Amid widespread revolutionary turmoil in the region in recent weeks, shock new figures from MyPrivateBanking have revealed that wealthy individuals from the Middle East and Africa are stashing some $235 billion of illegal money in offshore accounts - with potentially disastrous consequences for private banks. 

According to the Swiss research firm and client advocacy group, Middle Eastern and African individuals hold $1.5 trillion in offshore bank accounts, and the firm estimates that at least 15 per cent of these funds have been appropriated illegally or through the exploitation of governmental positions – giving the $235 billion figure.

The upshot of this for the industry, according to MyPrivateBanking, is that some private banks are facing serious financial, legal and reputational damage in the case, which is looking more and more likely, that corrupt Middle Eastern and North African regimes are overthrown and their leaders prosecuted.

In light of recent events, Tunisia and Egypt spring first to mind, but it is difficult to tell how far revolutionary fervour will spread across the region and so we could see several corrupt regimes dismantled. Misappropriated funds will of course feature prominently in legal proceedings against corrupt former rulers and this, MyPrivateBanking says, could be extremely embarrassing for financial institutions exposed as having links their nefarious activities.

“Of course, the by far biggest share of the wealth of individuals from Middle East and Africa has been generated by legal means but a substantial proportion, equalling a stunning $235 billion, is estimated to be obtained through corruption and other illegitimate activities and diverted offshore,” said Steffen Binder, research director at MyPrivateBanking.

“Over the decades these regimes have grown an entire ruling class consisting of family, friends, businesses, security forces and secret service that have transferred significant wealth out of their home countries.”

MyPrivateBanking’s research suggests that few financial centres will have entirely escaped the taint of illicit Middle Eastern and North African funds, but there are certainly regions which are likely to be more affected than others. The firm estimates that 41 per cent of Middle Eastern and African offshore wealth lies in EU countries such as the UK, the Channel Islands and Luxembourg, 33 per cent is in Switzerland, 8 per cent is deposited in Asia and the remainder is with institutions in North America and other destinations like the Caribbean. Private banks all over the world then would do well to take a long hard look at where the funds they hold have come from.

What firms should do, Binder says, is take an active approach to a potentially very damaging situation and proactively check the background of firms and persons with potential involvement in corruption.

“If in doubt about the origin of the assets or the credibility of the account holder – don’t accept them. And if the control systems failed in the past, banks now have every incentive, as well as a moral obligation, to co-operate with the new, legitimate governments in countries such as Tunisia and Egypt to start swift proceedings to return funds in accordance with law,” he said.