Key insights:

• • • SAR volume is significantly underreported — Continuing and amended filings add approximately 20% to the official count yet remain invisible in trend analyses.

    • Filing activity is highly concentrated — A few large financial institutions dominate SARs volume, meaning trends reflect their practices more than systemic changes.

    • Agentic AI will drive a surge in SARs — Agentic AI risks increased noise over actionable intelligence, without addressing the unresolved question of whether current filings yield meaningful law enforcement outcomes.

The Suspicious Activity Reports (SAR) that financial institutions file with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) provide valuable insight, although they may not offer a comprehensive picture.

Prior to meaningful discussions regarding the future of SARs, it is essential for the financial crime community to clarify what is being measured. In 2025, for example, SAR filings of more than 4.1 million, representing an almost 8% increase compared to the total number of SARs filed in 2024.

Every figure FinCEN has published reflects original SARs only. Continuing activity SARs, which represent roughly 15% of all filings, are submitted under the original Bank Secrecy Act (BSA) identification number and never appear as new filings. Corrected and amended SARs add another 5% on top of that. This makes the real volume of SARs activity approximately 20% higher than what is reported.

The average community bank files fewer than one SAR a week, while the largest institutions file more than 500 a day.

Recent FinCEN guidance giving financial institutions more flexibility around continuing activity SARs sounds significant on paper, but as former Wells Fargo BSA/AML chief Jim Richards points out: “It won’t change the reported numbers — because those filings were never counted to begin with.” Financial crime professionals need to keep that gap in mind every time a trend line gets cited.

2025 was steady, not spectacular

There were roughly 300,000 SARs filed every single month of 2025, and the most notable thing is that nothing notable happened. That is likely a first on the volume side and worth acknowledging, but beyond that milestone the year did not hand financial crime professionals anything noteworthy. In a space that has dealt with pandemic distortions, crypto chaos, and fraud spikes that seemed to come out of nowhere, steady volume and predictable patterns are a little surprising. A quiet data set, however, is not the same as a quiet landscape, and financial crime professionals who are reading stability as stagnation may find themselves flat-footed when the numbers start moving again.

For example, one of the most underleveraged insights in the SARs space is just how concentrated filing activity really is. The numbers are stark: The top four banks file more SARs in a single day than 80% of the rest of the banks file in 10 years, according to 2019 data from a .

The average community bank files fewer than one SAR a week, while the largest institutions file more than 500 a day. “50 a year versus 500 a day,” notes Wells Fargo’s Richards, adding that such asymmetry has real implications for how the financial industry interprets trends. Meaningful movement in SARs data, up or down, is almost entirely dependent on what a handful of mega-institutions decide to do.

Not surprisingly, money services businesses (MSBs) are the second largest filing category, and virtual currency exchanges are almost certainly driving recent growth there, even if outdated category definitions make that difficult to confirm directly. Credit unions round out the top three.

The filing philosophy hasn’t changed and shouldn’t

Regulatory noise occasionally suggests that institutions should be more selective about what they file. However, compliance and legal reality have not shifted. No institution has ever faced serious consequences for filing too many SARs, and the cases that result in enforcement actions, reputational damage, and regulatory scrutiny are consistently about missed filings or late ones.

“You’re not going to get in trouble from filing too much,” Richards says. “Nobody ever has, and I doubt if anyone ever will.” For financial crime professionals, the calculus remains exactly what it has always been — when in doubt, file. That posture isn’t going to change, and frankly it shouldn’t.

Yet, here is where the SARs space gets genuinely interesting. Agentic AI use in SARs filings — systems in which multiple AI agents work through a case from screening to decision to documentation — is beginning to move from concept to deployment. The impact on filing volume likely will be significant.

The risk is a system flooded with AI-generated SARs of variable quality, creating more noise for law enforcement to sort through rather than sharper intelligence to act upon.

Whereas a small team today might work through a handful of cases a week, AI-assisted workflows could push that into the dozens. Multiply that across institutions already inclined to file rather than miss something, and the result is a coming surge in SARs volume that could play out over the next two to four years.

