Feb. 09, 2011
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MyPrivate Banking Research Brief

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Some 225 bn Dollars of Illegal Money from the Middle East and Africa Stashed in Offshore Accounts

Money

According to the recent MyPrivateBanking brief "What the Arab Revolution means for Wealth Managers" wealthy individuals from the Middle East and Africa hold about USD 1.5 trillion in foreign bank accounts (offshore). We estimate that at least 15% of these assets have been obtained through illegal means or through taking advantage of government positions and transferred out of the home countries. The major part of this wealth is in accounts with European banks, which as a consequence of the ongoing pressure for corrupt regimes to be overthrown, face serious financial, legal and reputational challenges.  

The by far biggest share of the wealth of individuals from Middle East and Africa has been generated by legal means but a substantial proportion equaling a stunning USD 225 billion is estimated to be obtained through corruption and other illegitimate activities and diverted offshore. Over the decades these regimes have grown an entire ruling class consisting of family, friends, businesses, security forces and secret service that have transferred significant wealth out of their home countries.  

We estimate that 41% of Middle Eastern and African offshore wealth lies in EU countries such as the UK/Channel Islands and Luxembourg, 33% in Switzerland, 8% in the Far East (notably Singapore) with the remainder in North America and other destinations like the Caribbean.  

As has happened many times after the overthrow of a dictatorial, corrupt leadership,  the new governments in Tunisia, potentially Egypt and a number of other countries will in all likelihood start criminal proceedings against the former ruling  families and their adherents. In our assessment this could become a critical situation for a number of private banks and wealth managers who have been personally and financially heavily involved with the Middle Eastern and African political elites around the world. The reputation of affected banks could be damaged if such legal proceedings become public. There is also a risk that the rightful owners (the new governments) demand compensation for losses arising from the negligence of financial institutions.   

Therefore, we emphasize the utmost importance that private banks and wealth managers take an active stance now to develop a tough and resilient strategy to deal with this challenge. They need to pro-actively check the background of firms and persons who could be involved with corruption. If in doubt about the origin of the assets or the credibility of the account holder – don`t accept them. And if the control systems failed in the past, banks now have every incentive, as well as a moral obligation, to co-operate with the new, legitimate governments in countries such as Tunisia and Egypt to start swift proceedings to return funds in accordance with law.

My Private Banking



MyPrivate Banking Research Brief

Some 225 bn Dollars of Illegal Money from the Middle East and Africa Stashed in Offshore Accounts

  Feb. 09, 2011

Money

According to the recent MyPrivateBanking brief "What the Arab Revolution means for Wealth Managers" wealthy individuals from the Middle East and Africa hold about USD 1.5 trillion in foreign bank accounts (offshore). We estimate that at least 15% of these assets have been obtained through illegal means or through taking advantage of government positions and transferred out of the home countries. The major part of this wealth is in accounts with European banks, which as a consequence of the ongoing pressure for corrupt regimes to be overthrown, face serious financial, legal and reputational challenges.  

The by far biggest share of the wealth of individuals from Middle East and Africa has been generated by legal means but a substantial proportion equaling a stunning USD 225 billion is estimated to be obtained through corruption and other illegitimate activities and diverted offshore. Over the decades these regimes have grown an entire ruling class consisting of family, friends, businesses, security forces and secret service that have transferred significant wealth out of their home countries.  

We estimate that 41% of Middle Eastern and African offshore wealth lies in EU countries such as the UK/Channel Islands and Luxembourg, 33% in Switzerland, 8% in the Far East (notably Singapore) with the remainder in North America and other destinations like the Caribbean.  

As has happened many times after the overthrow of a dictatorial, corrupt leadership,  the new governments in Tunisia, potentially Egypt and a number of other countries will in all likelihood start criminal proceedings against the former ruling  families and their adherents. In our assessment this could become a critical situation for a number of private banks and wealth managers who have been personally and financially heavily involved with the Middle Eastern and African political elites around the world. The reputation of affected banks could be damaged if such legal proceedings become public. There is also a risk that the rightful owners (the new governments) demand compensation for losses arising from the negligence of financial institutions.   

Therefore, we emphasize the utmost importance that private banks and wealth managers take an active stance now to develop a tough and resilient strategy to deal with this challenge. They need to pro-actively check the background of firms and persons who could be involved with corruption. If in doubt about the origin of the assets or the credibility of the account holder – don`t accept them. And if the control systems failed in the past, banks now have every incentive, as well as a moral obligation, to co-operate with the new, legitimate governments in countries such as Tunisia and Egypt to start swift proceedings to return funds in accordance with law.