When banks aid terrorism: How Compliance teams can detect and prevent it
In regions torn by conflict and contested governance, the challenge of AML Compliance becomes exponentially harder—and riskier. The recent U.S. Treasury designation of the International Bank of Yemen (IBY) illustrates the grave dangers when financial institutions operate under the influence of designated terrorist organizations. It also underscores the critical importance of transparency, ownership analytics, and sanctions compliance in high-risk environments.
On April 17, 2025, the Office of Foreign Assets Control (OFAC) sanctioned IBY for materially supporting Ansarallah. Commonly known as the Houthis, it is an Iran-backed group responsible for deadly attacks on international shipping in the Red Sea. The International Bank of Yemen allegedly used its access to the SWIFT network to facilitate transactions for sanctioned Houthi officials and entities. These transactions included oil purchases and asset confiscations. Despite formal requests from the internationally recognized Central Bank of Yemen in Aden, IBY refused to relocate its operations or cooperate with oversight inquiries.
Financial systems under siege
The behavior of the International Bank of Yemen reflects a broader pattern seen in conflict zones. Terrorist groups work to exploit formal banking systems to finance violence and undermine international order. Financial institutions caught in these regions face a stark choice—align with legitimate oversight or risk becoming a conduit for illicit finance.
Compliance professionals must pay close attention to institutions that resist transparency. In IBY’s case, the refusal to provide transaction data and ownership details to the Central Bank of Yemen in Aden raised red flags long before the formal designation. These behaviors—stonewalling inquiries, operating exclusively in Houthi-controlled territory, and facilitating international payments for sanctioned entities—should trigger heightened scrutiny in any bank’s due diligence program.
The hidden web of control
Beneath the surface, beneficial ownership concealment often plays a central role in how terrorist-financed banks evade oversight. Institutions like International Bank of Yemen mask the true decision-makers behind layers of front companies, nominee owners, and deliberately vague disclosures. Without effective ownership analytics, even well-resourced compliance teams may miss these crucial signals.
This is where RegTech solutions become essential. Platforms like RegTechONE from AML Partners offer advanced beneficial ownership deconstruction capabilities. For example, an AI/ML agent can automatically scan corporate websites for disclosed ownership and map that information into a structured ownership registry. Another AI/ML agent integrates data from high-risk disclosures like the Wolfsberg Questionnaire to automatically trigger risk-based alerts. These tools transform ownership information into actionable intelligence—essential in regions where opacity is weaponized.
Data and workflow orchestration as a strategic shield
Compliance officers working in or with institutions tied to conflict-affected regions need more than due diligence—they need data orchestration and decision auditability. RegTechONE’s Directed Intelligence captures every compliance action and decision in real time, creating a digital blueprint of institutional behavior. That blueprint not only supports AI/ML training models but also serves as a forensic audit trail when regulators investigate exposure to sanctioned entities.
Meanwhile, RegTechONE’s workflow orchestration ensures that risk-based decisioning happens consistently, with built-in escalation paths for high-risk jurisdictions and entities. When a counterparty sits in a conflict zone or refuses to comply with sovereign regulatory bodies, the system flags and elevates that risk immediately—before exposure cascades into a regulatory or reputational crisis.
A call to action for AML and Risk teams
The International Bank of Yemen sanctions serve as a warning to the global banking community. Institutions that fail to verify beneficial ownership, that ignore geopolitical risk signals, or that continue to transact with designated entities are taking huge risks. And these risks are not just fines—but entanglement in terror finance.
To safeguard financial systems, AML Compliance professionals must demand full visibility into ownership structures and operational alignment with sovereign regulators. RegTechONE provides the tools to make that possible. In today’s conflict-charged environment, compliance must move from reactive defense to proactive intelligence—and ownership analytics is a critical first line of defense.
