Managing Corruption Risks for Financial Services Firms

14th February 2023


The Financial Conduct Authority (FCA) and US Authorities are committed to enforcing anti-corruption and anti-money laundering laws and regulations to protect the integrity of the financial system and to prevent financial crime. In this article we look at the risks and the controls financial services firms should consider.

These examples demonstrate that financial services firms can face significant financial penalties for dealing with corrupt countries, particularly if they violate anti-corruption and anti-money laundering laws and regulations.

This highlights the importance of conducting thorough due diligence and risk assessments when dealing with countries that have a high level of corruption, and implementing robust compliance and risk management strategies to minimise exposure to corruption-related risks.

Don’t think this is just a problem for banks. In 2020 Lloyd’s of London was fined £28 million by the FCA for failures in its anti-money laundering controls. The fine was in relation to Lloyd’s business dealings with a number of high-risk countries, including Iran, Sudan and North Korea between 2010 and 2018.

In 2017, Deutsche Bank was fined $630 million by US and UK authorities for failing to properly monitor transactions with countries associated with money laundering, including Russia, Afghanistan, and Iraq.

In 2013, JPMorgan Chase was fined $88 million by US authorities for violating sanctions against countries including Iran, Cuba, and Sudan.

In 2012, Standard Chartered was fined $667 million by US authorities for violating sanctions against Iran by processing transactions through its US-based subsidiary.

In 2012, HSBC was fined $1.9 billion by US authorities for failing to properly monitor transactions with countries associated with money laundering, including Mexico and Iran.

All financial services firms can be subject to fines and penalties by regulatory authorities if they fail to properly manage the risks associated with dealing with corrupt countries.


Corruption in government and regimes can negatively impact financial services trade both domestically and internationally in several ways:

Loss of Trust

Corruption erodes public trust in government institutions, leading to a decrease in the number of people willing to use financial services.

Reduced Foreign Investment

Financial services trade is often heavily dependent on foreign investment. Corruption can discourage foreign investors, reducing the flow of capital into a country and limiting the growth of the financial services sector.

Unfair Competition

Corruption can lead to a skewed business environment, where a few well-connected firms receive preferential treatment and dominate the market, stifling competition and innovation.

Regulatory Capture

Corruption can lead to regulatory capture, where regulators are swayed by the interests of the firms they are supposed to oversee, instead of protecting the public interest.

Financial Crime

Corruption can facilitate financial crime, such as money laundering and tax evasion, undermining the stability of financial systems and causing harm to consumers.


Trading with countries that have a high level of corruption can pose several risks, including:

Ethical Risk

Corruption erodes public trust in government institutions, leading to a decrease in the number of people willing to use financial services.

Legal Risk

Companies can face legal consequences for their involvement in corrupt practices, such as fines or even imprisonment for company executives.

Reputational Risk

A company's association with corrupt practices can damage its reputation and lead to a loss of customer trust.

Economic Risk

The uncertain and often unfair business environment in corrupt countries can increase the risk of financial loss for companies.

Political Risk

Political instability and changes in government policies can make it difficult for companies to do business in corrupt countries, causing them to face operational challenges and financial losses.

Supply Chain Risk

Companies that source products or services from suppliers in corrupt countries may face the risk of their goods being blocked or seized by government authorities, resulting in supply chain disruptions and financial losses.

Overall, corruption has far-reaching consequences for financial services trade, affecting both the domestic and international markets, and leading to reduced economic growth, increased inequality, and decreased trust in government institutions.

In summary, trading with countries that have a high level of corruption can expose companies to a range of risks, making it important for them to carefully assess the potential risks and benefits of such trade and to implement strong risk management strategies to minimise the risks associated with doing business in these countries.


Financial services firms can take several measures to protect themselves when dealing in countries with a high level of corruption:

Due Diligence

Conducting thorough due diligence on potential business partners and suppliers can help to identify any red flags and potential risks associated with corruption.

Anti-Corruption Risk

Implementing and enforcing strict anti-corruption policies can help to ensure that the company is not involved in corrupt practices and that all employees are aware of the company's commitment to ethical business practices.

Risk Assessment

Regularly assessing the risk of corruption in specific countries and regions and adjusting business strategies accordingly can help to minimise the risk of exposure to corruption.


Implementing transparent processes and systems can make it more difficult for corrupt actors to engage in corrupt practices and increase the visibility of the company's operations.

Whistleblower Policies

Encouraging employees to report any suspected corruption through anonymous whistleblower channels can help to detect and prevent corruption and demonstrate the company's commitment to ethical business practices.

Compliance with Local Laws

Ensuring that the company is in compliance with local anti-corruption laws and regulations can help to mitigate the risk of legal consequences for the company and its employees.

Collaboration with Stakeholders

Collaborating with stakeholders, such as industry associations, civil society organisations, and governments, to promote anti-corruption efforts and increase transparency in business operations can help to strengthen the company's reputation and reduce the risk of exposure to corruption.

By implementing these measures, financial services firms can reduce their risk of exposure to corruption and increase the transparency and integrity of their operations, helping to protect their reputation and financial stability.


The Corruption Perceptions Index (CPI) is a helpful tool for identifying the risks of dealing with corrupt countries. The CPI is an annual index published by Transparency International that ranks countries and territories based on their perceived levels of public sector corruption.

By using the CPI, financial services firms can gauge a general idea of the levels of corruption in a particular country and assess the risks of doing business in that country. The higher the country’s score on the CPI, the lower the perceived levels of corruption, and the lower the risk of dealing with corrupt practices.

This should lead to deciding the appropriate levels of enhanced due diligence, processes and controls to engage.

However, it is important to note that the CPI is based on perceptions and does not necessarily reflect the actual levels of corruption in a country. Additionally, the CPI does not provide a detailed analysis of the specific corruption risks that a financial services firm may face in a particular country.

Therefore, while the CPI can be a useful starting point for assessing the risks of dealing with corrupt countries, financial services firms should also conduct additional due diligence and risk assessments on potential trading partners.  These should include checks on international sanctions lists, assessments of financials and credit scores as well as any regulatory and legal licences and permissions.


Risk management of trade in countries with higher levels of perceived corruption is not straightforward. A risk assessment should always be the starting point, not just of the potential counterparty, but of the country, industry and regime. Simply looking at registers or scores is unlikely to be detailed enough, as we can see, there are many factors to consider. Also, things change rapidly, so due diligence needs to be a continuous process.

RegTech is the set of technologies and digital solutions focused on compliance with the standards required by the laws that affect companies in any sector. The term was first coined by the FCA (Financial Conduct Authority) to refer to the automation of AML (Anti-Money Laundering) controls carried out by companies in the financial sector. Subsequently, it was extended to all areas of activity.

Technologies such as machine learning, cloud-based development, big data, artificial intelligence and blockchain empower RegTech solutions and tools to achieve the highest possible quality and autonomy rates.

Risk management and fraud prevention are two of the aspects on which this area focuses.

Efficiency and agility are key pillars of RegTech meeting the needs of companies not solely in regulatory compliance and risk management but also in their process transformation in order to reduce costs and improve productivity.

If you would like to understand how REG Technologies can help you mitigate corruptive risks and enhance your due diligence processes, speak to one of our experts:

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Article author:

Paul Tasker

Paul Tasker is the CEO at REG Technologies. An insurance market veteran Paul is passionate about disruptive technologies and innovations that can drive growth, reduce risk and enable businesses to thrive.

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