“Agentic AI has the potential to be a game changer on how we do our work,” Richards explains. “But I believe it’ll guarantee that there will be more SARs filed and not necessarily better and fewer SARs filed.” Indeed, the critical point for the financial crime community to internalize is exactly that.

The risk is a system flooded with AI-generated SARs of variable quality, creating more noise for law enforcement to sort through rather than sharper intelligence to act upon. Once the largest institutions adopt agentic AI as a best practice, others will follow quickly, and regulators will likely be several steps behind.

The value question can’t wait

The has been in place since 2014. Yet after 12 years of filings, the financial crime community still lacks a clear public accounting of whether that data has produced actionable law enforcement outcomes.

So, the question Richards is asking is one the entire industry should be asking: “Has anybody asked law enforcement?”

This question reflects a larger challenge that the industry needs to confront more aggressively, especially as AI technology is set to dramatically increase filing volume across the board. Increasing the volume without improving how the information is used does not represent progress. If SARs are not generating real investigative value, the solution is not to file more of them faster — instead, the pipeline should be fixed before it grows any bigger.

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• • • The ceasefire is between the US and Iran and is not a regional peace —��Israel launched its heaviest strikes yet on Lebanon within hours of the announced deal. Iran hit oil infrastructure in Kuwait, the UAE, Bahrain, and Saudi Arabia — including the East-West Pipeline, the primary route for bypassing the Strait of Hormuz. Companies planning around a return to normal should instead plan around the idea that the war has narrowed, not ended.

    • If the disruption stays within one quarter, the economic damage is painful but reversible — The Dallas Fed projects WTI oil at roughly $98 per barrel with a modest GDP hit in a short-closure scenario. The catastrophic scenario — WTI above $132 with sustained negative growth — requires the closure of the war to drag past Q2. Every week the ceasefire holds improves the odds, but Iran’s strike on the Saudi bypass pipeline complicates even the optimistic timeline.

    • Iran may have stumbled into the most lucrative chokepoint tax in modern history — At conservative estimates, transit fees charged for traversing the Strait of Hormuz could generate $40 billion to $50 billion for Iran annually, or roughly 10% to 15% of Iran’s pre-war GDP — all at near-zero operating cost. That revenue stream inverts Tehran’s incentives. Indeed, keeping the toll system in place may now be worth more than restoring free transit.

On April 7, less than two hours before a self-imposed deadline that threatened the destruction of Iran’s civilian infrastructure, President Donald J. Trump announced a two-week ceasefire in the war in Iran that began on the last day of February and continued over 38 days of sustained air strikes by the Unites States and Israel. In turn, Iran carried out retaliatory attacks across over a dozen countries and forced the effective closure of the Strait of Hormuz.

With the ceasefire, all that has paused. Yet, the question every boardroom, general counsel’s office, and procurement team is asking right now is simple: How can I plan around this?

The honest answer is, not yet — and the first 24 hours have already shown why.

A fragile, but functional peace

The ceasefire is remarkably thin, and it’s based on three operative clauses: i) the US and Israel halt strikes on Iran; ii) Iran halts retaliatory attacks on the US and Israel; and iii) Iran allows “safe passage” through the Strait of Hormuz. Everything else — from nuclear terms, sanctions, reconstruction, and the legal status of Hormuz transit — has been punted to negotiations in Islamabad beginning April 10, with Pakistan mediating.

With the ceasefire, the question every boardroom, general counsel’s office, and procurement team is asking right now is simple: “How can I plan around this?”

However, what the ceasefire covers matters less than what it doesn’t. Within hours of the announcement, Israel launched its heaviest strikes yet on Lebanon, and Iran warned it would withdraw from the ceasefire if attacks on Lebanon continue. Meanwhile, Kuwait, the UAE, and Bahrain all reported fresh Iranian missile and drone strikes targeting oil, power, and desalination infrastructure after the ceasefire was in place. Most critically, Iran struck Saudi Arabia’s East-West Pipeline, the main route by which Gulf producers have been rerouting oil to bypass the blockaded strait.

That pipeline strike should command attention in every supply chain and energy risk briefing this week because it signals how shaky the agreement is, and that Iran remains a long-term threat to vital infrastructure across the region.

