Every year banks and other financial institutions report about 16,000 suspicious transactions to the National Criminal Intelligence Service (NCIS), only about 20 per cent of which lead to any active investigation. In the case of your bank account, "suspicious" can mean anything that does not fit the normal pattern of trading in your account.
Customers are not told of the reports, can not rely on the Data Protection Act to uncover this information, and may be left with an unjustified black mark on their branch records indefinitely.
John Wadham, director of Liberty (formerly the National Council for Civil Liberties), says: "This virtually automatic process means individuals are branded as being suspicious without being told what is happening to them and without any process for clearing their name.
"There is a fundamental right of privacy in relation to one's bank account, and that shouldn't be violated unless there is real suspicion that someone is transferring money around that is the proceeds of crime."
The banks have a legal duty to report any transactions they consider suspicious, neglect of which is punishable by a prison term of up to five years and unlimited fines. Because the disclosure is demanded by law, the process is exempt from the Data Protection Act.
David Smith, deputy data protection registrar, says: "We have some concerns whether banks may err on the side of caution and report things that are not really suspicious. This has clear implications for customer confidentiality."
Even if you ask your bank whether it has any note of suspicious transactions on your account, staff cannot tell you, as this is seen as tipping off potential criminals.
The NCIS is subject to the Data Protection Act, but can refuse any request if it believes giving you the information would hinder its investigations.
Reports of suspect transactions usually start at branch level, perhaps with the teller who served you, and are passed up the hierarchy for further consideration.
If head office staff can find no reasonable explanation for the transaction, it goes to the NCIS. Although reliable figures are hard to come by, the banks are thought to pass on about one in four of the references which reach head office level.
One money laundering expert with a major bank, who asked not to be named, said: "Believe it or not, we have had Lottery winners reported to us, quite often because the branches don't always do their background checks.
"It's like anything else - there are some good branches which will make some further enquiries before referring things on, and others which will pass everything on to get it off their desks."
These cases were caught before reaching NCIS, he adds. "I like to think that we're reasonably diligent in our approach and don't report needlessly to the authorities."
The banks themselves will not say what criteria each uses in deciding what makes for a suspicious transaction.
Nor will they give any figures for how many NCIS references each bank makes each year.
Sue Thornhill, of the British Bankers' Association, says: "There have been a number of reports that have gone forward right through to NCIS that have been for a couple of hundred pounds and have triggered a valid investigation.
"If someone, for example, is unemployed and they start banking a couple of hundred pounds a week that can easily be suspicious and could trigger a report."
In other cases, a report may be thought necessary because a small business customer is suddenly banking much higher takings than the bank is accustomed to with no ready explanation.
The same regulations govern money deposited in a PEP, unit trust or other investment plans.
In theory, the NCIS is supposed to give the banks regular feedback on cases referred to it so the banks can purge their records of any unjustified black marks.
In practice, this feedback either takes many months to arrive, or fails to differentiate between cases which are actively being investigated and those which have yet to be looked at.
Ms Thornhill says: "We have fought and fought for proper feedback.
"It is wholly unsatisfactory that the banks should be breaching customer confidentiality in this way under the compulsion of the law but not able to lift that black mark from the customer's file.
"It's putting genuine customers at risk of investigation and nobody wants that."
Mr Wadham agrees. "It's a Draconian system," he says. "The banks are in impossible position."
He wants to see a system which forces the banks to go to an independent arbiter, such as a judge or an ombudsman, who would decide, case by case, whether NCIS notification was needed.
"Rather than it being a semi-automatic process, there would then be some kind of objective assessment of the level of suspicion, and someone independent analysing that," he says.Reuse content