The Ministry of Finance is urging banks to take action, but it seems there’s a distinct lack of infrastructure to support this. The directives aren’t being delivered quickly enough—or perhaps they’re just too fast for the agency to keep up with.
In theory, a risk-based approach to fighting money laundering and enforcing sanctions should lead to smarter compliance. But in practice? It’s more of a burden. Banks find themselves responsible for foreign policy shifts they didn’t initiate, can’t foresee, and aren’t equipped to handle efficiently.
Consider the situation in Syria. Recent sanctions changes took everyone by surprise. One day, a whole bunch of blacklisted entities just vanished without any prior notice or recognizable pattern. Oddly, some approvals continued to come through without explanation.
Inside the banks, uncertainty reigned. The teams were desperately attempting to maintain control, all while worrying about missing something critical. Safe Harbor protections weren’t acknowledged, and without a transition period, the situation felt jarring.
After the Trump administration made a substantial investment pledge—$600 billion to Saudi Arabia, along with military and commercial agreements with regional players known for financial crime vulnerabilities—things shifted again. The UAE was the only country taken off the watch list in 2024, which seemed noteworthy.
Then, not long after, three financial institutions in Mexico were unexpectedly blocked from accessing U.S. correspondents due to new concerns over money laundering tied to fentanyl-related activities. The affected agencies had to scramble to resolve urgent legal challenges almost immediately.
As the policies oscillate between high-engagement costs and swift enforcement actions, banks are left to decipher evolving national priorities without solid guidance or an adequate regulatory framework.
This has become a familiar trend. Foreign policy decisions are made quickly and handed off to the private sector for interpretation. It’s not just theoretical—banks are resourcing, budgeting, and incorporating these unpredictable demands, despite their limited personnel and patience.
On another note, the Financial Crime Enforcement Network’s beneficial ownership registry is essentially non-functional now. As of March, U.S. companies aren’t required to report ownership data, leaving banks in the lurch without access to vital information.
The registry, once designed to reveal illegal ownership structures, is still mentioned in federal guidance but has become nearly unusable. The agency is held to standards that it can’t meet due to limited access to essential data.
Looking at sanctions, enforcement against Russia ramped up significantly with over 2,500 entities designated since 2022. This includes banks, oligarchs, and sectors related to shipping and digital assets.
Even so, typological guidance often arrives delayed, with general licenses arriving late and risk models being adjusted almost as an afterthought.
In the UK, a concerning majority of banks—82%—have allowed new customers to skip basic verifications, while 94% don’t do daily screenings of existing clients. Given the fast-paced changes in sanctions, that’s quite alarming.
These statistics, while specific to the UK, are a stark reminder. Even in well-regulated environments, banks aren’t expanding their infrastructure in line with enforcement expectations.
In this climate, institutions face consequences not just for errors, but for failing to anticipate the next change. They’re expected to instantly interpret security policies without having detailed insights, operational guidance, or a clear tone from regulators.
The result? They often make reactive decisions. They freeze accounts based on hunches or cut off correspondent relationships over speculation.
This isn’t just frustrating; it creates systemic risk. Banks may avoid trades, not because they’re prohibited, but due to fears of future volatility. Compliance programs simply aren’t built for this kind of demand, and the government’s support is noticeably lacking.
Funds are stagnant. Tools are inconsistent. Plus, regulators expect real-time decision-making, despite systems being designed for retrospective analysis.
The message to financial institutions is quite clear: implement foreign policy objectives without reliable infrastructure or protections. Stability? Still nonexistent.
This isn’t just a partisan matter—it’s systemic. Both Democratic and Republican administrations have utilized financial powers to pursue foreign policy aims, yet neither has adequately addressed the ongoing operational challenges.
Anti-money laundering and sanctions enforcement have transformed into instruments of statecraft, pushed onto private institutions that simply can’t manage the complexity, ambiguity, and legal risks involved.
The outcome? A fragmented landscape filled with uncertainty and exposure. Institutions that do things right aren’t necessarily rewarded. Instead, they worry about reputational damage, potential fallout, and sweeping program changes.
A risk-based compliance framework only functions optimally when the risks are clearly defined, expectations are stable, and information flows freely.
That’s not what banks experience today. They’re tasked with navigating compliance amid geopolitical unpredictability—essentially becoming the frontline for outsourced governmental systems.
This situation is neither sustainable nor safe.
