Banks failing to comply with anti-corruption rules and sanctions list

Criminals, including terrorists and tax evaders, as well as government officials subject to sanctions, can easily flout rules designed to prevent them from the international financial system, a study has found.

Banks and other financial firms around the world, including the UK, are failing to comply with international anti-corruption regulations, according to research from the University of Cambridge and the University of Texas at Austin.

Researchers emailed 5,000 banks and 7,000 other financial intermediaries in 273 countries and financial jurisdictions in 2020-21 to test their compliance with rules to combat money laundering; financing of terrorism; tax evasion; And magnitsky act Law that allows for sanctions against specified Russian government officials.

The study found that one in 30 banks did not comply with international regulations, rising to one in 10 if they did not respond to the researchers’ emails. The results of the Magnitsky sanctions test found that one in 20 companies did not comply, rising to one in six when non-responses were exempted.

The researchers set up 12 shell companies in low-risk countries for corruption, including the UK and the US, and high-risk countries, including Papua New Guinea and Pakistan, as well as offshore jurisdictions such as the British Virgin Islands. He then introduced himself as the representative of those companies and demanded to open bank accounts for them.

He also impersonated individuals from high-risk countries, including several Russians named on the Magnitsky sanctions list, then set up shell companies on his behalf to limit liability, avoid taxes, and maintain his secrecy. asked for. He also asked what documents, if any, would be required to verify his identity.

The research found that those named to the Magnitsky list could gain access to the financial system and circumvent regulations as easily as low-risk individuals, suggesting that the sanctions were ineffective.

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Jason SharmanA professor of international relations at Cambridge said: “It will take you a day to break these restrictions. You don’t need to break a sweat to send 20 emails. And that’s without hiding your identity as a high-risk individual.” So even if the bad guys are incredibly candid, incredibly stupid, and open, it’s still a proposition.

The researchers said some of the individual responses to their emails indicated not only an indifference to the rules but a willingness to conspire with high-risk customers to break the rules by hiding the customer’s identity from banks and authorities.

In a response, a representative for the company explained how they could help an alleged Russian client evade Magnitsky sanctions by setting up a “shelf company”. These are firms that have already been set up with a nominated director and a nominated shareholder, so it appears to a bank that they were set up by someone other than the beneficial owner.

The researchers concluded that anti-money laundering rules and the Magnitsky sanctions do not work because banks and intermediary corporate service provider firms “completely fail to discriminate between low- and extremely high-risk clients. [which] This is exactly the opposite of what should happen according to the rules.

“Even restricting the results to only countries with the Magnitsky law [the US, UK, Canada and European Union member states] … The same lack of sensitivity still persists in the face of a clear and extreme risk profile.”

The researchers repeated their research later this year Russian invasion of Ukraine, and this time he found that he was much less likely to receive a response by using the names on the ban list. However, there was little difference in compliance between firms in countries with Magnitsky laws and those without such laws. The study concluded: “The effectiveness of these sanctions is a product of war rather than law.”

Sharman said: “Until the war begins, these incredibly high-risk people who are treated in the same way as bloggers are not being investigated.”

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Anti-corruption campaigner Bill Browerwho lobbied for the Magnitsky Act in the US, said: “The results of their investigation are a microcosm of everything that has gone wrong – that pro-Westerners are actively helping the Putin regime launder its wealth without any restraint or consequences.” were helping

“There is so much confidence in these company formation agents flouting the rules because they know nothing will happen to them.”

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