Nicaragua’s Banking Regulations Compliance: A Challenge to US Sanctions?
In a significant move that has far-reaching implications for global banking regulations, Nicaragua’s “Law for the Protection of the Rights of Consumers and Users” (Law 842) came into effect on February 9, 2021. This revised law introduces penalties for banks and loan agencies that close accounts or reject clients without just cause, effectively blocking US sanctions.
Key Provisions
- Prohibits Nicaraguan banks from denying services to individuals and entities targeted by US sanctions
- Punishable by temporary or permanent closure and fines of up to $1.1 million for serious violations
- Establishes penalties for banks that fail to comply with the law
Background
The law is seen as a response to the US Office of Foreign Assets Control (OFAC) designating dozens of Nicaraguan individuals and entities with ties to President Daniel Ortega for corruption, money laundering, and human rights violations since 2018.
Global Trend
This development is part of a growing trend of non-US governments resisting the extraterritorial reach of US sanctions and laws. Other countries that have taken similar measures include:
- Russia, which has had “special economic measures” in place since 2014
- The European Union, which has had a blocking statute since 1996
- China, which passed legislation establishing a mechanism for imposing penalties on firms that do business with listed entities in September 2020
Recent Developments
The timing of Nicaragua’s Law 842 is particularly noteworthy, given recent changes to US anti-money laundering (AML) laws affecting global financial institutions. The National Defense Authorization Act for Fiscal Year 2021 (NDAA) expanded the scope of AML obligations, exposing non-US banks to potential loss of their US correspondent banking accounts if they fail to comply with subpoenas.
Uncertainty and Future Implications
As global financial institutions are caught between the US government and its foreign counterparts, the potential conflict between Nicaragua’s Law 842 and US sanctions laws remains uncertain. How will US authorities respond to similar blocking-type measures in other countries? Only time will tell.