Daniel Ortega’s regime has once again today, Thursday, November 23, cornered the National Financial System, as a new law will force banks to violate international regulations and standards. It will prohibit them from discontinuing services to public officials and institutions subjected to sanctions for human rights violations.
Yesterday, the regime sent to the National Assembly the proposed Law for the Protection of Nicaraguans Against Sanctions and External Aggressions, which threatens to imprison and charge with treason to those working in regulated financial institutions who choose to comply with international guidelines related to sanctions, which have primarily been applied to public officials.
In February 2021, the regime attempted to force banks to violate international regulations by amending the Law for the Protection of Consumers’ Rights, where it prohibited financial institutions from denying services to any user “for political reasons, race, sex, gender, nationality, language, disability, economic or social status, health conditions, religion, age, opinion, marital status, or any other reason.”
Strengthens powers of regulators
At that time, Sandinista Congressman Wálmaro Gutiérrez denied that the reform aimed to force banks to reopen the accounts of those sanctioned. However, the new law proposed on the 23td of November, is explicit: it orders financial institutions to maintain services for sanctioned individuals or public institutions blocked by international regulations. Failure to comply will result in charges of treason against those responsible, with an investigation initiated by the regime against the institution that does not follow its mandate.
The new law strengthens the power, according to Article 5, of regulators to impose penalties on regulated institutions that “apply sanctions issued by a state or groups of states, foreign governments, or organizations.”
The Consumer Protection Law, Law 842 of 2021, already granted this power to regulators, but this time the concept of “treason against the homeland” has been introduced—a crime invented by the dictatorship to imprison, exile, and confiscate the property of opponents. Now, this is being extended to financial institutions and their operators.
Banks must comply
Additionally, Article 6 of the new law allows sanctioned individuals or blocked institutions to request that financial institutions reopen their accounts or provide financial services, even demanding compensation in accordance with the provisions of the Consumer Protection Law.
Economist and former political prisoner Juan Sebastián Chamorro explained that the new law “puts the financial sector in a dilemma, in the sense that on one hand, it will be forced by national law to maintain or reopen accounts for individuals internationally sanctioned, while also having to comply with international regulations that prohibit banks from opening accounts for sanctioned individuals. The decision will have to be made by the business manager, a very complex situation, a very narrow dilemma for decision-making—whether to choose one option with the threat of being imprisoned for treason against the homeland and even having operations suspended, or to comply with international regulations.”
Correspondents at risk
Analysts consulted by LA PRENSA explained that this law once again puts at risk the relationship between Nicaraguan banks and the global financial system, particularly with correspondent banking relationships, which serve as intermediaries for international transactions.
“If it’s a financial product linked to foreign banks, such as credit cards or transactions involving correspondent banks, they won’t be able to bypass anything with this law (from Nicaragua), because the policies of the correspondent bank or the card issuer apply,” explained a specialist.
Dozens of public officials and institutions linked to human rights violations and corruption have been sanctioned by the United States and other governments, and are automatically added to the list of the Office of Foreign Assets Control (OFAC), which results in financial death.
U.S. regulations stipulate that no financial institution in the country can have direct or indirect contact with anyone on the OFAC list, requiring global counterparts to adhere to this mandate.
It will have to modify anti-money laundering laws
The specialist consulted by LA PRENSA stated that following the new law, the government will have to modify the anti-money laundering laws and Siboif regulations to exclude the implementation of anti-money laundering monitoring and risk lists, which would place Nicaragua in a position of non-compliance with international standards.
“Under this new law, it will be Siboif that determines the status of those listed in international sanction lists before the national banking sector. Siboif will have to issue a statement, and the UAF (Financial Analysis Unit) will decide whether the transactions made by these sanctioned individuals merit consideration by the supervisors as high-risk operations, or if the banks continuing transactions with these individuals should file a ROS (Suspicious Activity Report),” the specialist indicates.
Did Ortega’s regime talk to the banks?
For his part, another analyst, who also requested to remain unnamed, pointed out that “the first question that should be answered is whether this proposed law was discussed with the banks. This reform may not resolve the issue of the financial system’s correspondent banking relationships under the international framework to which we are subordinated, and it is very possible that a bank, in the process of complying with this law, may find that its correspondent bank—on which it depends to operate in international markets—could withdraw its correspondent relationship if the bank fails to implement measures regarding sanctioned individuals or institutions.”
“In this case, it is important for the banks to investigate and assess whether they risk becoming internationally inoperative. If so, they should discuss the matter with the government. Once this is clear, the government can evaluate the options available to it that will have the least negative impact on the country as a whole. This may not be clear, as there are no known precedents for the approach that these new laws propose,” he added.
In fact, the international anti-money laundering specialist, Gonzalo Vila, explained in January 2018 that “for U.S. banks and institutions, fines for violations can be substantial. In many cases, civil and criminal penalties can exceed several million dollars. Civil sanctions vary depending on the sanction program.”
Non-compliance caused Bancorp closure
In Nicaragua, there is indeed an experience related to non-compliance with international regulations. In April 2019, the U.S. Department of the Treasury sanctioned Banco Corporativo de Nicaragua (Bancorp) for having “assisted, sponsored, or provided financial, material, or technological support, or goods or services in support of Vice President Rosario Murillo, a person whose property and interests in property are blocked under EO 13851,” meaning she was placed on the OFAC blacklist. This sanction made it impossible for Bancorp to continue operating, and the bank immediately announced its voluntary dissolution.