Do not mention Russia: A theoretical framework for bank penalties due to economic sanction violations and policy implications

  • Received January 17, 2023;
    Accepted February 23, 2023;
    Published June 8, 2023
  • Author(s)
  • DOI
  • Article Info
    Volume 18 2023, Issue #2, pp. 161-176
  • Cited by
    3 articles

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This work is licensed under a Creative Commons Attribution 4.0 International License

In this paper, penalties to banks violating economic sanctions have been investigated and discussed. This topic has sparked renewed interest and attention following the beginning of the conflict in Ukraine due to the Russian aggression in February 2022 and the ongoing general deterioration in the global economic climate. Thus, based on the experience with penalties to banks for violations of economic sanctions from 2007, a theoretical model has been proposed. It is proposed that this model may be informative in devising the optimal level of penalties based on behavioral characteristics of banks and regulators. The model is based on the economic examination of the motives and incentives for bank misconduct, by drawing on the Shapiro-Stiglitz model addressing typical consequences of asymmetric information in principal-agent models. From a policy perspective, the proposed model also has the potential to provide opportunities for standardization of restrictions posed on banks as a result of bank misconduct. Relevant policy implications concerning penalties are put forward that may be implemented for future considerations, particularly in cases related to violations of economic sanctions.

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    • Figure 1. Number of penalties in different size categories
    • Figure 2. Time series of penalties for economic sanction violations
    • Figure 3. Country of origin of the punished banks
    • Figure 4. The sanctioned counterparties that the banks did business with
    • Figure 5. The number of sanctioned counterparties in individual cases
    • Figure 6. Total penalties by individual banks
    • Figure 7. The curve showing the optimal level of a penalty
    • Figure 8. The equilibrium in the banking sector
    • Conceptualization
      Václav Brož, Domenico Pace, Stefano Cavagnetto
    • Data curation
      Václav Brož
    • Formal Analysis
      Václav Brož, Domenico Pace
    • Methodology
      Václav Brož, Domenico Pace, Stefano Cavagnetto
    • Software
      Václav Brož, Bruce Gahir
    • Visualization
      Václav Brož, Domenico Pace, Thomas Draper
    • Writing – original draft
      Václav Brož, Domenico Pace
    • Writing – review & editing
      Václav Brož, Bruce Gahir, Thomas Draper, Stefano Cavagnetto
    • Resources
      Bruce Gahir, Thomas Draper
    • Validation
      Bruce Gahir
    • Investigation
      Thomas Draper
    • Funding acquisition
      Stefano Cavagnetto
    • Project administration
      Stefano Cavagnetto