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The Hazards of Offshore Banking for Creditors When their Bank Fails due to Violations of AML-CTF Policy and Public Interest Concerns

The offshore financial industry is seen controversial by the general public. Unfair tax advantages for multinationals, the use of special purpose vehicles, and financial crime risk further this general view. Yet, offshore jurisdictions are an ordinary part of the global financial ecosystem.

This paper examines specific risks of offshore bank failure for creditors and highlights the mismatch between the assumed cognition of stakeholders for fair and honest behavior of financial institutions, and impermissible conduct of banks leading to default. To understand these risk factors a thorough probe into banking in general and the internal organization of financial institutions was needed. The empirical study with a sociological approach discusses public interest doctrines to protect the financial system, financial regulation, AML-CTF and sanctions violations, and ultimately behavior and conduct leading to the ownership of risk. Thus, insights in offshore bank failure are increased to contribute to actions for risk mitigation by creditors and other stakeholders.

Most academic research is focused on either failure of systemically important financial institutions, money laundering and terrorism financing, or the offshore industry. Meanwhile, conduct risk leading to failure is often underexposed. Regarding the offshore financial industry, there is a bias to common law legal systems with little attention for civil law. Therefore, this study combines the indecipherable purpose of global and macro-economic intervention by regulators in two distinct legal systems and the consequential micro economic challenges for creditors in offshore bank failure.

Accordingly, this study seeks to shed light on the (offshore) financial system, the public interest doctrine that protects the financial system, and conduct that leads to offshore bank failure and potential creditor losses. Arguments will be made to support the central theme of conduct and ownership of risk. To demonstrate these arguments a thorough assessment of existing literature and practical events provides a clear conclusion. Read the full paper here.

What Are The Consequences of Bank Bail-ins For European Stakeholders and How Customers Can Minimize Risk and Maximize Payout?

Bank failures are rare but can have a serious impact on customers and society. Confidence in the financial system is required to keep the economy going. This is difficult to achieve when financial institutions that are interconnected make opaque products for unaware customers, facilitating the risk of contagion.

Previous studies show abstract descriptions of economic theory but lack an ethnographic study of bankers, their regulators, the financial industry and the customers. Ethical concerns are discussed but there is limited deeper scrutiny of the practical use of derivatives, exotic structured products and associated risk taking by the market players.

This paper assesses whether regulation and the bail-in tool minimize risk for individual customers and what customers can do themselves to avoid losing their money. The research identifies the gap between theory and the day-to-day practice as perceived by customers and justifies the conclusions by comparing secondary research with an extensive questionnaire and case studies.

The key findings are categorized under three main pillars: the regulatory framework, customer perception, and the process of prevention and repression. Case studies indicate that an attack on the Bank Recovery Resolution Directive has not been successful, and that legal procedures could have potential when they are filed for gross negligence or deception; Bank customers whose assets have been downgraded after a resolution, blame the regulator for their losses but take no action to prevent a resolution to re-occur; and, the BRRD provides a swift resolution with improved payment rates. Read the full paper here.