Geopolitics, Administration Changes, and the Impact on Financial Crime Risk and Compliance

Why awareness, understanding, and anticipation of these macro drivers matter to FinCrime programs and operations.

Setting the baseline for this article.

November 5th is Election Day in the US, and national elections have been taking place across the globe this year (~70+). Moreover, we have conflicts waging in the Middle East and Eastern Europe. According to a USG report, geopolitical risk is at a level we have not seen since the Cold War. As a historical reminder, the Cold War was about nuclear tensions, just to put into perspective how chaotic the world is today.

That’s the backdrop for this article. So why are elections and geopolitics of interest to the financial crime risk and compliance space? This article will answer that question.

First, to further establish the baseline for this article we need to define and better understand the scope and boundaries of financial crime risk and compliance.

What is financial crime risk and compliance?

Five (5) domains fall under the financial crime umbrella: (1) fraud, (2) cybercrime, (3) money laundering, (4) corruption, and (5) sanctions. Each domain presents a risk management and regulatory compliance burden to financial services firms and corporations in other commercial segments.

I start each article I write with this question because most of the industry is segmented and siloed in their views of financial crime. I consistently offer an integrated or unified perspective as it is the only way to combat financial crime meaningfully.

Who is responsible for financial crime risk and compliance?

Ultimately the board is responsible for ensuring that management has implemented programs designed to mitigate financial crime risks and comply with applicable laws and regulations.

→ Article on “The Board's Role in Overseeing the Management of Financial Crime Risk and Compliance”

Under law, a board-designated individual is responsible for implementing the board-approved program. Commonly referred to, in the US, as the BSA Officer, this article will use the title, Chief AML Officer.

→ Article on “The Chief AML Officer and their Role as the Head of Financial Crime Risk and Compliance”

Day-to-day, Analysts are the lifeblood of executing operational activities associated with financial crime risk and compliance.

→ Article on “The Role of the Analyst in Financial Crime Risk and Compliance”

What are geopolitics and how do they impact financial crime risk and compliance?

Think of geopolitics as the intersection of nation-state foreign policy and economic interests. In a more simplistic sense, how the economic interests of a state actor influence foreign policies and subsequent actions. Geopolitics represents a risk to corporations (especially financial institutions). Assessing and understanding geopolitical risk is a board imperative. Moreover, its nexus to financial crime risk and compliance is crystal clear.

Digging into the clarity. Geopolitics can be both kinetic (like wars and conflict) and subtle or subversive (like intelligence activities). The binding thread between the two is the requirement of governments to leverage industries as part of their initiatives (queue regulations, like recordkeeping and reporting requirements). As interests take shape globally, so do “regulatory environments.”

Again, in a simplistic sense, if we follow nation-state or geopolitical interests, we will better understand and anticipate risk, regulation, supervision, and enforcement. This will span across the spectrum of financial crime risk (cybercrime, fraud, money laundering, corruption, and sanctions evasion).

How do we think beyond geopolitical risk, and should we?

In short, we should if we want to stay ahead of geopolitical shifts. So what are we looking for, or what should we be thinking about? Simple, follow the unrest, follow the conflicts, follow the movements.

Macro activities may include transnational organized crime and foreign terrorist organizations. These activities may be global by nature, but they can have geographic boundaries that will send signals about how they may impact from a financial crime risk and compliance sense (think sanctions as one example).

Micro activities may include drug and human trafficking issues at the US border or corruption and bribery issues across state and local governments. Whatever they may be, signals will be clear from law enforcement priorities and prosecutions.

Many, many more examples of signals and thinking could be made, but the main point is to stay on top of shifts that may occur from the top down or bottom up.

Preparing for an Administration change in the US

Regardless of a red or blue victory, a Trump or Harris Administration will represent a change from a Biden Administration. How does the change impact FinCrime programs and operations? Zoom back out and read the above once again.

Expect massive geopolitical shifts, but how do you anticipate the potential shifts? Following policy, following track records, and assessing the trickle is the key. Where does each potential Administration focus on the macro and micro issue sets (those activities I mentioned above)? How does that focus trickle into the “regulatory environment.”

As the Head of Financial Crime Risk and Compliance, you will, or at least should be, called upon by the board to answer some of these questions.

Are you prepared? Is it too late in the game? The best operators in this space anticipate and navigate risk and regulatory environments, and they do it by understanding geopolitics, geopolitical risks, and how these things cascade into industry and, ultimately, FinCrime programs and operations.