Banks like Barclays and HSBC have begun turning away new customers from countries that are facing sanctions. They are closing down some existing accounts, further isolating Syrian and Iranian citizens from the global financial industry.
Mary Rose Khamasmieh, a Syrian public relations professional who has lived and worked in Dubai since 2005, has used HSBC as her bank for the past six years. Since last November, she has received a flurry of notices from HSBC requesting more information, including her visa validity and work history.
“This is the most information they requested since I opened the account, and they said if I didn’t give them information my account would have to close,” she said. “It went well for me and I continue to bank with HSBC, but I do have some Syrian friends that were forced to find another bank or even leave the country.”
Also under the new measures, Syrian or Iranian customers with bank balances of less than 100,000 dirhams, or $27,225, will be asked to close their accounts within 30 days. Customers with salaries of less than 15,000 dirhams will also be affected.
This is because the cost to the bank of making the enquiries necessary to enforce compliance is higher than the benefit or “profit potential” of keeping a customer with a small bank balance. It is cheaper for HSBC to close an account or not to open a new one with a balance of less than 100,000 dirhams.
Banks have increased due diligence procedures for clients from countries facing sanctions by the United States or the European Union and for any customer who conducts business or lives there. This means that if the bank is not satisfied with the information a customer provides, it will not accept the customer’s business. By doing this, banks are hoping to avoid hefty penalties imposed by regulators related to sanction evasion.
In December 2011, the U.S. government issued a new set of laws that were enforced in March 2012 to penalize any significant transaction by a foreign bank involvijng a country like Iran that was facing sanctions by threatening to close down a bank’s correspondent account. This means that the bank would not be permitted to make a wire transfer in U.S. dollars anywhere in the world.
“This will bankrupt banks, not being able to conduct dollar transactions,” said Ramsey Jurdi, a compliance attorney specializing in sanctions who is based in the Dubai office of Chadbourne Parke, a New York law firm. “This is in line with a gradual tightening of sanctions focused on this point of leverage over the last two years.”
HSBC’s stricter compliance approach in the region is part of a global measure to avoid penalties and improve transparency. In December, HSBC, one of the largest banks in Europe, paid a $1.92 billion fine related to illegal funds from Mexican drug cartels and money-laundering from Iran. To avoid further risk, HSBC is now closing the accounts of some customers with links to Syria and Iran, though it has no presence in those countries. In all, HSBC has 14 offices in the Middle East and North Africa.
“HSBC has a commitment to adopt the highest compliance standards, and as a result we must apply enhanced oversight on any customer with connections to sanctioned countries,” an HSBC spokeswoman, based in Dubai, wrote in an e-mail. “Where we are unable to maintain sufficiently detailed information about such a customer through a relationship managed account, we have to discontinue that relationship.”
Enforcement is becoming stricter. In 2010, Barclays paid $298 million in fines related to sanctions breaches, including transactions connected with Iran, Cuba and Sudan. More recently, Standard Chartered Bank settled $327 million in fines in December 2012 over dealings with Iran, Libya, Myanmar and Sudan.
“The Iranian financial industry has become very isolated,” said Mr. Jurdi of Chadbourne Parke, adding this was one reason banks had become more diligent with regard to Iranians and Syrians. “With financial isolation, people are finding new ways of evading sanctions by conducting banking offshore or listing a company account as an individual account so fewer questions are asked.”
While this has raised compliance standards and costs, some banks are not universally turning down customers from certain countries, so long as enough due diligence is done.
“Standard Chartered does not sever relationships with clients based on their nationality, and we adhere to the highest standards of compliance to local and international standards,” Ramy Lawand, spokesman for Standard Chartered Bank in the Middle East and North Africa, wrote in an e-mail. Standard Chartered is focused on Asia, Africa and the Middle East, which generate 90 percent of its profit and revenue.
Barclays and Mashreq Bank have also tightened their compliance standards. Barclays no longer accepts corporate accounts for Syrian, Iranian or Sudanese companies, and assesses more carefully any funds flowing to or from residents of countries facing sanctions.
“Barclays works closely with regulators and abides by their requirements in all the jurisdictions we operate in,” a spokesman for Barclays, based in Dubai, wrote in an e-mailed statement.
Hossein Asrar Haghighi, co-founder of the Iranian Business Council, a nonprofit, nongovernmental network for Iranian businessmen in the United Arab Emirates, said banks were playing it safe, preferring to eliminate Iran from their portfolios. “It doesn’t really matter if a person is rich or poor, the problem is that they are Iranian, and it’s getting harder to find a bank that’s O.K. with that.”
Article source: http://www.nytimes.com/2013/02/14/world/middleeast/sanctions-chill-reaches-banking-clients-in-the-persian-gulf.html?partner=rss&emc=rss