For companies operating in or sourcing from the Gulf, the practical implications are immediate. This is not a ceasefire that restores pre-war operating conditions; rather it is a bilateral pause between two belligerents while the regional war continues around them. Insurance premiums, shipping risk assessments, and supply chain contingency plans should reflect that distinction until there is a meaningful shift.

What does this mean for the next two weeks?

Both sides are claiming victory — and increasingly, claiming different deals. Trump called Iran’s 10-point proposal “a workable basis on which to negotiate”; and Iran’s Supreme National Security Council called the ceasefire a “crushing defeat” for Washington. The White House now says the 10-point plan Iran is publicly circulating differs from the terms that were actually negotiated for the ceasefire. Tehran, meanwhile, says there is no deal at all if Lebanon isn’t included — a condition the US has not acknowledged. And of course, the Strait of Hormuz remains closed.

These are not the hallmarks of a stable agreement; but they may be the hallmarks of a durable one. The deal is thin enough so that each side can brief its domestic audience on a different story, and as long as neither is forced to reconcile those stories publicly, the pause holds.

And the incentives to keep talking are asymmetric but real. The US has watched gas prices surge past $4 nationally as domestic support for the war — which started at levels best described as in a hole — continued to drop even further. Goldman Sachs raised its recession probability to 30% and JPMorgan to 35%, and every day the strait stays closed pushes those numbers higher. The administration needs the global economy to exhale and needs distance itself from a war so it can focus on other priorities, including an already difficult midterm election cycle.

With the ceasefire, all that has paused. Yet, the question every boardroom, general counsel’s office, and procurement team is asking right now is simple: How can I plan around this?

Iran, for its part, wants the bombing to stop. Its conventional navy has been functionally destroyed, its air defenses are highly degraded, its nuclear facilities have sustained severe damage, and its cities, bridges, and transportation networks have been hit repeatedly. The regime survived and arguably emerged with greater domestic legitimacy than it had before the war, but the physical toll is mounting. Tehran wants the strikes to stop so it can claim victory by survival without incurring any more costs.

This mutual exhaustion is the load-bearing structure of the ceasefire. If the ceasefire holds for 72 hours (as I think it might), and if the strait begins opening to escorted traffic by Friday as Iranian officials have signaled, and if neither side finds a reason to walk away before the Islamabad talks convene, then the ceasefire will likely be extended. Not because the underlying disputes get resolved, but because the cost of resuming hostilities exceeds the cost of continuing to talk. Expect a rolling series of extensions, probably 30 to 45 days at a time, that resolve nothing while letting global markets gradually stabilize.

As we wrote earlier this month, if the disruption remains limited to roughly one quarter, the oil price shock is painful but reversible, ugly, but manageable. And every week the ceasefire holds pushes the trajectory toward the manageable scenario.

What happens after the ceasefire?

Again, if the ceasefire holds, we then have to start thinking about how this conflict resolves. Not surprisingly, this is where it gets uncomfortable.

The conventional assumption in Washington and in global markets is that the Strait of Hormuz will return to normal once the fighting stops. That assumption underestimates what Iran has built.

Iran’s parliament is working to pass a Strait of Hormuz Management Plan, codifying its claimed sovereignty over strait transit and establishing a legal framework for collecting toll fees. Media reports indicate Iran has been charging vessels between $1 million and $2 million per transit and is planning to keep charging those tolls for all ships as the strait reopens. So, at $1 million per ship, and with up to 135 transits per day, 365 days a year, that’s about $40 billion to $50 billion in annual revenue for Iran, or up to 15% of Iran’s pre-war GDP. All at an operating cost that approaches zero.

Iran didn’t enter this war planning to build the most lucrative chokepoint tax in modern history, but it may have stumbled into exactly that.

Compare that to Iran’s oil sector, which generated approximately $53 billion annually in 2022 and 2023, required massive capital investment and maintenance, and was subject to constant disruption. The toll revenue is comparable in scale, dramatically cheaper to operate, and immune to sanctions. If the final number is even a fraction of this, it’s still a massive financial shot in the arm for Iran that could become a far greater advantage than the damage to capital that the war has inflicted upon the state.

