WELLS FARGO'S DISCLOSURE THAT IT IS UNDER INVESTIGATION FOR ITS ANTI-MONEY LAUNDERING AND SANCTIONS PROGRAMS MAY BE RELATED TO COUNTRY RISK DEVELOPMENTS

Reuters is reporting today that Wells Fargo Bank disclosed that it is under investigation for money laundering. The article stated that the bank did not specify which issues were being probed. This information, it noted, is based upon is based upon a government filing made last Thursday. In a 10-K filing that the bank made on August 1, 2024 to the Securities & Exchange Commission,  the bank disclosed, under the title ANTI-MONEY LAUNDERING AND ECONOMIC SANCTIONS RELATED INVESTIGATIONS, that " Government authorities have been conducting inquiries or investigations regarding issues related to the Company’s anti-money laundering and sanctions programs." The bank, as well as Bank of America, and JP Morgan Chase Bank, was served with a subpoena for records in the RICO case involving allegations of fraud,  corruption and money laundering in Citizenship  Investment (CBI/CIP) programs, entitled MSR Media vs. Khan, currently pending in Federal Court in the Middle District of Florida.

American banks appear to have been waking up of late to the threats of increased Country Risk. The Wells Fargo filing included a statement on its Country Risk policy:

"COUNTRY RISK EXPOSURE Our country risk monitoring process incorporates centralized monitoring of economic, political, social, legal, and transfer risks in countries where we do or plan to do business, along with frequent dialogue with our customers, counterparties and regulatory agencies. We establish exposure limits for each country through a centralized oversight process based on customer needs, and through consideration of the relevant and distinct risk of each country. We monitor exposures closely and adjust our country limits in response to changing conditions. We evaluate our individual country risk exposure based on our assessment of a borrower’s ability to repay, which gives consideration for allowable transfers of risk, such as guarantees and collateral, and may be different from the reporting based on a borrower’s primary address."

Banks assess Country Risk based upon an internal formula which calculates risk based on a number of factors, but which is subject to changing conditions. Whether there is a relationship between Wells Fargo's recent disclosure of the government money laundering investigation, and its response to changes in Country Risk we cannot say, but we will be monitoring this unfolding story as it develops.