WASHINGTON — In a recent decision to reduce its Africa presence, Barclays emphasized the regulatory costs of maintaining operations on the continent. But compliance professionals see the move as yet another marker of the de-risking phenomenon as global banks continue to pull out from emerging markets around the world.
Earlier this month, Barclays said in its annual report that it would lower its 62.3% ownership stake in Barclays Africa Group down to a "non-controlling, non-consolidated position." The British banking giant also said it was separately investigating Absa Bank, the large South African bank that Barclays acquired in 2005, for a series of potentially fraudulent advance foreign exchange transfers.
Some compliance professionals praised Barclays for what appeared to be a prompt response to a potential anti-money-laundering situation, but others said the decision to downsize so significantly in an emerging region is just another lost opportunity to make a mark in fast-growing markets around the world.
De-risking "leads institutions to making wholesale decisions rather than making decisions on a case-by-case basis," said Chrisol Correia, the director of LexisNexis Risk Solutions' global anti-money-laundering office. "This is potentially a significant impediment to banks' profitability."
A spokesperson for Barclays told American Banker that the two announcements were not related. But the bank, which was fined nearly $2.4 billion by regulators last year for its involvement in the rigging of foreign exchange markets and is the target of several ongoing investigations, probably took regional risks into account in its decision, experts say.
"You get out of something either because you can't manage the risks or the dollars don't make sense based on what you have to do to manage" the risks, said John Byrne, executive vice president at the Association of Certified Anti-Money Laundering Specialists. "Until things change, sadly the safer thing to do is to exit."
In the report, Barclays noted that despite performing strongly, its African arm did not bring in enough revenue to justify the costs of doing business there, because of the strains of capital requirements and taxes on debt.
"Barclays has been in Africa for over 100 years," the bank said. "But we face a regulatory environment where we carry 100% of the financial responsibility for Barclays Africa, and receive only 62% of the benefits."
But observers said de-risking appeared to play a hand in the bank's decision, especially in light of concerns about possible fraud at Absa Bank, and the move to draw down its presence on the continent is similar to decisions by other banks to depart emerging markets.
There is a "general de-risking phenomenon that's occurring because of AML-related concerns," said Eric Lorber, a senior associate at the Financial Integrity Network. The Barclays case, he added, is a "perfect microcosm of a major bank having to deal with all these different elements."
After the revelation of possible fraud at Absa, experts said Barclays probably gauged the regional risk of maintaining operations on the continent against other recent regulatory hits the company has taken.
Other recent moves by global banks to pull out of certain regions includes the decision last year by Bank of America and other institutions to begin to cut off their correspondent relationships with the largest bank in Belize. Following that move, only two out of five domestic banks in the country have retained correspondent banking relationships with the U.S., a February Moody's report found.
And Iran has complained that despite the recent lift of nuclear sanctions from the U.S. and European Union, many large banks still refuse to conduct business there, because of lingering U.S. concerns related to terrorism funding.
In the U.S., regulators have insisted that they are not telling banks to divest from certain regions or businesses; those are cost-and-benefit analyses firms do themselves, they say. "We don't make those decisions. Banks make those decisions," Comptroller of the Currency Thomas Curry told reporters after announcing earlier this month that the agency might publish guidance on best practices for de-risking.
In some cases, regulators have urged banks to stay involved in regions they are afraid to touch, like Iran. Prime Minister David Cameron recently rebuked Barclays' moratorium on customers transacting with Iranian firms. In a letter to Barclays CEO Jes Staley, Cameron said the bank has acted "in opposition to the policy of the UK government," according to The Times of London.
Yet others say large banks should be commended for quickly acting when they recognize a potential anti-money-laundering problem or other reputational risk.
"Given how quickly [Barclays] noticed this and how quickly the bank responded, you can look at that as a win" for AML awareness, said Tammy Eisenberg, the vice president of product development at the AML consulting firm NextAngles. She said the financial sector has become increasingly sensitive to reputational damage since the financial crisis, preferring to proactively avoid violations rather than let the problems snowball.
"It can send a strong message about a bank's values," Eisenberg said.
But she added that the moves bear their own costs for the local economies that lose an avenue to the international banking infrastructure.
"It's just not a decision that's made lightly," Eisenberg said. "It impacts customers, it impacts local economies [and] employees that are stationed out there."
Some experts have argued that international banks' departure from certain regions has created a void that can benefit criminals.
"When the banks do this they create more of a black market for these international transactions," said Andrew Ittleman, a partner at Fuerst Ittleman David & Joseph. "In a lot of ways it creates money laundering problems of its own."