Money laundering is thwarted by new rules for cash deposits at the Post Office

Every year, hundreds of millions of pounds worth of dirty money are laundered through Post Office branches. This prompted the City regulator to order a revamp of the financial controls for the banks who use this network.

The Financial Conduct Authority outlined a number of measures the banking industry should implement in order to reduce criminal abuses of the cash deposit services provided by the Post Office.

Criminals have identified the “everyday bank facility” as a weak point due to the lack of controls and oversight. This is where lenders provide personal and business clients with a variety of banking services through the Post Office Network.

The regulator said that gangs were able to deposit multiple amounts of £20,000 cash each day in order to “launder large sums of cash quickly”, because some banks “over-relied” on a maximum of £20,000 for a single transaction with no limit to the number of transactions per day. The regulator said that this policy was “not justified for legitimate business or personal customers, and posed a material risk of money laundering”. The banks have reduced the deposit limits.

The use of paper pay-in slips has also been exploited by multiple third parties in order to make deposits which are difficult to track. Since it began looking into the issue, “most” banks have moved to more traceable card-based deposit methods.

A national risk assessment for money laundering and terrorist funding in 2020 highlighted an increase of criminal abuse of services like those provided by the Post Office. The Post Office has over 11,500 branches – more than the combined number of banks and building society branches. In March, cash deposits and withdrawals reached £3.3 billion. This is the most money that Post Offices have handled since September last year.

The agencies are believed to have identified a number of issues, including the use of Chinese students as “money “mules” in Glasgow and Edinburgh to deposit large sums of cash at Post Offices as well as the abuse of this network by organised crime groups in London. The regulator sent a letter to banks in October 2021 about the problem.

The authority announced yesterday that it held workshops with the Post Office and banks as well as the National Economic Crime Centre (part of the National Crime Agency which deals with financial abuse) to address the issue.

The review’s interim findings led to demands for improved monitoring of transactions, better staff training to identify suspicious activity, lower daily deposit limitations, a shorter time period to report “suspicious activities” to law enforcement and better intelligence sharing to identify Post Office branches targeted by criminals.

The authority acknowledged that banks have made “good progress”, citing a drop of 43 percent in the time it takes to report suspicious activities. However, they added that “there is more work to be done”. The authority warned that it would test the banks’ ability to implement better controls but also told them to “minimise harm to legitimate customers”.

Small businesses are complaining that the reaction to these concerns has already hindered their access to services for cash deposits. As banks close their branches, the Post Office network is becoming more important for small businesses.

Last year, the Post Office complained that cash deposit limits are like “using a sledgehammer” to crack a “nut”. They also said that they were affecting thousands of businesses who could not deposit their cash without making a long trip to a bank branch that was now far away.

Yesterday, it welcomed FCA plans that encourage lenders to adopt a “tailored” approach to deposit limits for business accounts. A spokesperson said that “there is still much to be considered by the industry”, including more checks of individual accounts, which “banks can do to exclude money-launderers while allowing bank-approved customers use Post Office services”.

Sheldon Mills is the executive director for consumers and competition of the authority. He said: “We worked with law enforcement, the industry, and the government to ensure that people and businesses could still use the essential cash banking services offered by the Post Office while also addressing any gaps criminals might exploit.

Last year, banks reduced the amount that individuals and businesses could deposit in response to fears that money-launderers were targeting the Post Office’s “everyday banking” facility.

Many legitimate small businesses were suddenly cut off from another way to deposit cash.

Many companies are unable to deposit their takings at the local Post Office due to closing.

Last year, the Post Office claimed that banks had responded to concerns about the network’s vulnerability by implementing a draconian and poorly targeted response. This resulted in the loss of far too many legitimate businesses.

Companies were forced to drive long distances to banks with large amounts of cash or to store the funds on their premises longer. This increased insurance costs. Some companies stopped accepting cash because of this, which had consequences for their vulnerable customers.

The statement made yesterday by the City regulator – which acknowledged the need to improve oversight and controls in order to prevent abuses – is a positive sign.

Postmasters, however, will tell you that their customers continue to report problems. It depends who you bank with. Some traditional lenders struggle to meet the needs of business customers for risk-based, tailored deposit limits.

OneBanx is a tech start-up that develops ways for small businesses and individuals in economically excluded communities to gain access to cash-related services. The app verifies the identity of the person making the deposit or withdrawal, which reduces the risk of money-laundering. The Co-op, Newcastle Building Society and TSB have all conducted trials.

Duncan Cockburn said that the regulators’ approach was sensible. He did note that a better use of technology is what is really needed. The FCA has a difficult task to meet, as most small businesses bank with traditional lenders. These lenders have been known to be rather Luddites on this front.