August 29^th and said that he would like to retain his accounts.  He said that they were opened before sanctions were imposed on Iran and that the initial funds had not originated in Iran.  Three of his accounts were deposit accounts and not related to trade in any respect.  The current account transactions were monthly direct debits to his credit card and transfers of funds to the Department of Foreign Affairs. 

The complainant pointed out that, due to international sanctions, Irish banks have no dealings with the Iranian banking system.  As a diplomat providing a service to Ireland, the complainant is obliged to transfer funds to Ireland.  As he cannot transfer money from a bank in Iran, he transfers the relevant amounts from his current account to the account of the Department of Foreign Affairs at the Central Bank of Ireland. 

The complainant asked for some flexibility from the respondent and for his case to be considered as an exception.  He requested that his accounts be retained until 2020 and he said that he would make arrangements to provide an address in Dublin if that would help.

On August 31^st, the complainant submitted a formal complaint to the respondent’s Group Customer Complaints Department.  He received a reply on September 6^th, reiterating the respondent’s decision to close his accounts in accordance with the terms and conditions of each one.  In accordance with section 21 of the Equal Status Act 2000, on October 31^st 2018, the complainant sent a notification to the respondent on an ES1 form, alleging that the respondent’s decision to close his accounts amounted to discrimination on the ground of race.  On November 30^th, a manager at the respondent’s Customer Complaints Department wrote to him and confirmed the decision of the respondent to withdraw its services from him.  The manager said that the respondent denied that it had discriminated against the complainant on the ground of race.  She said that the respondent “took the commercial decision that the maintaining of this relationship no longer aligned with its risk appetite (and profile) and was contrary to its internal policy.” 

In November 2018, the complainant had a meeting with a Dispute Resolution Manager at the office of the FSPO.  This manager contacted the respondent on behalf of the complainant, but he was informed that the decision to close his accounts would not be changed.  The manager at the FSPO informed the complainant that, as the decision of the respondent to withdraw its services from him was a matter that fell within the jurisdiction of the WRC, an investigation would not be carried out by the FSPO.

The Respondent’s Reasons for Closing the Complainant’s Accounts

On behalf of the complainant, Mr Keany said that, for the first time, the papers received the evening before this hearing clarify the respondent’s reasons for withdrawing its services from him. 

In its submission, the respondent referred to its obligations under the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (“the Criminal Justice Act”) to carry out an assessment of the money laundering / terrorist financing and financial sanctions risk of every customer.  The complainant is a resident of Iran, which is on the respondent’s list of prohibited countries.  For this reason, according to the respondent’s submission, he is subject to enhanced due diligence (“enhanced due diligence”) in respect of the respondent’s willingness to provide him with a banking service.  The complainant has failed to comply with the respondent’s due diligence requirements because he has not been able to provide two forms of address verification. 

Mr Keany said that the respondent now has a “fixation on sanctions,” and is claiming that it is bound by the sanctions regime to restrict itself from doing business with the complainant.  On January 16^th 2016, as a result of the Joint Comprehensive Plan of Action (JCPOA) agreed by the EU and the US, China, Russia and Iran, the United Nations Security Council lifted all nuclear-related economic and financial EU sanctions against Iran.  On this basis, Mr Keany argued that no sanctions are in place that apply in Ireland or Europe that justify the respondent’s actions.  In May 2018, the US withdrew from the JCPOA and continued to impose sanctions against Iran.  On August 7^th 2018, The EU counteracted US sanctions with “blocking regulations” that require member states to make it illegal for an EU body or person to apply the US sanctions.  Mr Keany said that “what the EU blocking regulations have made illegal, the respondent has refused to change.”  In this way, he argued that the respondent has shown a disregard for the basic rights of a person with a connection to Ireland.

Another reason given by the respondent for withdrawing services from the complainant was the fact that, by using his current account to remit funds to the Department of Foreign Affairs, he was using his account for a purpose other than for his own personal use.

Evidence of the Complainant

At the hearing, the complainant said that he is a semi-retired businessman and that he has had a relationship with Ireland since 1990.  He said that he is known to the Department of Foreign Affairs and the Department of Justice and he has had dealings with several public agencies and with a number of private sector companies. 

