The Facts
Escort agency notified of imminent closure of bank accounts
An Australian company ran an escort agency which operated openly and legally. The enterprise was licensed by the state government.
The company operated four business bank accounts with a major Australian bank. It had access to internet and telephone banking services as part of that arrangement.
In November 2019 the bank sent the company a letter, titled “Notice of accounts and services closure”, in which the bank set out its intention to close the company’s accounts, providing it with 45 days to make alternative banking arrangements.
Bank’s policy to exclude escort services and brothels
The bank told the company that it regularly reviewed the industries and activities for which it provided banking services. It explained that it had established a policy of excluding escort services and brothels because of the higher risk of money laundering and human trafficking.
Consequently, the company’s business was now outside its risk parameters.
Industry association highlights impact of Covid-19 pandemic
The company requested that the business accounts remain open and its industry association wrote to the bank about its policy change regarding provision of banking services to the adult services industry, pointing out the impact of the Covid-19 pandemic on the bank’s business customers.
The bank conducted a review of the company’s request, but decided to maintain its position that it would close the company’s accounts in line with its new policy.
The company complained to the financial ombudsman, the Australian Financial Complaints Authority (AFCA), claiming that the bank was acting improperly and unfairly. It was up to the ombudsman to determine whether the bank had the right to enforce its policy and close the escort agency’s business bank accounts.
Expert commentary on the court's decision
Ombudsman finds bank is entitled to close accounts
In its determination in Case number 687972, AFCA found in favour of the bank, National Australia Bank Limited, finding that it had fairly exercised its rights to close the accounts and was not obliged to keep them open as requested by the company.
In delivering its decision, the ombudsman reiterated the principle that just as the client of a bank could choose to move to another financial institution, so a financial institution could choose to end its relationship with a client.
Delays due to Covid-19 pandemic do not alter eventual outcome
The decision noted that the bank had extended the time for closing the accounts numerous times during the course of the complaint.
While the onset of the Covid-19 pandemic had the effect of delaying the bank’s implementation of its decision to close the company’s accounts, it did not alter the bank’s decision or the eventual outcome.
Company advised to find other banking services
The company had claimed a loss because it could not trade without the bank accounts. However, AFCA pointed out that the accounts were still open and that it was not apparent what steps the company had taken to make any other banking arrangements.
The ombudsman advised the company to find other banking services, determining that the bank was not required to keep the company’s business bank accounts open.
Neither was the bank required to compensate the company or take any other action.