What Are the Most Dangerous Countries for Banks?

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As recent initiatives by Wells Fargo and Silicon Valley Bank have shown, U.S. banks are seeking to grow their businesses internationally, initially to serve existing U.S. clients that operate in other countries and then to expand their own business abroad.

"As we've seen the U.S. economy not do as strongly as we would have hoped in the last few years, we've seen a lot of our clients looking for new opportunities in emerging frontier markets," says Angela Mancini, vice president and head of global client services for the Eastern Geo Market of the Americas at Control Risks Group. The London-based company monitors political, security, operational and regulatory risk around the world on a daily basis. It maintains an online dashboard of these risks called Country Risk Forecast.

"Clients can open the paper in the morning, read about what's happened in Libya, Myanmar and Russia and then go to our site to find out what that means for them," whether there's a terrorism, cybersecurity, regulatory or other risk, Mancini says. The company works with 80% of the Fortune 500, Mancini says. "We have quite a lot of clients who are big multinational banks that need to think about how they operate internationally, making sure they don't run afoul of regulatory issues or they're not running into security or political risks," she says.

Countries that score high on the current risk map include China, Israel, France and Russia. "France has a long history of government espionage against companies," notes Iain Donald, senior vice president of global risk analysis at Control Risks. For some types of risk the high-threat countries might surprise you. For instance, U.S., Russia and Netherlands are at the top of the list of countries that are points of origin for malware, Donald points out. The high levels of education, relative wealth, free time and weak or less effective enforcement might be factors here, he says.

Libya is for obvious reasons a high-risk country, but it's also an area of unexpected opportunity. "We did a lot of work for clients looking to enter Libya right at the conclusion of some of the more severe security risks," Mancini says.

Lately several financial sector clients have been considering moving into "frontier markets" such as Myanmar. "Myanmar has been a significant opportunity since it's a brand-new market for a lot of Western firms to enter," Mancini says. "They're trying to understand what exactly is the state of U.S. sanctions against Myanmar, because those are in the midst of being changed, what are the laws being drafted in Myanmar and what's happening with the various ministries — who's who in the ministries, their business connections and how that might pose risks or opportunities for our clients," Mancini says.

Other areas of concentration for banks lately include Belize, North Africa, sub-Saharan Africa, Eastern Europe and Latin America. Indonesia has also been a country of strong interest to U.S. companies in the past six to 12 months.

Control Risks has been doing a lot of work tracking corruption these days, particularly in the financial sector. "We see a huge increase in the strength of regulators in the U.S. and we've seen a big increase in the integration between regulators in different countries," Mancini says. "What that means, especially for the banking sector, is they need to ensure that all their operations, regardless of where they are, are operating in a clean and transparent way. We've seen a big increase in Foreign Corrupt Practices Act and anti-money-laundering penalties and prosecutions, particularly with some of the big banks in the last six months."

Anytime a big case breaks, such as HSBC's citation for money laundering for drug cartels in Mexico, there's increased scrutiny for every firm operating in that sector, Mancini notes. "If you were to look at the number of FCPA cases initiated by the SEC and DOJ in the last 15 years, the numbers go up and up," she says. The volume of prosecutions and the sizes of fines have grown dramatically. "You have to be as compliant in further-flung places as you are in the U.S. There's a real chance that if you're not, the regulators will find out and you'll have a massive reputational problem."

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