Banks assessing corruption risk – a Risky undertaking

Gelemerova, Liliya, Harvey, Jackie and van Duyne, Petrus (2018) Banks assessing corruption risk – a Risky undertaking. In: Corruption in Commercial Enterprise: Law, Theory and Practice. Routledge, London, pp. 182-198. ISBN 9781138063341

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The authorities have increasingly imposed tasks on business to lend support in the fight against acquisitive crime, including corruption. Business is expected to risk-categorise partners and clients to know where to invest the most anti-corruption effort. Regulators’ focus on country risk as opposed to case-specific risk means business’ primary driver in risk-categorising partners and clients is their country rather than their conduct. This creates unhelpful bias. The situation is exacerbated by the lack of constructive guidance from legislators and regulators on risk assessment and mitigation. As a result, banks sitting on the frontline of the corruption-related anti-money laundering (AML) fight may choose to take a blanket approach by de-risking, i.e. deeming clients linked to a specific country as being outside risk appetite. This paper will examine: (i) how banks approach risk; and (ii) challenges banks face in the context of UK and US anti-corruption and related AML legislation; particularly the relativity of country risk and the intricacy of the Politically Exposed Person (PEP) definition, a category introduced to purportedly help the finance industry fight corruption. This paper argues that while country risk should be considered, the key deciding factor in risk-categorising should be client-specific risk, i.e. the client’s conduct in the context of the respective industry, combined with product risk.

Item Type: Book Section
Subjects: M200 Law by Topic
Department: Faculties > Business and Law > Newcastle Business School
Related URLs:
Depositing User: Jackie Harvey
Date Deposited: 14 May 2018 13:16
Last Modified: 19 Nov 2019 09:04

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