Iran didn’t enter this war planning to build the most lucrative chokepoint tax in modern history, but it may have stumbled into exactly that.

Of course, this changes the structural incentives around the Strait of Hormuz in ways most analysts haven’t fully absorbed. A permanent toll system gives Iran a revenue base to rebuild the military assets it lost, reduce its dependence on oil exports, and fund domestic investment that could blunt future protest movements. The regime’s cost-benefit calculus has inverted: Keeping the toll operational in place may now be worth more than restoring the pre-war status quo.

For the US and Israel, the only way to dismantle this arrangement is by force and the last 38 days demonstrated the limits of that approach. The US achieved air and naval superiority, destroyed Iran’s conventional military, and killed the supreme leader. None of it was enough to compel capitulation, and in fact, may not have even come close. A second campaign faces the same likely result, against a population now unified by the experience of surviving the first one.

The war didn’t just disrupt global trade. It may have permanently repriced the most important shipping lane on Earth — and left every piece of energy infrastructure in the Gulf more vulnerable than it was before the first air strike landed.

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Key insights:

• • • Non-compliance is significantly more expensive than compliance — Data consistently shows the cost of non-compliance can be greater than proactive compliance investments.

    • Reputational damage and hidden costs often outweigh direct fines — Beyond financial penalties, the damage from legal fees, loss of customer trust, and operational disruptions from non-compliance can inflict long-term harm.

    • Strategic investment in compliance yields a competitive advantage — A robust compliance program builds trust, attracts investors, and demonstrates greater operational resilience in a complex regulatory landscape.

There’s a persistent myth in the business world that compliance programs are a necessary burden, a line item to be minimized and managed rather than invested in strategically. The data tells a very different story, however, and it has for quite some time. For organizations still treating compliance as an overhead expense, it’s time to reconsider the math and view the broader strategic picture.

The numbers don’t lie: Non-compliance costs more

Non-compliance costs are 2.65-times the cost of compliance itself, a finding that dates back to the of multinational organizations. While the average cost of compliance for the organizations in that study was $3.5 million, the cost of non-compliance was much greater. That means simply by investing in compliance activities, organizations can help avoid problems such as business disruption, reduced productivity, fees, penalties, and other legal and non-legal settlement costs.

According to a later report from from 2017 (the most recent set of analytical data on the subject), the numbers have only grown more striking. The study showed that average cost of compliance increased 43% from 2011 to 2017, totaling $5.47 million annually. However, the average cost of non-compliance increased 45% during the same time frame, adding up to $14.82 million annually. The costs associated with business disruption, productivity losses, lost revenue, fines, penalties, and settlement costs add up to 2.71-times the cost of compliance.

And these non-compliance costs from business disruption, productivity losses, fines, penalties, and settlement costs, among others aren’t simply abstract risks. They’re real, recurring, and measurable, and they don’t stop with the fine itself.

Beyond the fines themselves, legal costs are a significant and often underestimated component of non-compliance.

This gap between compliance and non-compliance provides evidence that organizations do not spend enough of their resources on core compliance activities. If companies spent more on compliance in areas such as audits, enabling technologies, training, expert staffing, and more, they would recoup those expenditures and possibly more through a reduction in non-compliance cost.

While the math here is straightforward, the strategic case is even clearer. Compliance isn’t overhead; rather, it’s an investment with a measurable, proven return.

The hidden costs: Legal fees, fines & reputational fallout

Regulatory fines get the headlines, but they represent only part of what non-compliance actually costs an organization — a cost that has only risen over time. As of February, a total of 2,394 fines of around €5.65 billion have been recorded in the database, which lists the fines and penalties levied by European Union authorities in connection with its General Data Protection Regulation (GDPR).

Beyond the fines themselves, legal costs are a significant and often underestimated component of non-compliance. Regulatory norms are shifting constantly and navigating them requires specialized expertise. As quickly as the rules change, outside counsel and compliance specialists must keep pace, and that knowledge comes at a price. Every alleged compliance violation triggers an immediate need to engage qualified counsel, adding to a cost burden that compounds quickly and unpredictably.