The complainant said that it is his intention to move to Ireland in 2020.  He currently holds a stamp O visa and he has an apartment rented in Dublin.  The website of the Irish National Immigration Service provides some information on Stamp O status, which it says applies to non-EEA nationals and is a “a low-level immigration status which is not intended to be reckonable for Long Term Residence or Citizenship.”  This immigration status is for self-sufficient individuals who are not permitted to work in Ireland.     

The complainant said that it is frustrating that no reason was given for closing his account, apart from the statement that the decision was in accordance with the terms and conditions.  He said that he had significant funds in his accounts and the respondent’s proposal to issue him with a bank draft in respect of these funds is of no use to him.  He said that his plan was to use the funds in his accounts to buy an apartment in Dublin and that, because of the actions of the respondent, he is prevented from doing this.  The complainant said that he has been humiliated by the respondent and that he is devastated.  He said that the respondent has placed an over-reliance on compliance and he claims that the decision to close his accounts shows its disregard for the basic rights of an honourable individual with a connection to Ireland.    

The Burden of Proof and the Primary Facts

On behalf of the complainant, Mr Keany said that there is no Central Bank requirement preventing the complainant from having accounts in an Irish bank.  Compliance policies regarding Iranian citizens are not prescribed and there is no legal obligation on the respondent to adopt the position it has adopted.  Mr Keany claimed that the respondent has complete flexibility regarding the customers it determines are a risk and it has decided that the complainant is a high-risk individual because he is from Iran. 

The respondent contends that it carried out a comprehensive risk assessment of its relationship with the complainant, but it has not provided details of any objective risks that have been established.  It is the complainant’s case that, in terminating its relationship with him, the only consideration of the respondent is the fact that he is an Iranian national or a resident of Iran.

The respondent’s Sanctions Policy which was provided in a redacted form at the hearing, shows that it has adopted a policy of not dealing with persons resident in Iran, Sudan, Syria and North Korea and that it categorises these jurisdictions collectively as “prohibited countries.”  The Policy states:

“Accordingly, it remains outside the risk of the Group to provide financial services to customers resident in, incorporated in or trading with any of the Prohibited Countries or where the Group is on notice that customer funds either originated in or are ultimately destined for use in those countries.

“Whilst certain Iranian restrictions were removed in January 2016, the Group’s sanctions policy in respect of Iran remains unchanged, ie. Iran remains a Prohibited Country.  This is due to the ongoing complications re US primary sanctions remaining in place and risks that persist even after the easing of the EU sanctions regime…”

The complainant’s submission argues that this extract makes clear “in the most stark of terms the Respondent’s absolute unwillingness to deal with persons resident in or connected with Iran.”

On behalf of the complainant, Mr Keany argued that the respondent was only justified in closing the complainant’s accounts if they were required to do so as a matter of law.  He contended that the Criminal Justice Act requires the respondent to carry out a risk assessment and to put measures in place to mitigate against any identified risks, but the respondent has decided against this measured course.

Mr Keany referred to two previous cases at the WRC, ADJ-00008685 and ADJ-00008947, where two Iranian nationals who are resident in Ireland were awarded compensation by the adjudicator, Ms Marian Duffy, when their bank asked them to sign a formal declaration that they would not transfer funds to Iran from their accounts in Ireland.

In the complainant’s additional paper of March 8^th 2019, a copy of an e-mail dated May 1^st 2018 is attached as an appendix.  This e-mail shows that on that day, the complainant was requested by a business advisor in his branch, to sign a declaration related to his accounts.  This declaration required the complainant to confirm, among other matters, that the respondent will not provide financial services to customers resident in Iran, Syria, Sudan or North Korea.  The complainant’s solicitors claim that this document is the same declaration that was found to be discriminatory by the adjudicator in the two cases referred to above.

In conclusion, the complainant’s submission claims that these facts have established that the respondent’s treatment of the complainant arises from his connection to Iran, his Iranian citizenship and his residency in Iran.  He claims that these basic facts show that that the respondent’s decision to close his bank accounts amount to prohibited conduct and is contrary to the obligations placed on a service provider at section 5(1) of the Equal Status Act, not to discriminate on the grounds of race.

