Personal Accounts Opened Through a Power Of Attorney

It is a general thing that people tend to keep their finances personal. And yet, we see situations in which people empower other persons to open personal bank accounts and manage them on their behalf through a Power of Attorney. I am not talking about fiduciary bank accounts. This article is about the situation when people empower other people, for various reasons, to go to a bank and open a personal bank account in their names. The grantor is the account holder and the representative is empowered on the account.

How should the Bank treat such bank accounts? Are they non face-to-face? Are they high risk?

Like all the questions that need a good answer, the solution is to start from a good Risk Assessment – to identify, assess and understand the specificity of this financial behavior.

The Risk Assessment

Below I will detail the legitimate reasons and typologies that I have noticed in my experience for these types of bank accounts. When you cannot have a reasonable answer to any of the questions below, then you should definitely raise your eyebrows.

1.       Why?

Why do people empower other people to open personal bank accounts in their names?

• Incapacity to move (older people, physical infirmities)
• Temporary or longer absence from the town / country – people work, live or need to make an imminent trip abroad, but need a financial matter to be solved in their absence, in that specific town.

Red flags:

• The grantor doesn’t have any of the problems above – he/she is “movable” and lives in the same town;
• The grantor lives or travels to a town where the bank has branches and could easily make his/her financial operations there.

2.       Who?

Who do they normally choose as representatives?

• Close family
• Close friends
• Entrusted professionals – usually people that have more money to manage and a certain financial literacy choose a professional. Even in this situation, there is an already developed personal relation between the grantor and that professional.

Red flags:

• It is a general and common sense matter that people entrust their personal finances only to entrusted, close relatives and friends. If you cannot understand the relation between the grantor and the representative, then something may be fishy.
• Negative public information on the representative (accusations of money laundering, information that might hinder him/her in opening a bank account, etc.)
• Negative public information on the grantor (accusations of money laundering, proximity to Politically Exposed Persons, etc)

3.       What?

What types of Powers of Attorney are generally used to open personal bank accounts?

• Given for a specific purpose that additionally needs the opening and management of a bank account – eg. to buy or sell something valuable (real-estate, cars) in the name of the grantor and thus open a bank account for the transaction; to sign the contracts for a loan that the grantor already obtained from a bank but didn’t have time to conclude due to an imminent trip abroad; to make the necessary actions for the grantor to receive his/her pension or social allowances, etc;
• Given for the opening and management of a bank account in general, not linked to a specific purpose.

Red flags:

• The Power of Attorney was given for a specific purpose which is not seen in the account statement – eg. the bank account was opened in order to receive the selling price of a house, but the transaction is not seen in the bank account; the bank account was opened so that the grantor receives his pension, but no such incomings are received – however, the bank account is active for other transactions (that should definitely be analyzed);
• The specific, limited purpose of the Power of Attorney was achieved through the bank account and the bank account continues to be active for other transactions, not linked to the grantor’s profile;
• A general Power of Attorney is presented in the absence of the reasons explained above at “Why?”

Inherent Risks

The above Risk Assessment helps us identify the following inherent risks:

• The representative could actually be the beneficiary owner of the account opened in the name of the grantor;
• On the contrary, the representative could be a trustworthy person that might deceive the bank from concluding enough Customer Due Diligence on the grantor;
• In most cases, the Powers of Attorney do not mention a specific Bank where the representative is allowed to open the bank account – thus, there is the risk that the same Power of Attorney can be used at several banks to open accounts and be used for the personal use of the representative (abuse of the Power of Attorney);
• Banks do not generally monitor that the accounts opened through specific Powers of Attorneys are used exclusively for operations linked to that specific purpose – there is the risk that the account may be used for other transactions (in addition or even in the absence of the specific transactions mentioned in the Power of Attorney) that may or may not belong to the grantor;
• Most Powers of Attorney give the representative the power to open and manage bank accounts, but not the power to close them after the specific purpose was achieved – in many cases, the banks remain with inactive accounts that may be difficult to close or with active accounts that are actually used by the representative, instead of the grantor;
• Internet/Mobile Banking credentials and debit cards associated to these bank accounts.

Mitigation Measures

And now that we know what we are dealing with, how can we diminish the risks above?

• Enhanced Customer Due Diligence must be performed on the grantor and the representative in order to fully understand their profile and the reasons for choosing such a financial conduct. The questions presented above are a good start. It can also be useful to contact directly the grantor using the telephone number registered in order to better understand the situation;
• It is not a bad idea to also publicly check the notary / lawyer that authenticated the Power of Attorney;
• Such bank accounts must be differentiated in the bank core system, so that they can be easily identified and subject to specific monitoring and AML scenarios. In the situations when the grantor comes to the bank himself afterwards and is subject to a face-to-face CDD process, then the account becomes standard;
• The expiry date of the Powers of Attorney must be registered in the system, so that the accounts are blocked at that date. It is not enough that the bank blocks only the access of the representative to the account, keep in mind that accounts usually have Internet / Mobile banking or cards attached;
• For Powers of Attorney with specific purpose, the bank should monitor that the purpose is achieved through that bank account and take measures when this doesn’t happen (understand the reasons and decide whether it should limit / block or report the account).

The Final Questions

And so, considering all the above, what would be the answer to our initial questions?

Non face-to-face?

My personal view is that these customers should not be considered non face-to-face, like the ones opened via online. The difference is that when they signed the Power of Attorney, they were identified by a notary or a lawyer, who, under the 4th and 5th European Union AML Directive, is an obliged entity. This means that they are subject to AML/CFT rules and must apply certain CDD measures when authenticating such Powers of Attorneys.

However, they are not standard bank accounts either. And thus, they should be differentiated in the core system for specific reports and AML scenarios.

High risk?

From the results of my various analysis on such accounts, I did not identify sufficient suspicious transactions to conclude that these accounts are undoubtedly high risk. In the majority of cases, such accounts were opened for valid, legitimate and understandable reasons.

However, considering the inherent risks mentioned above, they are not standard, low risk either. They should be ranked under an increased risk, for enhanced monitoring, but not necessarily high risk.

Until further news, keep your friends close… and your accounts closer.

By Andreea Tampu, ACAMS