Then there is reputational damage, perhaps the most enduring consequence of all. The cost of business disruption, including lost productivity, lost revenue, lost customer trust, and operational expenses related to cleanup efforts, can far exceed regulatory fines and penalties. Consider , whose compliance failures around its anti-money laundering (AML) efforts became a cautionary tale for the industry. TD Bank’s massive $3 billion in fines from US authorities wasn’t just the result of a few missteps; rather, it was caused by years of deep-rooted failures in its AML program, pointing to a culture that prioritized profit over compliance.

The findings from both the 2011 and 2017 studies provide strong evidence that it pays to invest in compliance.

TD Bank’s failure to make compliance a priority not only led to a huge fine but also seriously damaged its reputation, with revising TD’s outlook to negative in May 2024, where it remains. This is the kind of a reputational stigma that can take years to repair.

Leveraging compliance as a competitive advantage

There is also a positive side of the ledger that often goes unacknowledged. A robust compliance program signals to investors, partners, and clients that an organization is well-governed and trustworthy. That reputation doesn’t just retain market value; it actively attracts it.

Organizations that cut corners in compliance risk engaging in a short-sighted, high-risk strategy that will ultimately result in a negative outcome for the organization. Businesses that take compliance seriously tend to operate with greater predictability, fewer surprises, and stronger stakeholder confidence.

The 2017 Ponemon and Globalscape and study found that, on average, only 14.3% of total IT budgets were spent on compliance then, not much of an increase from the 11.8% reported in 2011. This clearly indicates that organizations are underspending on core compliance activities in the short term and aren’t prepared to allot further resources as the years go on. That gap represents not just risk, but a clear missed opportunity.

“The findings from both the 2011 and 2017 studies provide strong evidence that it pays to invest in compliance,” explains Dr. Larry Ponemon, Chairman and Founder of the Ponemon Institute. “With the passage of more data protection regulations that can result in costly penalties and fines, it makes good business sense to allocate resources to such activities as audits and assessments, enabling technologies, training, and in-house expertise.”

The organizations that recognize compliance as a strategic function, not a reactive one, are the ones that will earn the trust of clients, the confidence of investors, and the operational resilience to weather an increasingly complex regulatory environment. The data is clear, and the choice is a critical one.

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Key takeaways:

• • • Human trafficking is a financial crime — Without the financial system, human trafficking networks cannot operate at scale. Banks, compliance officers, money transmitters, and casinos are uniquely positioned to detect suspicious patterns.

    • The 2026 World Cup amplifies existing risks — With 5.5 million additional visitors expected in Mexico City alone, criminal networks will exploit the surge in cash flows, new customers, and cross-border movement.

    • Red flags are observable in financial behavior — Human trafficking networks often leave detectable financial footprints, which is why financial institutions must update monitoring systems and stay alert to unusual transaction spikes during the tournament.

MEXICO CITY — As the 2026 FIFA World Cup get ready to hold its tournament in June and July across three North American countries, anti-human trafficking experts are meeting as well and attempting to address the challenges facing the three host countries of the largest World Cup in history.

To that end, the Association of Certified Anti-Money Laundering Specialists (ACAMS), in partnership with ��������, organized one such event, focused on the scourge of human trafficking that often surrounds large sporting events like the World Cup.

One speaker at the event noted an important clarification in the difference between human trafficking and human smuggling — two terms that are frequently confused yet carry vastly different legal and humanitarian implications. The key distinction lies in consent and the nature of the crime. In human smuggling, the individual being transported across borders consents to the movement, typically driven by socioeconomic necessity, and the offense is considered a crime against the state. Human trafficking, by contrast, is a crime committed directly against the victim, often involving exploitation through force, coercion, threats, or deception, and does not require the crossing of any international border.

The ACAMS event challenged the common belief is that human trafficking is exclusively sexual in nature. In fact, there are 10 additional forms of exploitation beyond sexual abuse, including slavery, forced labor or services, use of minors in criminal activities, forced marriage, servitude, labor exploitation, forced begging, illegal adoption of minors, organ trafficking, and illicit biomedical experimentation on human beings.