Background to the respondent’s Decision to Withdraw its Services

Mr Walsh read the respondent’s submission into the record at the hearing.  The Criminal Justice Act and in particular, sections 39 and 54, place obligations on the respondent to assess every new and existing customer in relation to financial sanctions and the risk of money laundering and terrorist financing.  Before engaging with a prospective customer, a risk assessment is undertaken and throughout the relationship with existing customers, risks are kept under review.  Customers identified as having links to or residents of a prohibited country such as Iran are subjected to enhanced due diligence processes on an annual basis, or more frequently if necessary.  In its submission of March 27^th 2019, the respondent’s solicitors said that “there is no suggestion that the complainant falls into either of these examples” of money laundering or terrorist financing and that it “exits customer relationships on a regular basis for a variety of reasons which affects customers who could be Irish based and / or have no connection to Iran.”  

In 2007, when the complainant opened his accounts in the respondent’s bank, Mr Walsh said that the sanctions regime was markedly different to the current framework and the Criminal Justice Act had not been enacted.  It is a matter of public record that in May 2017, the respondent was fined €3.15 million by the Central Bank for failures related to risk assessments, customer due diligence and suspicious transaction reports.  In its published settlement, the Central Bank’s Director General, Financial Conduct stated;

“Financial services firms have a duty to protect, not only themselves, but also the wider financial system, from money laundering and terrorist financing.  The ever-changing nature of the risks presented by money-laundering and terrorist financing require financial services firms to continuously monitor and enhance the systems and controls they use to combat money laundering and terrorist financing,

“The high volume and range of breaches uncovered as part of the Central Bank’s investigation into the (name of the Bank) point to significant weaknesses in the strength of the respondent’s implementation of anti-money laundering and counter terrorist financing legislation.  Such behaviour is unacceptable and falls far short of the standard expected of one of Ireland’s largest retail banks.”

Since this outcome, the respondent has implemented a multi-year, multi-million Euro anti-money laundering improvement programme to address the issues identified by the Central Bank.  It remains highly conscious of the need to ensure compliance with its money-laundering, counter-terrorist financing and strict sanctions obligations.

A technical paper was included in the respondent’s submission, related to the legal and regulatory framework in which the it operates.  I do not intend to re-produce the entirety of that paper here; however, in summary, it sets out the respondent’s statutory and regulatory obligations under the following:

1.  The Criminal Justice Act;

2.  The EU Fourth Money Laundering Directive 2015 / 848 (“4MLD”);

3.  The United Nations Security Council (“UNSC”) Resolutions in respect of Iran;

4.  European Union sanctions in respect of Iran.

In addition, the respondent is required to take account of guidance issued by;

The Central Bank of Ireland;

The Department of Finance;

The Inter-governmental Financial Action Task Force which sets standards to promote the implementation of measures to combat money laundering, terrorist financing and other threats related to the integrity of the international financial system;

The Basel Committee on Banking Supervision and,

The Joint Committee of the Three European Supervisory Authorities.

The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010

Under the heading of “Customer Due Diligence,” section 39 of the Criminal Justice Act addresses the need for enhanced due diligence in cases of heightened risk.  Section 54 places an obligation on financial institutions to assess and manage the risk of money laundering and terrorist financing and to have policies and procedures in place to detect and manage these risks.  The respondent’s submission states that the Criminal Justice Act is not prescriptive in respect of the content of policies or the additional measures that are to be applied to what is perceived to be a higher degree of risk.  Each institution must adopt a risk-based approach aimed at mitigating the risk of money laundering and terrorist financing and which ensures compliance with financial sanctions. 

The EU Fourth Money Laundering Directive 2015

This Directive was published in the Official Journal of the EU on May 20^th 2016 and was transposed into law in Ireland by the enactment of the Criminal Justice (Anti-Money Laundering and Terrorist Financing) (Amendment) Act 2018.  It requires financial institutions in members states to apply enhanced due diligence when dealing with customers from high risk third countries.  In Commission Delegated Regulation 2016/1675, a number of countries were identified as at high risk of money laundering and terrorist financing, and Iran was included on this list.  As a result, when assessing the risk associated with commencing or continuing a relationship with an individual from Iran, enhanced due diligence is automatically required.   

