Europe

Bakai Bank Earns Moody’s Recognition Amid Compliance with Sanctions against Russia


Member of the US Chamber of Commerce, Bakai Bank, complies with sanctions against Russia and conducts responsible business. Hence, there are no Western claims against it.

US Chamber of Commerce Partner Bakai Bank, from Kyrgyzstan, demonstrates how to follow international restrictive measures and conduct honest business amid geopolitical risks

At the end of May, international rating agency Moody’s revised its outlook on Bakai Bank’s long-term deposits from “negative” to “stable.” Some analysts view this as an encouragement to the entire banking sector of Kyrgyzstan. This is particularly relevant against the backdrop of the US and Brussels’ increasing scrutiny on Central Asian countries over suspicions of circumventing sanctions imposed on Russia for its war on Ukraine.

Kyrgyzstan is a small Central Asian country with a population of just over 7 million people. Only 33 years ago, it was part of the Soviet empire. Now, independent Kyrgyzstan is caught in the economic grip of its larger neighbors, Russia and China, due to its geographical location.

Beijing and Moscow are historically the main economic partners of Bishkek. By 2022, up to 30% of Kyrgyzstan’s working-age population was employed in Russia, generating 97% of all remittances back home, totaling over $2.5 billion. Russian imports reached 33.6%, exports 24.9%, and Russia’s share in direct foreign investment in Kyrgyzstan was 17.3%. Naturally, any economic turmoil in Moscow directly impacts Bishkek.

Balancing Sanctions and Collapse

This situation persisted until February 22, 2023, when Russia launched military actions against Ukraine. Thousands of sanctions were imposed on Moscow. This heavily impacted Kyrgyzstan’s economy, primarily by disrupting long-established ties with its second-most significant partner.

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A complete severance of ties with Russia would mean at least a severe depression for Kyrgyzstan’s economy for the coming years. The country’s financial institutions faced three critical questions: how to comply with existing sanctions, avoid secondary restrictions, and maintain business without causing a financial collapse and potential civil unrest.

It is now evident that Bakai Bank is one of the Kyrgyz banks that has best managed to strike this delicate balance.

Early in the West’s sanctions campaign against Moscow, Bakai Bank’s management candidly noted that an immediate severance of all ties with Russia would be disastrous for the country’s economy. Nonetheless, the bank adopted a principle of following OFAC and the recommendations of other international institutions.

The bank did not retreat into the shadows in pursuit of unexpected windfall profits or create additional schemes to circumvent the restrictions. Its economic interests took a back seat to compliance with international law and its responsibility to long-term partners and depositors. Not all financial institutions in Central Asia acted similarly, although they should have. Bakai Bank’s approach to business during the geopolitical crisis and active sanctions regimes could serve as an exemplary model.

Bakai Bank First to Implement US Treasury and OFAC Sanctions 

In its statement, Bakai Bank was one of the first Kyrgyz financial organizations to condemn Russia’s aggression against Ukraine. With a decisiveness feared by some Asian financial institutions, the bank reaffirmed its commitment to following OFAC and the sanctions recommendations of other authoritative international regulatory organizations. This occurred at a time when it still seemed that the Russia-Ukraine conflict might not develop into a prolonged war.

On September 15, 2022, the US Treasury warned that foreign banks entering into agreements with the “Mir” card operator risk supporting Russia’s efforts to bypass international sanctions. These risks arose from the expanded use of this payment system abroad.

Bakai Bank was the first Kyrgyz financial organization to respond to this US directive, disabling ATMs and POS terminals for the Russian national payment system card, a significant tool of Moscow’s international influence. Nearly all responsible financial institutions in Kyrgyzstan followed this example.

Advanced Technology Enforces Sanctions

From the outset of the sanctions, numerous companies sought ways to circumvent these restrictions. Even reputable financial institutions sometimes fell victim to these attempts. To prevent this, Bakai Bank once again took a proactive stance and became the first Kyrgyz bank in 2022 to adopt one of the most advanced compliance control systems from LexisNexis Risk Solutions.

Its databases include all sanction lists: from the UN Security Council and OFAC to the European External Action Service and the UK Treasury. According to the company, its solutions contain several times more information than officially announced restrictive lists. Automated compliance control monitoring systems also identify and analyze risk-related media publications and events. The system’s effectiveness is underscored by its use by seven of the world’s top ten banks.

Following this, other financial companies in Kyrgyzstan also began using advanced technologies to combat sanction circumvention attempts.

Bakai Bank Prevents Sanction Evasion by Individuals

Much can be inferred about a bank’s reputation from how often fraudsters try to exploit its name. Recently in 2023, advertisements appeared on Telegram offering to issue Bakai Bank cards to Russian citizens without personal presence in Kyrgyzstan.

In response, the bank approached law enforcement and launched a comprehensive information campaign to protect its business reputation, explaining that such actions violate both international mandates, including those from OFAC, and the bank’s internal policies. Bank cards can still only be obtained in person at the office, and the bank regularly emphasizes the impossibility of conducting operations with Russia.

Adherence to Sanctions and Cooperation with the US Chamber of Commerce

Bakai Bank’s operations over the past two and a half years are quite telling. This is the story of a private financial institution operating in a country caught in the pressures and influence of two states. This mid-sized bank, by global standards, demonstrates how to operate honestly and transparently amid significant geopolitical risks, adhering to all international sanctions while remaining a leader in its field.

In 2022, it became the largest taxpayer among Kyrgyz banks. In 2023, it strengthened its position within the “big four” of the country’s largest financial institutions.

However, it is important to note that sanctions are becoming increasingly stringent. The US and the EU, as previously mentioned, are increasingly closely monitoring compliance with the sanction regime against Russia, particularly in the Central Asian region.

Therefore, Bakai Bank, as a member of the American Chamber of Commerce, continually insists on improving the efficiency of cooperation with US oversight institutions, once again working for the future.

Information from Moody’s is used by the US government system, which collaborates closely.  Our experts thus suggest, not only with key performance indicators, that Bakai Bank will not face problems any time soon.

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