The U.S. Department of the Treasury has gone to the extent of submitting a proposal that has the potential to bar the Swiss private bank MBaer Merchant Bank AG (MBaer) entry into the U.S. financial system.

This has been done because the bank has been accused of supporting financial transactions that are connected to the sanctioned nations such as Iran, Russia and Venezuela. This rule would still prohibit U.S. banks to maintain accounts of MBaer in case it is finalized, which would make the institution a resident of the U.S. dollar-based financial network a severe blow to any international bank.

The U.S. Treasury Secretary Scott Bessent highlighted how bad the situation is by saying that MBaer has laundered over 100 million dollars in the U.S. financial systems on behalf of players linked to approved regimes. He indicated clearly that integrity of the U.S. financial system is one of the top priorities on the agenda and the action sends a far-reaching message to the world banks that they comply with the U.S. sanctions laws.

Why the Treasury Took Action

MBaer was one of the main money-laundering issues identified by the Financial Crimes Enforcement Network of the Treasury. The agency claimed that the bank processes funds of the Islamic Revolutionary Guard Corps (IRGC) and the Quds force of Iran, which are under heavy sanctions of the U.S. MBaer is also charged with tolerating transactions associated with Russian money laundering operations and corruption in Venezuela and in the state oil company PDVSA. The proposed rule by FinCEN is under publication to be viewed publicly, and only after that, the rule can be finalized.

This kind of enforcement measure is uncommon. Under the USA PATRIOT act Section 311, the U.S. may declare a foreign financial institution an entity that launder money and impose special actions. The worst of these measures, which is to cut access to correspondent accounts, is on the table in the case of MBaer. The lawmakers and regulators of the U.S. have clarified that this is an indication of increased focus on the enforcement of global sanctions.

The MBaer and Broader Banking will be impacted.

MBaer Merchant Bank AG is a minor global bank that was founded in Zurich in 2018, yet it had international perspectives due to its connection with the dollar system. Having assets reportedly in the hundreds of millions, disturbance of access to the U.S. banking infrastructure would restrain its capacity to conduct operations internationally. The bank has claimed that it was working with Swiss regulators and legal advisors as events unfold.

Similarly in a related development the Swiss financial authorities, FINMA, confirmed a liquidation order on MBaer is now in effect after the bank reneged on objections to enforcement actions. The anti-money-laundering controls and compliance with sanctions were also found to be largely deficient, which strengthens the issues mentioned by the U.S. officials as stated by the probe by FINMA.

Wider Implications

The case shows the extent of U.S. banking regulation and its effect on international banking. Even the organizations in traditionally neutral financial centers, such as Switzerland, can be subject to harsh penalties in case of being suspected in supporting money laundering or evading sanctions. It is also an indication of increased international suspicion of illegal financial activities, especially those involving geopolitical enemies of the United States.