UN and EU Sanctions Against Iran

Individuals and businesses in Ireland are required to comply with sanctions against Iran imposed by the UN and the EU.  The key pieces of legislation that take account of the restrictions imposed on Iran were Council Regulation 267/2012 (as amended) (“the 2012 Regulation”) and Council Regulation 359/2011.  I have referred in the previous section to the Joint Comprehensive Plan of Action (JCPOA), agreed in July 2015, of the EU, US, China, Russia and Iran which laid the groundwork for the lifting of all EU nuclear-related sanctions against Iran.  January 16^th 2016 was designated as “implementation day” for the lifting of these sanctions.  While this resulted in the removal of general restrictions on the transfer of funds between the EU and Iranian citizens, all sanctions that were not nuclear-related, for example, those related to humanitarian issues, proliferation and terrorist-related activities remained in place and continue to apply.

Since the inception of the JCPOA, the respondent is required to continue to comply with the on-going restrictions on Iran and has had to conduct its business while managing and balancing the risks posed by the geo-political uncertainty in respect of Iran. 

The Guidance of the Inter-Governmental Financial Action Task Force in Respect of Iran

Notwithstanding the ease in the sanctions regime in respect of Iran because of the JCPOA, in February 2016, the Financial Action Task Force (FATF) stated:

“The FATF remains particularly and exceptionally concerned about Iran’s failure to address the risk of terrorist financing and the serious threat this poses to the integrity of the international financial system.”

This statement concludes as follows:

“Due to the continuing terrorist financing threat emanating from Iran, jurisdictions should consider the steps already taken and possible additional safeguards or strengthen existing ones.”

In February 2017, the FATF issued this statement:

“Until Iran implements the measures required to address the deficiencies identified in the Action Plan, the FATF remains concerned with the terrorist-financing risk emanating from Iran, and the threat this poses to the international financial system.  The FATF, therefore, calls on its members and urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence to business relationships and transactions with natural and legal persons from Iran…”

On February 23^rd 2018, the FATF issued an updated public statement in which it acknowledged that Iran had made some progress involving its anti-money laundering and terrorist financing risks; however, not all actions had been addressed and implemented.  The FATF therefore reiterated its 2016 and 2017 position and continued to advise financial institutions to apply enhanced due diligence to business relationships and financial transactions with people from Iran.

In October 2018, the FATF issued a statement expressing disappointment that the majority of its Action Plan remained outstanding.  It called on Iran to address all the outstanding items by implementing the necessary anti-money laundering and terrorist financing reforms.  The FATF expected that, by February 2019, Iran would have enacted the necessary legislation in line with FATF standards.  The statement concluded:

“Iran will remain on the FATF Public Statement until the full Action Plan has been completed.  Until Iran implements the measures required to address the deficiencies identified in the Action Plan, the FATF will remain concerned with terrorist financing risk emanating from Iran and the threat this poses to the international financial system.  The FATF therefore, calls on its members and urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence, including obtaining information on the reasons for intended transactions, to business relationships and transactions with natural and legal persons from Iran, consistent with FATF recommendation 19.”

In countries where money laundering and terrorist financing risks are higher, the FAFT has recommended that enhanced due diligence should always be applied.  While the process is not prescriptive and banks may be granted flexibility in managing risks, account must be taken of the jurisdiction to which the respondent is exposed.  Banks may pay particular attention to countries with higher levels of corruption or deficient money laundering or criminal or terrorist financing controls.  The FATF guidance notes that due diligence measures may be adjusted in line with money laundering and terrorist financing risk which should be aligned with the risk profiles of customers.

Other Guidance

In October 2016, the Departments of Finance and Justice published Ireland’s first money laundering and terrorist financing national risk assessment.  This document acknowledged that retail banks face a high risk of money laundering and terrorist financing and that the risk increases when funds are transmitted to or from outside the European Economic Area.

The Basel Committee’s Risk Management Guidelines related to Money Laundering and Terrorist Financing is acknowledged by the Central Bank as relevant guidance to overall risk management frameworks.  The Committee states that enhanced due diligence should be applied to mitigate and manage higher risks of money laundering and terrorist financing and that it is also “important to take into account the relevant risks associated with customers from jurisdictions that are known to have AML/CF deficiencies.”  The respondent’s submission states that Iran is such a jurisdiction.

The Department of Finance has also issued guidelines in relation to country and geographic risks of money laundering and terrorist financing.  This document states that country risk “is not solely related to the country of origin of a customer” but should take into account business or other links a customer may have to a particular country.  Risk factors include,

Countries subject to sanctions;

Countries identified as lacking adequate money laundering laws and,

Countries identified as providing funding or support for terrorist activities.

