Does anonymous banking still exist?

News of the Czech Sparbuch Accounts…

While the Finance Ministry drafts a new money laundering bill, 2.7 Million secret passbooks are still in circulation.

In an effort to close one loophole that money launderers use to hide ill-gotten gains, the Czech Republic passed a law nearly five years ago calling for the conversion of all the country’s anonymous deposit passbooks into registered accounts.

The anonymous accounts got their start during the Austro-Hungarian Empire and, since they left no recorded identity with the banks, were often used to move money without a trail.

“Anyone who held an [anonymous] passbook was perceived by the bank to be the owner of the account and could withdraw all of the account’s deposits,” said Jirí S¢korvaga, a member of the board of Ceská sporitelna, which holds all of the country’s passbook accounts.

Years after the frenetic process that saw most of the country’s accounts converted, officials at Ceská sporitelna and the Finance Ministry have questioned the necessity of converting the remaining passbook accounts, as some 4.1 billion Kc ($190 million) left in 2.7 million accounts sits unclaimed.

The decision to abolish the accounts was made on the recommendation of the Financial Action Task Force (FATF), which sets international standards for stopping money laundering, Finance Ministry spokesman Jaroslav Ru¢zek said.

But the benefits of this decision are not unambiguous.

“The money held in these accounts, in practicality, could not have been misused for money laundering,” Ru¢zek said. Yes, it’s true that they could be used by anyone to withdraw money from an account, but the “important fact is that they could not have been used for credit or cashless wire transfers,” making any movement of the money a much more physical process.

S¢ korvaga allows for the concerns the European Union and FATF had about the anonymous passbooks, but also adds: “We never had a single case proving this assumption.”

Long tradition

Passbooks date to the 19th century, when they were the first deposit product broadly used by the public; new accounts would often be opened for birthdays or other special events. Under communism, the passbooks were one of the few options for saving money, and afterward remained popular for their security, ease of use and simplicity, S¢ korvaga said.

While 90 percent of the bank’s passbook accounts – 6.6 million in 2002 – were anonymous, registered versions of passbooks also exist and are still frequently opened in the country.

Prior to the bank’s 2002 advertising blitz, most of its customers were not aware that they had an anonymous passbook, S¢korvaga said. The books always had a blank line on their first page for a name, and nearly everyone with a book filled the line out with their first and last names.

“This despite the fact that the line was completely optional and could be filled out with anything from ‘My beloved granddaughter’ to ‘Mickey Mouse, ” he said.

In 2002, Ceská sporitelna had 120 billion Kc deposited in these accounts, a number that dropped 100 billion by the end of the year, after a campaign by the bank warning customers that their accounts would no longer earn interest and could not receive deposits.

The conversion of its passbook accounts cost Ceská sporitelna about 150 million Kc and lowered the bank’s profitability, as many of its customers migrated to accounts that brought them more interest or value, S¢ korvaga said.

“This net interest margin lost from our converted accounts far balanced any gain we had from paying no interest on remaining accounts,” he said.

Of course, the bank still holds over 4 billion Kc in savings accounts that it can continue to use for profit without paying interest, and Czech law states that if this money is not withdrawn by 2012, it will be forfeited to the bank.

Despite this possibility, S¢ korvaga says the bank will continue to honor withdrawal requests from anonymous passbook accounts after 2012, whatever the reason customers have been delayed in converting them – old age, forgetfulness or sheer torpidity.

“It’s our long-term standard,” he said. “Our clients will not lose money with us, no matter how long they did not access the account.”

Rinse cycle

While there is no estimate as to how well the Czech Republic is combating money laundering, it can be assumed that since the country has followed every recommendation given to it by the FATF and the EU, the volume of laundered money is in decline, Ru¢zek said.

The Finance Ministry is now drafting a new comprehensive bill on money laundering that is set to replace the country’s frequently amended 1996 law.

The new bill is needed to bring the country into accord with a new set of financial dictates from the EU.

Written by Paul Voosen, Staff Writer, The Prague Post

The Q Wealth Report – subscribe today for impartial information and solutions-related offshore and private banking, and benefit from immediate access to the online archives for many more articles on offshore banking.

Leave a Comment or Question Below