The problem of fighting de-risking through private litigation: the case of remittance to developing states

The risk-based approach (RBA) has become a standard component of anti-money laundering/countering terrorism financing (AML/CTF) compliance by financial institutions, but there is an accountability gap as to how such institutions actually exercise the discretion that comes with the RBA. Normally, financial crime compliance involves striking a balance between the private interests of a financial institution (profit-maximizing) and the public interest duties imposed upon it (e.g. fighting money laundering). This chapter forwards the argument that the RBA destabilizes this assumption and renders it ill-fitting in the context of the provisions of remittance services to high-risk developing countries. In such contexts, the chapter shows, financial institutions are faced with the task of balancing not just competing private and public interests, but also two competing public interests – the objectives of fighting financial crime and ensuring financial inclusion to marginalized groups. When financial institutions fail to undertake this balancing exercise and instead resort to blanket de-risking, victims have little legal recourse to challenge them. The chapter shows that this is mainly because the RBA discretion, while being a mandate from public law (AML/CTF), is ensconced deep within private law where courts would not have the ability to review unless it forms part of binding contractual terms or proceeding is initiated by public enforcement agencies. This finding calls for some regulatory reform to ensure the RBA is implemented by financial institutions with good faith and fairness. The chapter shows this through case studies of prominent court litigations involving remittance service providers and global banks in the UK, New Zealand, and Australia.