The respondent’s submission concludes that, notwithstanding the relaxation of sanctions brought about because of the JCPOA, it has at all times considered Iran as a high-risk jurisdiction requiring enhanced due diligence to be carried out in accordance with its obligations under the Criminal Justice Act.

Enhanced Due Diligence Review

On April 26^th 2018, as part of its enhanced due diligence review of its relationship with the complainant, the respondent asked him to provide two forms of address verification.  He did not provide this verification and, at a meeting with his relationship manager on June 5^th 2018, the complainant said that he used the post office box address in the USA because he is always travelling and he did not think his home address in Iran should be used for correspondence purposes.  As he could not produce the required proof of address, the respondent’s submission says that,

“…it took the commercial decision that maintenance of the customer relationship in the absence of documentation deemed necessary by the respondent as part of its enhanced due diligence requirements would;

a.  constitute a breach of the respondent’s legal obligations under the Criminal Justice Act;

b.  constitute a breach of the respondent’s sanctions policy as adopted pursuant to the requirements of Section 54 of the Criminal Justice Act and,

c.  no longer be aligned with the respondent’s risk profile.”

By letter dated August 13^th 2018, having concluded that the complainant had failed to demonstrate that he could satisfy the respondent’s enhanced due diligence requirements, he was advised that his accounts would be closed.  Taking this action, the respondent relies on its contractual position as set out in the Terms and Conditions document for each of the accounts which were submitted in evidence at the hearing of this complaint.

The respondent’s submission referred to the High Court case of Blue Diamond Sports Limited trading as the Dundalk Bureau de Change and Blue Diamond Sports No.2 Limited versus the Company and Governor of the Bank of Ireland [2018] IEH 65.  “Blue Diamond” sought an injunction to forestall the closure of its accounts on the basis that no rationale was provided by the respondent for such closures.  Mr Justice Allen found that the Plaintiff’s case that it was entitled to a warning, following by an objective enquiry and a reasoned explanation for closing its accounts was incompatible with the respondent’s obligations under the Criminal Justice Act, which provides that it is not required to provide a rationale for any decision to close a customer’s account.

Summary of the Respondent’s Position

It is the respondent’s position that it has not discriminated against the complainant, but that the decision to close his accounts was a commercial one, arising from his failure to comply with its enhanced due diligence requirements.  Also, by his own admission, from 2012, The complainant was using his current account to transfer funds to the Department of Foreign Affairs.  By so doing, he breached a condition of the account, which required that the transactions were solely for his personal use.  The respondent’s case is that the application of enhanced due diligence to their relationship with the complainant and the closure of his accounts was not prohibited conduct and was fair, proportionate and objectively justified.  They also argue that, in consideration of the complainant’s circumstances, they were entitled to close his accounts and that this action was in accordance with their obligations under the Criminal Justice Act.

The Burden of Proof

The respondent’s view is that the complainant has failed to meet the burden of proof set out at section 38A(1) of the Equal Status Act and that he has not established a set of facts which show that it has engaged in prohibited conduct in the manner in which it has withdrawn its services from him.  If I find to the contrary and I decide that the facts show that the complainant has established a “prima facie” case, then, the respondent argues that he has not been treated less favourably than another person would be treated in the same circumstances. 

Mr Walsh referred to section 14(1) of the Equal Status Act which sets out measures or activities that are not prohibited:

(1) Nothing in this Act shall be construed as prohibiting—

(a) the taking of any action that is required by or under—

(i) any enactment or order of a court,

(ii) any act done or measure adopted by the European Union, by the European Communities or institutions thereof or by bodies competent under the Treaties establishing the European Communities, or

(iii) any convention or other instrument imposing an international obligation on the State.

Section 39 of the Criminal Justice Act states:

Without prejudice to sections 37, 38 and 59, a designated person shall apply measures to manage and mitigate the risk of money laundering or terrorist financing, additional to those specified in this Chapter, to a business relationship or transaction that presents a higher degree of risk. 

Section 54 of the same Act requires the respondent to have in place policies and procedures that specify its obligations to firstly, assess and manage the risks of money laundering and terrorist financing, and secondly, to adopt internal controls.  The Criminal Justice Act is not prescriptive in relation to how these controls should be designed, but each regulated entity must adopt a risk-based approach aimed at mitigating the risk of money laundering and terrorist financing and which ensures compliance with international sanctions. 

