For the state, money laundering is a real problem to tackle. With the advent of „Neobanks“ with easy account opening procedures, this issue has grown in importance.
Is N26’s account opening procedure up to the task? The question has been asked since a German business weekly reported at the end of last week that it had managed to open an account there with false documents. The Berlin neobank puts this into perspective.
Why do Neobanks exist?
Among the promises of modernity made by the N26 mobile bank is the speed with which accounts are opened. “A current account in 8 minutes,” they say on their showcase site in France. To achieve this feat, the neobank, like others, has completely simplified the procedure, including the step of Identity verification needed, to open the account. To do this, N26 has developed a “Video Ident Protocol” or even allows Germans to be verified at the local post office. The Objective: Ensure that the identity document used to open the account is valid and belongs to the holder!
How do people launder money with a fake ID ?
More recently, however, N26 has chosen to implement a less restrictive alternative. PhotoIdent, offered by SafeNed, a company registered in the United Kingdom, consists of the customer taking a picture, always with his mobile phone, ID card or passport, and then taking a picture of himself. In France, this method replaced the video call beginning of 2018.
Is this procedure law compliant?
It is precisely this new method that the German Magazine „WirtschaftWoche“ questions, not only its effectiveness, but also its legality. According to the German business weekly, it is insufficient to detect certain security features embedded in modern identity documents. As proof, the author claims in the latest edition that he managed to open a current account with false documents. He also cites the German regulator, BaFin, which found the N26 identification procedure to be “not in compliance with money laundering laws“.
This statement was contested by Jérémie Rosselli, N26’s spokesman in France:
“Contrary to Wirtschaftswoche’s statements, the use of the photo identity verification method, as N26 does, is legally permitted. (…) SafeNed is a company authorised in the United Kingdom which is also subject to regulatory requirements concerning the prevention of money laundering and terrorist financing. (…) According to the German Anti-Money Laundering Act (…), N26 may use a third party authorized in the European Union, in this case a payment service provider in the United Kingdom, to verify the identity of its customers (…). The verification procedure is then subject to the law applicable to that third party (in the example above, the law in force in the United Kingdom). „
No increase in fraud risk
That’s the bottom line. On the issue, namely the possibility of opening an account with false identity documents, the spokesman states that N26 takes ” criticism very seriously” and will “verify them in detail“, even if it means taking “appropriate measures, if necessary“. However, he recalls that the “photo ID verification method does not increase the risk of fraud compared to other video call ID verification methods (…)” and that once the identity of the customer has been verified,“[N26] continuously monitors the transactions carried out” in order to detect possible “illegal activities, such as money laundering or terrorist financing“.
In France, the Neobank has recently been criticized for unannounced account freezes, precisely because of this anti-money laundering monitoring. Another Neobank, the London-based Revolut, took the lead and reported to the British regulator that they suspected some of its customers of using their accounts to launder money.
Neobanks are increasingly used for all kinds of criminal activity including financial fraud.