Aggressive enforcement of the US Foreign Corrupt Practices Act and UK Bribery Act are becoming a major source of discomfort for cross-border businesses as well as retail banks and their would-be customers…
The process of opening bank accounts have slowed to a crawl for foreigners, with stories of institutions taking a month or more to open new private banking accounts. One of the key reasons for this is inefficient compliance processes when identifying and assessing the risks associated with politically exposed persons (PEPs).
There are nearly 50,000 national political representatives, globally; not accounting for political candidates or regional officials (which the FCPA includes as PEPs). Consequently, some banks and multinationals are cutting all ties with any possible foreign PEPs and rethinking their exposure to foreign markets.
Earlier this month, the largest US bank JPMorgan Chase started closing the accounts of foreign government officials in a drive to avoid penalties for anti-money laundering violations. The move prompted complaints by angry customers to regulators, including from José Antonio Ocampo, a one-time Colombian finance minister who had previously been nominated to become president of the World Bank. The bank confirmed it was closing accounts and stopping the credit cards of up to 3,500 current and former non-US senior government officials, because of increased compliance costs.
A statement from the bank said its decision was ‘not a reflection on how these customers have handled their accounts’ but ‘a result of our focus on internal controls’. Ocampo had been a customer of JPMorgan for a decade, while residing in the US. He has since asked the US Consumer Financial Protection Bureau to explicitly forbid all US banks from engaging in ‘discriminatory and arbitrary practices’.
The Foreign Corrupt Practices Act is meant to punish firms for bribery of foreign officials in business dealings. Anti-money laundering violation fines have exploded in recent years, and JPMorgan has paid billions of dollars of them in the past 12 months alone.
But this needn’t be the case… Satiating the FCPA and Bribery Act can be achieved by demonstrating effective due diligence has been undertaken on prospective customers who may be politically exposed. Restructuring to take such a systematic approach to due diligence can be expensive, but a better option than not taking the custom in the first place.
Wal-Mart Stores recently said it anticipated to spend up to $240m on compliance and FCPA-related expenses in 2015. This compared to a compliance budget of $282 million for 2014, and $157 million in 2012. The US-based retail giant’s costs for business background checks and general compliance have ballooned since an investigation was launched by the US Justice Department and the Securities and Exchange Commission, for potential FCPA violations. Wal-Mart said it had consequently established dedicated FCPA compliance directors in numerous locations, as part of a global compliance review.
This story was provided by Worldbox