The respondent argues that the measures that have been applied to the complainant were required under the Criminal Justice Act, international guidance provided by the Financial Action Task Force and the international sanctions regimes that apply in the jurisdictions in which the respondent operates.  It is the respondent’s case that the measures were fair and proportionate and in line with its legitimate aim of complying with legal and statutory obligations.

The Group Sanctions Policy Standard

Under the heading of the “Summary of the Complainant’s Position” above, I referred to the respondent’s Group Sanctions Policy Standard which was submitted in evidence.  The respondent’s side also referred to this document, which, at section 4.14, refers to “Prohibited Countries” and states as follows:

“There are comprehensive sanctions against Iran, Sudan, Syria and North Korea (collectively categorised as ‘Prohibited Countries’).

“Accordingly, it remains outside the risk to the Group to provide financial services to customers resident in, incorporated in, or trading with any of the Prohibited Countries, or where the Group is on notice that customer funds either originated in or are ultimately destined for use in those countries.

Whilst certain Iranian restrictions were removed in January 2016, the Group’s Sanctions Policy in respect of Iran remains unchanged, i.e., Iran remains a ‘Prohibited Country.’  This is due to the ongoing complications re US primary sanctions remaining in place and risks that persist even after the easing of the EU sanctions regime (snap back provisions etc.)” 

(The reference to “snap back provisions” is a reference to the facility for the UN Security Council to revert to the imposition of pre-2016 sanctions against Iran if that country fails to comply with its obligations under the JCPOA agreed in 2015).

Despite the lifting of nuclear-related sanctions with effect from January 2016, the respondent has not changed its policy in respect of Iran because of the fact that some sanctions remain in place and Iran remains a high-risk jurisdiction for money laundering and terrorist financing.  Having determined that this risk falls outside its risk appetite, the respondent submitted that this is a reasonable and justified approach.

While Iran remains a prohibited country, section 4.2 of the Group Sanctions Policy Standard permits the respondent to open an account or to continue to provide a banking relationship to citizens of Iran, provided that the customer does not pose an unacceptable risk and that he or she can meet the conditions outlined by the respondent in respect of its enhanced due diligence process.  Where a connection to a prohibited country is identified, this policy standard applies to all the respondent’s customers, regardless of nationality.  The enhanced due diligence policy is therefore not grounded on nationality, but, according to the respondent, is “a necessary and appropriate component” of its anti-money laundering, criminal or terrorist financing and sanctions systems and controls.

The Respondent’s Risk Appetite and Commercial Considerations

The respondent owns and is fully accountable for the sanctions and money laundering risks associated with its customers and operations.  The enhanced due diligence process is designed to enable the respondent to make a reasonable determination, in line with its risk appetite, about whether the risk associated with a particular customer is acceptable.  The enhanced due diligence policy is designed so that the respondent retains responsibility for managing any risk that might arise in respect of customers who have affiliations to prohibited countries such as Iran.

The respondent also has a correspondent banking relationship with global financial institutions and its enhanced due diligence process is designed in such a way as to enable it to provide assurance to international institutions with which it does business that it is compliant with anti-money laundering and criminal terrorist financing risk procedures.  While the respondent has systems and controls in place, including robust IT systems and transactional sanctions screening, it is not possible for one single control to be implemented to counter money laundering, terrorist financing and sanctions risks.  The decision of the respondent to close the complainant’s accounts was therefore a commercial decision, carried out in line with its legal obligations under the Criminal Justice Act, the respondent’s sanctions policy and in accordance with the terms and conditions attached to the complainant’s five accounts.  On this basis, the respondent’s case is that the decision was not based on nationality.

Evidence of Mr X

Mr X is a partner at Eversheds Sutherlands in the United Kingdom and a specialist in international sanctions.  He described the sanctions environment regarding Iran as has been outlined earlier in this section.  He said that while the JCPOA, agreed in 2016, relaxed the sanctions against Iran, some sanctions remain.  While EU guidance has not said that a bank cannot do business with Iran, Mr X said that there is no practical way of doing so.  Having reviewed the respondent’s Sanctions Policy Standard, Mr X said that it is in line with all other financial institutions in Ireland.

