Tough Middle East sanctions put AML under spotlight

Banks' anti-money-laundering processes will come under scrutiny in the face of tougher sanctions in the Middle East

Recent increases in sanctions against countries such as Syria and Iran mean banks both in the region and internationally must up their anti-money-laundering (AML) game or risk being left open to illicit funds passing through them, according to industry experts.

"The challenge for the international community is that money is leaking from [Syria] and sanctions are being circumvented, which moves the AML risk to other regions," says Tony Wicks, director of AML at US security firm Nice Actimize. "Organisations need to look at what's happening in terms of payments to and from Syria, and whether they should be involved in any activity there."

According to Wicks, Syria's border states are of particular concern. "Turkey, Lebanon and Iraq are deficient in terms of their attitude towards sanctions and AML," he says. "The danger is that moneys are moving into those other territories, are effectively being washed or cleansed and then sent on for other styles of investment or as monetary transfers to safe havens."

Lebanon is also an area of concern in connection with Iran, according to Wicks. He points out that between 2001 and 2006, according to the US Treasury, the Iranian bank Bank Saderat transferred $50 million from the Central Bank of Iran through its subsidiary in London to its branch in Beirut for the benefit of the militant Lebanese group Hizballah.

This is one of the issues that prompted the UK Treasury to impose tougher sanctions on Iran this week.

"HM Treasury in the UK has sent a clear message to the banks this week – don't do business with Iran," says Wicks.

But banks in the region having tougher AML processes in place is not enough on its own, according to Brian Dilley, global head of AML at KPMG UK. "There's a lot of international pressure on a number of those countries to increase their AML procedures, laws, oversight and regulation," he says. "But it's not enough just to have a law saying 'you mustn't do this'. There has to be a regime that holds individuals to account and takes disciplinary action against those institutions where they fall short."

Others in the industry are concerned with the AML issues arising from the lifting of sanctions in the region. Malcolm Taylor, managing director for Europe, the Middle East and Africa and Asia-Pacific at software provider Accuity, says Libya is now facing some tough AML issues.

"A lot of Gaddafi's old guard will be scrabbling for a share of Libya's illicit funds, which should of course be handed over to the new Libyan government for the benefit of the Libyan people," he says. "Smaller banks in the country need to be vigilant in terms of any unusual account activity, particularly those involving high-risk entities and high-risk jurisdictions."

Taylor adds that the international community needs to be on guard as Libya's sanctions are lifted to prevent the mis-management of unfrozen assets. "Libyan banks have had good time to prepare for the fall of Gaddafi but they must now rely on the international financial community and AML regulators to help recover Libya's ‘lost' wealth," he says.

A feature article on the operational impact of sanctions will appear in the January 2012 issue of Operational Risk & Regulation.