As promised, this post is just a continuation of the previous one, to explain some of the main aspects of how banks’ obligations aid governments in fighting crime. As the title suggests, this is about the coordinated way that countries fight sophisticated criminals. Before going into the process of how banks identify clients, it is necessary to explain what Sanctions are, because they present the biggest risk to bankers.
When it comes to committing crimes, from the banks’ point of view, there are only two types: actions for which a prosecutor may warrant your arrest according to his/her country’s Criminal Code, and actions for which a whole government or multinational organisation says you need to be stopped! It’s what separates Ted Bundy from Osama Bin Laden. For example, Abu Bakr al-Baghdadi had a level of sophistication that people like Jeffrey Dahmer can never reach. To reach that level of crime, you need money, influence, and coordination. Those people create criminal enterprises with vast networks of people and legal entities, and they are necessary to fulfil their agenda, whether it is terrorism, narco-trafficking, or waging war on innocent people. As you might deduce, money is the main ingredient to their success, therefore the most effective way to fight those people, is to prevent them from using all the infrastructure that the banking system has developed in the past three decades, that makes our lives much easier.
To that effect, a few years ago, the UN, USA, European countries, and many other countries decided to create laws and lists, which state that if a person or entity is designated on such a list, then banks and all other financial institutions must immediately freeze that persons/entity’s assets and report them to the respective institution. Those are known as Sanctions Lists. The UN has the Security Council Consolidated List, the US has the OFAC SDN list, the EU has the Consolidated List, the UK has the1very user friendly Sanctions List, and almost every democratic country follows such a structure, where they publish lists which contain names of individuals and legal entities which have been designated as being involved in criminal enterprises which need the help of financial institutions to stop them. All of those countries have the same laws which state that if someone is on the list, their assets must be immediately frozen and reported to the relevant authority. That obligation to freeze assets ‘immediately’ is what makes this whole obligation complicated, because when governments say immediately, that usually means it is a matter of seconds rather than minutes. That means that the only option these criminals would have, is to use cash, and more recently, crypto.2Do you now understand why bankers push back on crypto? Now, that obligation goes even further, and banks have to not only identify their own clients, but also who their clients are interacting with. Banks now have systems to see whether a client is transferring money to someone that may be on a list. Depending on a bank’s system set up, that is either done in real-time before a transaction is done, or the transaction is analysed later. We’re in a world where these systems and assessments are set up on a risk basis, where more risky things are treated quickly and more seriously, whereas less risky things are analysed whenever there is available time.
Being included in a sanctions list for criminals is like Actors receiving an Oscar! It’s the ultimate level of achievement. However, unlike the Academy of Motion Picture Arts and Sciences, when a person is included in a sanctions list, their whole team is included there as well; everyone that contributed to the success of the criminal enterprise is recognized. E.g. when OFAC included El Chapo on the SDN list, they also included the whole Sinaloa Cartel as well. Everyone deserves recognition 🏆😊.3Pablo would probably have been included in some sanctions list during his time, but as I stated in the previous post, these things are relatively new, and the current legislative framework didn’t exist back then.
In real world terms, that is the biggest risk that a banker can have, namely dealing with a sanctioned person. Why? Because most legislations state that if a banker does not freeze assets and report a sanctioned person, then that banker goes to prison. I usually joke, that my colleagues and I have a very easy job, because the worst thing that could happen in our line of work, is someone may lose some money. There’s a caveat to that, because that is true in everything we do except for financial security. In those cases, the worst thing that can happen is someone goes to prison.4But mentioning that ruins the joke, right?
Leave a Reply