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The Anti-Corruption Role Of Global Banks

Note:  Professor Juliet Sorensen [1] (Northwestern University School of Law) and Northwestern Law students Akane Tsuruta and Jessica Dwinell are attending the Fifth Conference of the State Parties (CoSP) to the United Nations Convention against Corruption [2] in Panama City, Panama.  See here [3] for a live feed of the States Parties’ discussions.

This post regarding the proceedings is by Akane Tsuruta.

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Once a man walked into Barclays with $8 million in cash.  The bank called law enforcement, the man was arrested, and the money was returned to the government from which it was corruptly obtained.  That’s an easy case.

Yesterday, the British Bankers’ Association presented on how banks can deal with harder cases, specifically when Politically Exposed Persons (PEPs), or high profile public officials, try to bank in the UK.  The heart of the recommendation was enhanced due diligence and monitoring.

Banks will conduct enhanced due diligence on PEPs seeking their services based on several indicators of the risk of corruption, though there may be different levels of due diligence.  Banks may consider the PEP’s country and culture; for example, the attitude toward corruption Transparency International’s Corruption Perceptions Index, and whether the country has signed the UNCAC.  Banks may examine the nature of the PEP’s public position: the degree of power and if the PEP is involved in areas or industries that are particularly vulnerable to corruption.  Banks may also read media stories and reports of misconduct to assess the PEP’s reputation.

After this screening, the bank may turn away the customer or may continue to monitor the PEP’s transactions to look for red flags of corruption (banking in cash, for example, or mixing personal and business funds).  PEP transactions are profiled by reference to peer PEPs in order to detect anomalous transactions.  Banks will also watch for “trigger events” in the news that indicate corrupt dealings.

If the bank suspects a PEP of banking with ill-gotten gains, the bank will report the PEP to law enforcement.  In fact, if a bank turns someone away based on this risk assessment, Stephen Foster, Director of Anti-Money Laundering at Barclays Financial Crime Compliance, explained that UK law requires the bank to notify the authorities.  The bank will then try to return the money to the country in cooperation with law enforcement and the country’s government.

Banks undertake this enhanced risk assessment, due diligence, and monitoring for their own benefit, too, said Susan Wright, HSBC Group Head of FCC External Relations, HSBC Holdings.  Banks must manage their “reputational risk,” or the risk that they will be seen as a place that allows illicit funds.  As Foster emphasized, “We don’t want criminal money in our bank.  We don’t want corrupt funds.”

But there are other factors to consider, such as to whom to return the funds, the best level of risk, and the effect on economic development.  It may not always clear whether or to whom to return ill-gotten funds.  What happens when a new government comes into power, and asks for the return of funds on behalf of its country?  How do you know who has the authority to act on behalf of the central bank?  Furthermore, banks must balance the obligation to close their vaults to corrupt funds while retaining PEP clients who are “genuinely wealthy.”  This balance may affect economic development.  For instance, legitimate enterprises in corrupt countries may be deemed too risky to bank in the UK, which would hinder growth in countries that need it.

Ultimately, the Director of Financial Crime (Sanctions and Bribery) of the British Bankers’ Association, Justine Walker, emphasized the need for banks to have proportionality between crime control, customers, and development.