As the World Cup approaches, financial institutions’ compliance teams must recognize that the same operational conditions that make major sporting events exciting are precisely the conditions that money launderers and traffickers seek to exploit.

Still, sexual exploitation remains the dominant form of human trafficking. Indeed, it is the second most lucrative illicit business in the world after drug trafficking, with every 15 minutes of sexual abuse of a trafficking victim generating approximately $30.

Of course, without clients, there is no demand, said one speaker from the ÁGAPE Foundation, an organization that works to raise awareness against gender-based violence and human trafficking.

Financial sector as a key line of defense

When identifying human trafficking, it’s wisest to examine it from a financial perspective to find important indicators, according to several speakers. Indeed, the financial sector plays a critical role given its capacity to detect suspicious accounts and payments, shell companies, cash movements, digital platforms, and commercial operations.

For example, when a customer opens an account or conducts a transaction, certain red flags can be visible, including whether the customer needs to consult notes to answer basic questions such as their address or occupation, or that their responses are not spontaneous or natural. Also, another indicator is if the customer’s profile is inconsistent with the type or volume of transactions being conducted.

For financial institutions, there are other patterns that have triggered alerts in illicit activity in the past, including near-immediate deposits and withdrawals with no clear justification for the cash flow, or multiple individuals registered at the same address or linked to the same account.

Similarly, another red flag would be if there’s a high number of accounts opened from the same state or municipality with similar patterns, particularly in areas identified as origin points for trafficking networks; or, payment of multiple short-term rentals or payments abroad to unverifiable recruiters or employment agencies.

Financial institutions should be on the lookout for companies that file no tax returns or invoice simulated transactions, or that use of front men to open accounts or conduct operations.

Also, new businesses whose declared activity does not correspond to their financial operations should be flagged, as well as any frequent, large-volume purchases of condoms, lingerie, or women’s clothing inconsistent with the declared business activity.

Indicators at the 2026 World Cup

In the context of major sporting events such as the World Cup, existing risks are significantly amplified, several speakers pointed out. Sexual tourism, including the commercial sexual exploitation of children and adolescents, is a known and serious threat. Indicators that are relevant not only for the financial and banking sectors, but also for the real estate, tourism, transportation, hospitality, and restaurant industries including unusual accommodation requests, such as deactivating security cameras, delivering keys through third parties, or inquiring about the presence of neighboring guests.

When identifying human trafficking, it’s wisest to examine it from a financial perspective to find important indicators, and the financial sector plays a critical role given its capacity to detect suspicious accounts.

These industries should also be on the lookout for any adult or group of adults traveling with an unusually large number of minors, or individuals who travel in silence and are accompanied by someone who appears to exercise visible control over them.

As the World Cup approaches, financial institutions’ compliance teams must recognize that the same operational conditions that make major sporting events exciting — high transaction volumes, new customers, cross-border flows, and institutional attention diverted toward the event itself — are precisely the conditions that money launderers and traffickers seek to exploit.

For these compliance teams, monitoring systems must be updated, know-your-customer processes must go beyond documentation and reflect a genuine understanding of the client’s activity and context, and on-site verification visits must be conducted by personnel who know exactly what they are looking for.

The financial sector does not need to become an investigative body; however, it does need to remain alert, informed, and willing to report. Indeed, this is exactly what the compliance function exists for, and in the context of human trafficking, the cost of silence is measured not in fines or reputational damage, but in human lives.

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Key takeaways:

• • • Q2 is a wound that heals if the war stops — Oil spikes, inflation revisions, and supply disruptions are painful but mostly reversible in a short-war scenario. The exception is insurance and risk premiums for Gulf maritime transit, which are permanently repriced.

    • Q3 is a wound that scars — Sustained oil at $130 per barrel changes household and business behavior in ways that don’t snap back. Recession probability crosses the coin-flip threshold and supply chain disruptions cascade into industries far from the Gulf.

    • Q4 is a different body — Even if the war ends, the global economy has rebuilt itself around the disruption. Trade routes, supplier relationships, and risk models have been permanently rewired, especially if there is nothing structural to prevent the Strait from closing again.

