Dhe advertising of the Berlin Neobank N26 is as cocky as usual: “The best bank in the world” is what it says without a trace of modesty. But behind the scenes there is rumbling and threatening the still young company.
What are the allegations about?
There are strict rules in Germany when it comes to money laundering. They bring illegally acquired money into the money cycle and launder it. It doesn’t always have to be terrorism. In the specific case, it is about fraudulent online shops that rip off unsuspecting Internet users.
What are the fraudsters taking advantage of?
The problem is probably with the photo identification. A user can use it to digitally identify himself to a bank. This is where it gets complicated: in some markets it is mandatory, in others it is not. In Germany, for example, only video ident is allowed in which you have to speak to an employee live. It is banned in France. Only Photo-Ident is allowed in the Netherlands. The regulatory chaos in Europe is also contributing to this.
How does the scam work?
BaFin warned of a nifty scam two years ago: This is how job advertisements are placed on job portals. These look deceptively real. Applicants for these positions are then asked to take part in an online application process. All possible personal data are then requested there – including photos of the identity card. The perpetrators can then use this data to open accounts.
So is N26 innocent?
Of course, N26 is a victim of the scammers. However, the Berliners had long enough time to protect themselves from the fraudsters. It is the organizational deficiencies and a lack of implemented processes that are typical for such young fintechs.
How long have the problems existed?
The financial supervisory authority BaFin and N26 have been talking about this for years. Already in May 2019 – about 30 months ago – there were first warnings from the supervisors. In the order for the prevention of money laundering and terrorist financing, the Bafin demanded four specific measures from the financial institution. The unprocessed cases should be processed as quickly as possible, the workflows and process descriptions for the implementation of the Money Laundering Act according to the requirements of BaFin should be improved and documented. The identity of some customers should be verified again, and the BaFin demanded adequate personnel and technical and organizational equipment to comply with their obligations under money laundering law. Since then there has been enough time to react. Even then, the FAZ commented: “Warning shot for N26”. Obviously it was not heard. In May of this year, the Neobank was even sent a special overseer to the house. All of this has obviously not been of any use.
How many accounts are you talking about?
The so-called “Financial Intelligence Unit” (FIU) regularly forwards money laundering data to the state criminal investigation offices. Handelsblatt and Wirtschaftswoche reported on these first. In Brandenburg, accounts from N26 are said to play a role in 10 percent of money laundering proceedings: 42 of 362 cases this year were about the Neobank. This is above average. In Lower Saxony, too, every tenth message since 2019 would have been related to N26.