Foreign Policy Blogs

When Sanctions are Not Enough

When Sanctions are Not Enough

The logo of Rabobank is seen at its headquarters in Utrecht, Netherlands, October 30, 2013. REUTERS/Michael Kooren/File Photo – RC167810E570

International banking has always been subject to laws and rules that apply where their head offices operate as well as via international rules and standards. For an international law to apply, it often has to be codified within a country, as even if the law is accepted and applied through international agreements or treaties, the enforcement of those laws are often only capably done by a country itself. In the banking industry where one large organisation is required to register and operate via the due diligence required in each region and state, norms and practices are often the best standard used by the bank as local laws can be weak and form an easily corrupted system. Larger countries often would make laws that may not be formally applied in smaller states, but act as a deterrent to illegal international banking operations if they did not operate in a legal or moral standard expected by the international community. American laws like Dodd-Frank have spurned on international regulatory standard for all international and local banks, many now operating with Compliance entities and AML departments as a permanent part of their organisations.

Policy approaches in dealing with issues of rogue state activities, money laundering and drug related financial transactions are applied to private financial institutions, and when HSBC was caught ignoring standards by providing financial services to Latin American cartels as well as accepting transactions from rogue states under sanction by the United States and many European countries, they were heavily fined $1.9 billion in 2012. Massive financial penalties have become the norm in cases were very large corporations commit illegal actions, stemming from one of the first European Union cases against Microsoft many years ago. Having a massive effect in a case of fraud, competition or money laundering decimates the profits of large corporations and has a lasting effect on the reputation and investors in those large corporate entities. Despite these severe measures, the penalties are often not applied to the degree where a large company would dissolve from the size of the penalty, as a loss of a major market player might cost more to the society via employment loss and a loss of tax revenue than compensating for the loss due to their actions.

With these standards in place, money laundering still occurs through international banks. Rabobank out of the Netherlands had their Mexican and Californian operations penalized when a US court fined them $369 million for laundering money linked to Mexican drug cartels. While these issues concern financial crimes, the real effect on cartel violence in Mexico has a wider criminal component. A Mexican national living in the Netherlands has taken the next step in applying international laws and standards to banks that are convicted of actions that violate international and local banking regulations. The funds that had been laundered through Rabobank may have contributed to other crimes by the cartel, and a legal precedent linking the bank to very severe crimes committed by the cartel would be an enormous shift in how financial violations are applied to larger crimes against populations, arms trading as well as financial supports linked to human rights atrocities. State or non-state actors who violate human rights can have their financial systems completely halted when rights violations and human rights atrocities are found to have occurred and been linked to international financial institutions. It would be a complicated development, and difficult to prove, but most likely a welcome policy change for victims of cartel violence, genocide survivors who are largely ignored by the international community as well as those who require a punishment to be applied in cases where power and justice have been lacking.



Richard Basas

Richard Basas, a Canadian Masters Level Law student educated in Spain, England, and Canada (U of London MA 2003 LL.M., 2007), has worked researching for CSIS and as a Reporter for the Latin America Advisor. He went on to study his MA in Latin American Political Economy in London with the University of London and LSE. Subsequently, Rich followed his career into Law focusing mostly on International Commerce and EU-Americas issues. He has worked for many commercial and legal organisations as well as within the Refugee Protection Community in Toronto, Canada, representing detained non-status indivduals residing in Canada. Rich will go on to study his PhD in International Law.

Areas of Focus:
Law; Economics and Commerce; Americas; Europe; Refugees; Immigration