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.

case a - The case for the bank

case b - The case for the escort agency

  • The terms and conditions of the bank accounts permit us to close them by notice in writing for any reason we deem appropriate.
  • Under the Banking Code of Practice, we may close an account with reasonable notice, which we have given.
  • We regularly review the industries, sectors and activities to which we provide banking services and have introduced a policy excluding escort services and brothels, due to the higher risk of money laundering and human trafficking.
  • The company's business is therefore outside our risk parameters. It is also at odds with our corporate values.
  • We conducted a review of our decision to close the accounts and did not decide to close them arbitrarily.
  • We have extended the time for closing the accounts several times, most recently until 30 September 2020, given the Covid-19 pandemic and its impact on business in general. This gives the company around ten months to make alternative banking arrangements.
  • We should now be able to exercise our right to close the accounts.
  • We dispute the bank's policy to exclude the adult services industry, because it does not differentiate between legal and illegal participants in the industry.
  • Ours is a legitimate business which is licensed by the state government.
  • We are subject to stringent probity checks to be able to continue to operate.
  • The bank seeks to rely on the terms and conditions which refer to "unsatisfactory conduct" of the accounts, such as where a business bank account is being used for personal purposes. There was no such unsatisfactory conduct on our part.
  • The bank's position is discriminatory, unfair and causes considerable loss to our business and reputation.
  • The bank should be prevented from closing our business accounts and we should be compensated for the impact the bank's decision has had on our business.

So, which case won?

Cast your judgment below to find out

Geoff Roberson

Business disputes and litigation

Stacks Champion

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