Jurisdictions take each other on in banking war

‘Who are they to tell us, the rest of the world, who we should do business with?’ This question might have been asked a thousand times in private conversations before it was put across in real spicy Hollywood style by a New York branch officer of Standard Chartered Bank. Now the issue has been forced into the open as US regulators and UK bankers, backed by British politicians, spat over the bank’s Iran-related business transactions.

Also, perhaps for the first time, the relationship between the regulator and the regulated has come into sharp focus. So far, this has remained a tyranny, a one-sided affair where the regulator has all the rights to dictate while those on the other side of the fence can at best comply. But for a change, there is a welcome exchange.

The use of epithets such as ‘rogue’ and ‘cowboy’, words that have hitherto remained completely outside the realm of banking lexicon, is adding colour to this exchange. Staid banking terminologies such as risk-weighted capital ratio and financial market infrastructure are being interspersed with highly imaginative language that keeps onlookers entertained, and often bewildered.

The uncanny situation has one jurisdiction taking on the other, with a no-holds-barred offensive to run each other down, accusing the other side of bias and even conspiracies for mutual retribution. No one seems to give a thought to the plight of those who have been holding the two at the highest level of reverence, apart from its practical implications on the ground.

The UAE banking system, for instance, has always tried to adopt the best of the two jurisdictions when it came to prudence and best practices. The UAE was among the first countries to wholeheartedly implement all the provisions of the US anti-terrorism and money laundering legislations, including the Patriot Act, provisions of the Financial Action Task Force on Money Laundering (FATF), Anti-Money Laundering (AML) and Combating of Financing of Terrorism (CFT), etc. The UAE has even won praise for its initiatives in this area.

Modelling legislation

Similarly, the legal framework of Dubai International Financial Centre (DIFC) is modelled on the legislations used in London and New York and predominantly based on the English Common Law. It is really embarrassing, to say the least, to see one now trying to run down the other.

The UAE banking system is no stranger to regulatory tyranny either. In the pursuit of sensational leads in the trail of terrorist money in the wake of the September 11 terrorist attack, the western media had relentlessly trained its guns on the UAE, seeking to stick a label on its banking and financial system. The reasoning provided was that two of the suspects in the beastly attack had operated bank accounts in the emirate and had received or sent funds through money transfer facilities in the country.

Every money transaction involves two stages: sending and receiving. If the financial system of a country can be faulted for failure to prevent someone from receiving such money, the country whose banking system allowed that money to be sent should also have been held responsible. This is what actually happened in the transactions which turned the spotlight on the UAE. The suspected terrorists reportedly effected wire transfer of funds from two money transfer facilities in Boston and the money was received by a man believed to be an Al Qaida functionary from an exchange house in Sharjah. But the blame was laid entirely at the doors of the UAE financial system, while the banks on the other side of the transactions got away with relative ease.

Despite a comprehensive legislative infrastructure, American banks are known to have a dubious track record in terms of dirty money transactions. These banks have even been accused of developing elaborate policies for transferring such money to the US and then laundering these by investments in legitimate businesses as well as government bonds and securities. Half of the nearly $1 trillion (Dh3.67 trillion) of dirty money generated worldwide is estimated to flow into the US annually: funds that exceed the net profits repatriated from abroad by American oil producers, military industries, and airplane manufacturers combined.

Viewed in this context, the British conspiracy theories about the US regulatory crackdown as “an excuse for protectionism and a self-interested attack on London’s status as the world’s pre-eminent financial centre” might find easy takers in other jurisdictions.

— The writer is a UAE-based journalist