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Posts Tagged ‘unintended consequences

Surprise! Enforcement efforts against money laundering have unintended consequences.

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Severe fines against large banks for violating anti-money laundering rules has led the banks to place a heavy focus on making sure their customers are legit. The result is a closing accounts of customers who have too high a risk of being shady. The unintended consequence is legitimate businesses and legitimate charities have difficulty finding a place to do their banking.

In a wonderful irony, articles at The Wall Street Journal on two successive days illustrate the tension. The articles leave you wondering in opposite directions. One article makes you think the banks ought to get serious about screening clients and shut down a bunch of accounts. The other article makes you wonder why these charities doing such wonderful work are getting all their accounts closed for no good reason.

First, charities finding themselves without bank accounts.

3/30 – Wall Street Journal – Cautious Banks Hinder Charity Financing / Account shutdowns and holdups of money transfers hinder ability to deliver aid to refugees – A charity that funds a school in Turkey which provides education to around 400 refugees from Syria had their account closed by JP Morgan for no stated reason. After an inquiry from the WSJ, the bank reversed their decision.

Another charity that operates a hospital in Syria had their accounts closed by BofA. After moving to Wells Fargo, their accounts were closed there. Staff at the hospital went four months without pay while the charity tried to figure how to get money into the country.

Authors have spoken to eight other charities who have had their accounts closed. Many others have had money transfers going into Syria, Turkey, or Lebanon held up for varying lengths of time.

Article mentions that banks are under pressure from the U.S. federal government to monitor their customers accounts and close those accounts which could be related to money laundering, whether related to drug running, terrorist financing, or other illegal activity.

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Written by Jim Ulvog

March 31, 2016, 8:24 am at 8:24 am

Unintended consequences of anti-money laundering enforcement

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One of the general rules of life seems to be that when one person does something really bad, the larger group pays the penalty.

You remember the drill – one person in the school classroom misbehaves on the playground and the whole class looses recess.

Or one of your coworkers breaks etiquette of the office and there is a new restrictive rule that inconveniences everyone. One person pushes the boundary on expense reimbursement and everyone gets new reporting requirements.

Well, same thing is emerging with the tremendous effort against money laundering.

Check out Account Closed: How Bank ‘De-Risking’ Hurts Legitimate Customers / In their hunt for money launderers, regulators are forcing banks to shut down branches and reject business At the Wall Street Journal on August 13.

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Written by Jim Ulvog

August 25, 2015, 7:08 am at 7:08 am

What to make of the bribery investigations of hiring official’s children? It will merely require a genealogical background check before hiring any non-American.

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I don’t quite know what to make of this, but have an idea.

4/29 – Wall Street Journal – Wall Street Pushes Back on Foreign Bribery Probe – Here is a situation I don’t understand.

Several big banks have hired children of senior level government officials and managers of state-owned companies. J.P. Morgan is the one in the headlines at the moment. At some point in time said banks got permission for some deal or approval for some in-country activity.

The U.S. Department of Justice is looking at those hiring decisions to consider whether they are violations of the Foreign Corrupt Practices Act. That law prohibits paying government officials something of value in return for approving a commercial transaction. Bribery, in other words.

At issue is whether hiring children of high level officials is illegal. Until now, that has not been considered a violation of the FCPA.


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Written by Jim Ulvog

May 1, 2015, 11:29 am at 11:29 am