Fear of terrorist financing makes serving the world’s poor increasingly expensive for big banks. Photo: IMTFI
In response to terrorist attacks in Paris, French President François Hollande ordered aggressive air strikes on the Syrian city of Raqqa, the self-declared ISIS capital. Meanwhile, authorities are conducting a widespread manhunt across Paris and Belgium.
But as Vox’s Dylan Matthews noted, “one of the most significant, but least covered, parts of the war on terror has been the Treasury Department’s effort to shut down al-Qaeda and other jihadist groups’ access to financial institutions.”
And why not? Battles on the financial front generally don’t shed blood.
The problem is that these efforts still produce significant collateral damage for innocent civilians. A report published by the Center for Global Development last week titled Unintended Consequences of Anti-Money Laundering Policies for Poor Countries explains:
But the policies that have been put in place to counter financial crimes may also have unintentional and costly consequences, in particular for people in poor countries.  Those most affected are likely to include the families of migrant workers, small businesses that need to access working capital or trade finance, and recipients of life-saving aid in active-conflict, post-conflict or post-disaster situations. And sometimes, current policies may be self-defeating to the extent that they reduce the transparency of financial flows.
As we’ve reported in recent weeks, in response to heightened sensitivity to terrorist financing and the resulting regulatory costs, major banks have begun de-risking their correspondent banking operations, reducing their exposure to lower volume corridors as well as the overall number of relationships they maintain.
Bank of England Governor Mark Carney has described the decline as “financial abandonment.” After all, those getting left behind are generally from the poorest countries as financial institutions are “withdrawing wholesale from types of activities or business sectors that are seen to be riskier,” notes the CGD report.
We’ve also seen a dramatic acceleration of the issue in recent years, which is explained in one chart:
Until 2011, AML-related fines were negligible but have since ballooned. In the face of billions of dollars worth of fines, banks have understandably reduced their exposure. Barclays alone has shut down the accounts of over 140 British remittance companies, according to the report. Then there’s HSBC, which has pulled out of the remittance sector entirely.