Legal Risks

Patrick McConnell

Chapter 10 considers cases of systemic legal risks, such as violations of sanctions and AML legislation and tax evasion/avoidance schemes. The chapter will also consider cases where accounting standards have been used to disguise rather than expose systemic risks.

Sanctions-busting, money laundering and tax evasion are all examples of legal risk as defined by Basel II, as they involve banks being fined for breaking laws in various jurisdictions. In particular, they fall under the loss event category clients, products and business practices (CPBP) as improper business or market practices. It is obvious that, in most such legal risk cases, the detection and prosecution of the illicit activities is by its nature multi-jurisdictional, and in the case of money laundering is governed by worldwide standards and treaties, and thus is systemic.

SYSTEMIC LEGISLATION

Although government legislation on sanctions and money laundering is quite separate and have very different targets, the two types of illegal activity do have much in common. These activities involve moving (usually) large amounts of money from one jurisdiction to another in such a manner that either its source (money