Nicaragua Enacts Law Requiring Local Banks to Maintain Accounts for Sanctioned Individuals

On February 9, Nicaragua’s national assembly passed a new law that has raised concerns among the country’s business and financial services sectors. The law requires local banks to maintain accounts for individuals on US government sanctions lists.

Requirements of the New Law

The law does not give sanctioned individuals the right to use banking services directly, but rather requires banks to provide a valid reason for discontinuing relations with them. According to the law, banks must have a valid reason for terminating their dealings with individuals subject to US sanctions.

• Banks are required to provide a justification for discontinuing relations with sanctioned individuals.
• The burden of proof lies with the bank to demonstrate that it has a valid reason for terminating its dealings with such individuals.
• The new legislation does not specify what constitutes a valid reason, leaving banks to interpret the requirements themselves.

Implications and Concerns

The implications of this law are far-reaching and may bar Nicaraguan banks from participating in international financial transactions. The new legislation has sparked concerns among local bankers and financial institutions that they will be forced to choose between complying with US sanctions or risking penalties for non-compliance.

• This development is likely to have significant consequences for the country’s economy, particularly its banking sector.
• Critics argue that the law may be seen as a knee-jerk reaction to US sanctions and could have unintended consequences for Nicaragua’s banking sector.

Strengthening AML/CFT Regulations

The new law is aimed at strengthening Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT) regulations and ensuring that local banks are compliant with international standards. In the past, Nicaragua has been criticized for its lack of transparency and due diligence in implementing AML/CFT measures.

Challenges Ahead

Nicaragua’s financial institutions are already facing significant challenges, including a lack of transparency in financial transactions and inadequate resources to implement effective AML/CFT measures. As the country moves forward with implementing this new legislation, it remains to be seen how Nicaragua will balance its commitment to complying with US sanctions with the need to protect its banking sector.

• The law is likely to have far-reaching implications for the country’s economy and may require significant changes to the way financial institutions operate in the country.