How to safely bank low-risk clients in high-risk jurisdictions: Is it time to “re-risk”?

By Alain Bozzi, Head of Group Compliance for Societe Generale - 2016

“The de-risking by international banks in developing economies is of great concern to the International Monetary Fund and the World Bank. These organisations are asking banks to help these countries to access the financial system, something which is a part of a bank’s social responsibility. But at the same time, there is a risk attached to offering services in some parts of the world. We need to develop new tools that enable us to do business in these countries without facing high risks.”


Banks face a difficult balancing act when it comes to banking legitimate customers in high-risk jurisdictions. The cost of additional due diligence and the risk of compliance missteps can be high, particularly when balanced against the relatively modest financial returns that such relationships often deliver. What can banks do avoid fines as well as financial exclusion? Are there global or community-driven strategies that can benefit all? How does the shifting sanctions landscape, with restrictions being relaxed for some countries, change the compliance dynamic?

  • The head of the International Monetary Fund, Christine Lagarde, recently expressed her concerns that banks’ de-risking was resulting in problems for emerging countries, particularly in accessing the global financial system. This is an important issue for governments, banks and individuals in such countries. It raises a question of social responsibility for banks that has to be balanced with managing the risk of doing business in such countries. There is no clear-cut answer to this question.
  • If banks can develop new tools that provide a level of comfort when dealing with emerging countries, that will be a win-win situation. But at present, more and more big banks are pulling out of such countries because the return on doing business is not worth the risk of the very heavy fines that are imposed if sanctions or other regulations are violated. The size of fines can be so high that banks prefer to pull out of certain activities rather than taking the risk.
  • At some points, governments need to help banks to re-develop their activities in emerging countries by raising the risk control standards of local banks. In correspondent banking, for example, when large banks pull out of a market, domestic banks struggle to get access to USD and the international payments system. If this access is cut off it creates a significant burden for a country and risk for its banks. But often these smaller banks do not have the same level of risk controls as international banks. A larger bank may therefore decide to do only local business with these banks but not enter into international transactions that may transgress the rules.
  • Banks that have been pulling out of riskier countries may well restart their activities if the situation improves in those countries and progress has been made on compliance and monitoring. Regulators in many of these countries have to develop more stringent regulations around issues such as anti-terrorist financing, sanctions and money laundering. Progress can be made if international banks and local regulators work together on how regulations are applied.
  • The decision to do business in a country is based on a number of factors, including the stability of the government and whether it is strong enough to impose and oversee compliance with financial regulations. This will depend on the mindset of the people in government – are they thinking globally, or is there corruption or instability of leadership? Each bank will assess the risk of each country differently.
  • The recent imposition of fines by US regulators on American and European banks indicates that the regulators in those countries were not monitoring local banks closely enough. European countries need to demonstrate that their sanctions frameworks to show they are capable of monitoring the situation.