Responding to questions from counsel for the complainant, Mr X said that it is not correct to say that there is no current sanctions regime against Iran.  The EU considers Iran to be a high-risk jurisdiction from a money-laundering perspective.  While the legislation, at EU and national level has not determined that a bank cannot open an account for an Iranian citizen, the way this is done is by engaging with each customer and by considering the nature of the diligence that must be applied.  Mr X said that a bank must have an understanding of who a customer is and where they are.

The Respondent’s Position:  Conclusion

Summing up the respondent’s case, Mr Walsh said that the environment in which the respondent operates today is different from that which applied in 2007, when the complainant opened his accounts.  He said that the law is not prescriptive and that the Criminal Justice Act requires the respondent to formulate policies that enable decisions to be made regarding risk.  The respondent must demonstrate to the Central Bank that regulations are in place and that every customer has been subject to due diligence.  The respondent has been subjected to a fine of €3.17 million in 2017 when its policies were considered by the Central Bank to have significant weaknesses in respect of money laundering and terrorist financing.  A further such finding places the respondent at risk of losing its license.  Mr Walsh said that the decision to close the complainant’s accounts was not based on nationality, but was determined by the respondent’s risk policy.

The Legislative Framework

Discrimination is defined at section 3 of the Equal Status Act as follows:

(1) For the purposes of this Act discrimination shall be taken to occur -

(a) where a person is treated less favourably than another person is, has been or would be treated in a comparable situation on any of the grounds specified in subsection (2) or, if appropriate, subsection (3B), (in this Act referred to as the ‘discriminatory grounds’) which -

(i) exists,

(ii) existed but no longer exists,

(iii) may exist in the future, or

(iv) is imputed to the person concerned,

(b) where a person who is associated with another person - 

(i) is treated, by virtue of that association, less favourably than a person who is not so associated is, has been or would be treated in a comparable situation, and 

(ii) similar treatment of that other person on any of the discriminatory grounds would, by virtue of paragraph (a), constitute discrimination, or

(c) where an apparently neutral provision would put a person referred to in any paragraph of section 3(2) at a particular disadvantage compared with other persons, unless the provision is objectively justified by a legitimate aim and the means of achieving that aim are appropriate and necessary. 

Subsection (2) sets out the discriminatory grounds, one of which, at subsection (2)(h) is;  

(h) that they are of different race, colour, nationality or ethnic or national origins (the “ground of race”.)

In accordance with the objectives of the Act, the public has a right to access the services of the respondent without being discriminated against on any ground.  Section 5(1) Act addresses this right:

A person shall not discriminate in the disposing of goods to the public generally or to a section of the public, or in providing a service, whether the disposal or provision is for a consideration or otherwise and whether the service can be availed of only by a section of the public.

Section 14 of the Act addresses certain measures or activities that are not prohibited.

(1) Nothing in this Act shall be construed as prohibiting—

(a) the taking of any action that is required by or under—

(i) any enactment or order of a court,

(ii) any act done or measure adopted by the European Union, by the European Communities or institutions thereof or by bodies competent under the Treaties establishing the European Communities, or

(iii) any convention or other instrument imposing an international obligation on the State,

The remainder of this section is not relevant to the complainant’s case.

My task here is to consider the decision of the respondent to discontinue the provision of a banking service to the complainant, an Iranian national and, to decide if, on the basic facts, a presumption of discrimination can be shown.

The Basic Facts

The complainant is an Iranian national and he resides in Iran.  He is a well-connected businessman and in 2007, when he opened his accounts with the respondent, he lodged a significant amount of money.  It seems that at the time, little consideration was given to the requirement for due diligence.  Around 2010, in the context of increased sanctions, the complainant was asked to provide an address outside Iran.  He provided a post office box address in the USA.  In 2018, he was asked to provide evidence of his identity and verification of his address.  He was also asked to sign a declaration acknowledging that the respondent would not provide banking services to a customer who is resident in Iran.  He provided a passport, but he did not provide verification of his address.  On August 13^th 2018, he was given notice of the respondent’s intention to close his accounts and, despite his protestations and representations from a number of sources, in October 2018, his accounts were closed.

