By Edmond Phiri
From Donald Trump to Nigel Farage, Jacob Zuma to Julius Malema, an alarming pattern has emerged across the globe. Politicians and public officials found themselves and their families abruptly cut off from basic banking services.
Melania Trump revealed in her memoir how her family experienced banking discrimination after leaving the White House. “I was shocked and dismayed to learn that my long-time bank decided to terminate my account and deny my son the opportunity to open a new one,” she wrote. The US president himself reportedly faced similar treatment from financial institutions.
The arbitrary closure of bank accounts affects political figures across ideological lines and national boundaries, raising profound questions about the unintended consequences of anti-money laundering legislation. Laws like the Financial Intelligence Centre Act (FICA) amendment bill were introduced with noble intentions to combat corruption and financial crimes. However, their implementation has created a regulatory gap that banks exploit for purposes beyond the original legislative intent.
“Reputational risk” has become particularly problematic as a justification. Financial institutions now routinely invoke this vague standard to close accounts without providing substantive evidence or recourse. What began as targeted legislation against genuine financial crimes has evolved into a tool that can be weaponised against those deemed politically inconvenient.
At the heart of these bank account closures lies the designation of “politically exposed persons” (PEPs). Politicians, senior officials, and, increasingly, their associates face heightened scrutiny under these regulations. While additional due diligence for those in positions of power makes theoretical sense, its practical application has become disproportionate and discriminatory.
The consequences extend far beyond the politicians themselves. Family members, even children, find themselves unable to access basic banking services solely because of their relationships. Julius Malema’s son was reportedly denied a bank account simply because of his father's identity. Banks have scrutinised transactions as small as R10,000 made to relatives of PEPs, as happened with the daughter of former minister Naledi Pandor.
Business partners and associates of public officials face similar risks. Honest businesses and individuals can be crippled through no fault of their own, merely for transacting with someone politically designated.
The collateral damage is extensive but largely invisible. Few victims speak out due to the shame and financial uncertainty associated with bank account closures. The shame and uncertainty discourage public complaints, obscuring the true scale of the problem.
Banking exclusion represents a fundamental threat to democratic principles. When banks can effectively exclude individuals from the financial system based on their political affiliations or family connections, they wield extraordinary power over civic participation. The right to engage in economic activity and manage one’s finances should not depend on political acceptability.
Compounding the problem in South Africa is the 2013 Bredenkamp case precedent. After protracted litigation that reached the Constitutional Court, Standard Bank successfully relied on commercial contract provisions to justify closing businessman John Bredenkamp's accounts. The court ruling established that banks, under commercial law, could terminate banking relationships without due process or providing explanations. Even if legislation like the Conduct of Financial Institutions (COFI) Bill were amended to include provisions against arbitrary account closures, the Bredenkamp precedent still gives banks a powerful legal tool to circumvent due process requirements.
Other democracies have recognised the danger and taken decisive action. In the UK, a political storm erupted after Nigel Farage's accounts were closed. The Economic Secretary to the Treasury acknowledged that "some financial institutions may be failing to strike the right balance of taking a proportionate approach based on a careful evaluation of the actual risk." The Treasury emphasised that denying financial services to those exercising lawful free speech would be a "serious concern." Legislation followed to prevent arbitrary closure of bank accounts.
The United States Banking Committee recently announced that the Federal Deposit Insurance Corporation will no longer consider "reputational risk" in bank supervision. The change came after the passage of Senator Tim Scott's Financial Integrity and Regulation Management Act, recognising that unchecked banking power threatens fundamental rights.
South Africa lags behind in addressing this issue. When regulatory entities in the banking sector briefed the joint meeting of the Portfolio Committee on Trade, Industry and Competition and the Standing Committee on Finance earlier this year, arbitrary bank closures surfaced prominently in discussions. Yet substantive reform remains elusive, particularly given the current state of the COFI bill and the additional hurdle of the Bredenkamp precedent.
The right to economic participation should not be sacrificed on the altar of risk aversion. Banks have legitimate interests in preventing financial crimes. Those interests must be balanced against citizens' rights to access essential financial services and economic participation. Banks must demonstrate specific, substantiated concerns before closing accounts.
Our parliamentarians and policymakers must follow international examples, enacting legislation that requires banks to follow due process before closing accounts while also addressing the Bredenkamp precedent. The current system allows vague “reputational risk” considerations to override individual rights, undermining both economic fairness and democratic principles. Being a politician, or related to a public official, or simply holding unpopular political views should not condemn someone to financial exclusion.
* Edmond Phiri is an independent writer, commentator and analyst.
** The views expressed do not necessarily reflect the views of IOL or Independent Media.