This is the second of a two-part series on the impact of the war with Iran as the conflict continues. In this part, we’ll walk through what a quarter-by-quarter economic scenario would look like if the war continues.

Previously, we made the case that the US-Iran war is unlikely to end quickly. The regime hasn’t collapsed, the asymmetric force controlling the Strait of Hormuz is nowhere near neutralized, and diplomacy seems dead on arrival. Most significantly, the United States military is escalating, not winding down.

While the first part of this series was about the military and diplomatic picture, this piece is about your balance sheet.

What follows is a quarter-by-quarter map of what a prolonged conflict means for the global economy, charted from now through Christmas 2026. We’ll cover how oil, supply chains, GDP forecasts will be revised in real time, and how disruptions that look temporary in Q2 could trigger a permanent rewiring of how the global economy moves goods, prices risk, and sources critical inputs.

Even if your company doesn’t import a single barrel of Gulf crude, you could still get hit by this. Indeed, if you’re plugged into the global economy like the rest of us, you’re going on this ride.

Q2 2026 (April–June): The wound that heals

If the war ends by the close of the second quarter on June 30, most of the damage is reversible — painful, but reversible.

Brent crude is up about 60% since before the start of the war when it was roughly $70 per barrel; and Capital Economics , prices could fall back toward $65 by year-end. The interim outlook from the Organisation for Economic Co-operation and Development (OECD) now to be 4.2% for 2026, up sharply from 2.8%, assuming energy disruptions ease by mid-year. If that assumption holds true, it’s likely we’ll be able to muddle through the pain.

Even in the most optimistic scenario, however, Q2 introduces disruptions beyond oil that most people aren’t tracking. The Gulf supplies roughly 45% of global sulfur, and Qatar produces around one-third of the world’s helium, which is essential for semiconductor manufacturing. Further, Qatar’s liquified natural gas (LNG) production was significantly damaged by Iranian strikes.

Even in the most optimistic scenario, however, Q2 introduces disruptions beyond oil that most people aren’t tracking.

Further disruptions in fertilizer supply chains could delay spring planting, which could ripple into agricultural yields well into 2027. These effects don’t snap back the moment oil flow normalizes; they have their own timelines.

And here’s the one thing that doesn’t reverse even in the best case — risk premiums. The Strait of Hormuz was priced as a chokepoint that would never actually close. So when it did, that repricing is permanent and will be felt across the world as risk around other too important to fail chokepoints is itself reevaluated and priced higher.

Q3 2026 (July–September): The wound that scars

If a Q2 end to the war represents a recoverable spike, a Q3 end is where the word structural starts showing up in the discussion.

Capital Economics models Brent at roughly $130 per barrel — or roughly 14% higher than where it is now — in a prolonged scenario. At those prices, the damage stops being abstract. And Moody’s Analytics chief economist Mark Zandi estimates that every sustained $10-per-barrel increase . At $130 (nearly double pre-war levels) that’s approaching $2,700 per family. That is the kind of money that changes behavior.

In this case, Zandi says, especially if the cost of oil stays elevated for months — and by Q3, it would have. Moody’s recession probability model was pushing 50% in late-March when oil was $108 per barrel. At $130, the math speaks for itself.

Again, in this scenario, the damage fans out beyond energy. Fertilizer shortages hit crop yields, and helium disruptions cascade into semiconductors, automotive, and medical devices. The potential impact on AI-related manufacturing alone could spook investors already primed to see AI as a bubble. Capital Economics projects Eurozone growth at 0.5% and Chinese growth below 3%. Emerging markets could face forced rate hikes that deepen their own recessions.

This is the quarter in which contingency plans become operating assumptions. The question is no longer When does this go back to normal? —��rather the question is whether normal is coming back at all.

Q4 2026 and beyond: The different body

Here’s what most forecasts don’t capture about a war that continues passed Q4: It almost doesn’t matter whether the war is still active or not. The damage has changed shape, and it’s no longer about what the conflict is doing to the global economy. Instead, it’s about what the global economy has done to itself in response.