Basic Due Diligence

By 2018, the banking environment had changed radically compared to 2007.  The enactment of the Criminal Justice Act 2010 and the fall-out from the financial crisis over the previous decade resulted in a greater level of control being exercised by the Central Bank on “the pillar banks” and the mandatory requirement for financial institutions to have evidence of who their customers are and where they live.  The requirement of financial institutions to have proof of the identity of their customers is set out at section 33 of the Criminal Justice Act.  Section 25 of that Act states that the reference to a “designated person” in this section includes a “financial institution.”   

(1) A designated person shall apply the measures specified in subsection (2), in relation to a customer of the designated person -

(a) prior to establishing a business relationship with the customer,

(b) prior to carrying out an occasional transaction with, for or on behalf of the customer or assisting the customer to carry out an occasional transaction,

(c) prior to carrying out any service for the customer, if, having regard to the circumstances…

(d) prior to carrying out any service for the customer…

(e) at any time, including a situation where the relevant circumstances of a customer have changed, where the risk of money laundering and terrorist financing warrants their application. 

From this section of the Criminal Justice Act, it is clear that a financial institution has a right to seek evidence of the identity of their customers at any time.  Subsection (2) deals with the measures that a financial institution may apply when seeking verification of the identity of their customers:

(2) The measures that shall be applied, in accordance with section 30B, by a designated person under subsection (1) are as follows:

(a) identifying the customer, and verifying the customer’s identity on the basis of documents (whether or not in electronic form), or information, that the designated person has reasonable grounds to believe can be relied upon to confirm the identity of the customer, including -

(i) documents from a government source (whether or not a State government source), or

(ii) any prescribed class of documents, or any prescribed combination of classes of documents;

(b) identifying any beneficial owner connected with the customer or service concerned, and taking measures reasonably warranted by the risk of money laundering or terrorist financing -

(i) to verify the beneficial owner’s identity to the extent necessary to ensure that the person has reasonable grounds to be satisfied that the person knows who the beneficial owner is, and

(ii) in the case of a legal entity or legal arrangement of a kind referred to in section 26, 27, 28 or 30, to understand the ownership and control structure of the entity or arrangement concerned.

As subsection (2)(a)(ii) above provides that a financial institution may seek to verify a customer’s identity on the basis of “any prescribed class of documents or any prescribed combination of classes of documents,” the respondent was entitled to ask the complainant to provide two forms of evidence of his address.  For reasons that were not outlined at the hearing, he declined or, he was unable to do so.

Enhanced Due Diligence

At the hearing, the respondent’s case was argued around the premise that the complainant did not satisfy their enhanced due diligence requirements.  However, the respondent’s side made no reference to the document issued to the complainant on May 1^st 2018, which is a declaration that the respondent will not provide banking services to residents in Iran, Syria, Sudan or North Korea.  At the hearing on January 11^th 2019, the complainant himself made no reference to this document, and it was only highlighted to me in correspondence from the complainant’s solicitors two months after the hearing on March 8^th 2019.

In their final submission of March 27^th 2019, the respondent’s solicitor stated that “the reason for the cessation of services / closure of accounts for (the complainant) is not related to the form referred to by the Complainants but was arose (sic) from his failure / refusal to supply necessary address verification documents.”

Findings

Regardless of the tardiness of both sides concerning the provision of information and, leaving aside the emphasis placed by the respondent at the hearing on enhanced due diligence, it is apparent to me that, by not providing two documents to verify his address, the complainant failed to comply with the respondent’s basic due diligence requirement.  This basic standard applies to all customers, regardless of their nationality.  I find that, on these basic facts, the complainant has not shown that he was discriminated against on the ground of race.

For the sake of completeness, I wish to address the possibility that the requirement to provide two forms of address verification resulted in indirect discrimination.  Does this “apparently neutral provision” referred to at section 3(1)(c) of the Equal Act place the complainant at a disadvantage compared to others who are not resident in Iran?  The requirement to provide proof of address is, in my view, objectively justified because of the obligation at section 33 of the Criminal Justice Act for a financial institution to be satisfied about the identity of a customer.  The requirement to verify one’s address does not subject the complainant to a condition that he cannot meet because of his nationality.

I have decided that the complainant had not discharged the burden of proof which shows that, on the primary facts, he was discriminated against on the ground of his race.  I decide therefore, that his complaint is not upheld. 

Equal status, discrimination on the ground of race,