Companies that spent Q2 and Q3 diversifying away from Gulf suppliers have now spent real money building alternatives. They are not going back to their pervious pathways even if there is a ceasefire. The sunk costs make the reversal unthinkable, and the memory of this conflict makes it irrational. No supply chain director is walking into a boardroom to recommend re-concentrating risk in a chokepoint that closed once and might close again.

The prudent approach for companies remains clear. They should plan for the war to last into at least Q2, probably Q3, with structural effects persisting beyond.

Because, of course, it could close again. If Iran emerges weakened but intact, which is the most likely outcome per multiple intelligence assessments, the result is a hostile state with every incentive to reconstitute its asymmetric capabilities the moment the pressure lifts.

Companies are thus going to reroute their future supplies around the Strait rather than through it. High oil prices and the potential for global shortage will also further accelerate green energy initiatives or alternate fuel sources across the globe as oil security reenters geopolitical calculations. Most importantly, every organization’s supply chain will need a reevaluation in light of an increasingly dangerous world, with expensive secondary supply chains becoming more a necessity than a luxury.

That’s the real legacy of a war continuing past the end of this year. Not oil prices on any given day or even insurance premiums, but the permanent repricing of an assumption. The war didn’t just disrupt the flow of goods through the Strait of Hormuz, it broke the premise that some geographies were too big to fail and would be protected and kept open. Once that premise is now broken so thoroughly companies will need to reevaluate whether the concentration of risk in individual areas is a luxury they can afford. Many will find the answer to be no, resulting in an increased push to diversify risk away from single points of failure.

The planning imperative

Fortunately, the best-case scenario remains possible. However, it requires Iran accepting terms it has publicly rejected as existential, its navy being neutralized despite retaining significant asymmetric combat capability, a coalition materializing from countries that have refused to send warships, and mine-clearance operations succeeding with the deck stacked against them. Only then, we’ll see if civilian traffic is willing to risk billions of dollars that the clean-up job was done right. Each is possible, but the odds remain slim.

The prudent approach for companies remains clear. They should plan for the war to last into at least Q2, probably Q3, with structural effects persisting beyond. They should model energy prices at between $120 and $150 per barrel, not $70. The smart companies are the ones building optionality now because the cost of flexibility is far lower than the cost of being caught flat-footed in September.

Four weeks ago, the assumption was that the Strait of Hormuz was too important to close. However, it did, and the assumption that it will reopen quickly deserves the same scrutiny.

You can find out more about the��geopolitical and economic situation in 2026��here

Key insights:

• • • Convenience has outpaced consumer understanding —��Many users treat apps, prepaid accounts, and rewards programs as simple payment tools, remaining unaware they are entrusting their money to entities with few safeguards.

    • Risk is no longer confined to traditional banks — Some of the most significant financial activities now occur within platforms and brands that do not resemble banks at all.

    • Opacity enables systemic vulnerability — The less transparent an institution’s obligations, leverage, and oversight, the easier it is for financial fragility, misconduct, and systemic risk to grow unchecked.

When you think of where money is held, you generally think of a bank. However, as we look at the financial landscape today, money is being held at a wide range of institutions that often have varying levels of safety and oversight. Entities from Starbucks to Visa to Coinbase hold money for individuals, effectively serving as a bank, but often without the regulatory framework that comes with it.

Behind the scenes, it can seem like . In its daily operation, it collects prepaid funds that resemble deposits, holds them as liabilities, and uses them internally — all without offering interest, cash withdrawals, or FDIC insurance. Starbucks’ rewards program holds $1.8 billion in customer cash, and if it were a bank, that would make it bigger, , than 85% of chartered banks, making the coffee chain one of the .

This dynamic extends well beyond coffee shops. “Popular digital payment apps are increasingly used as substitutes for a traditional bank or credit union account but lack the same protections to ensure that funds are safe,” warns the . If a nonbank payment app’s business fails, your money is likely lost or tied up in a long bankruptcy process.

Shadow banking

Think of a Starbucks gift card as a financial instrument. Technically it is one, but no one seriously worries about it being weaponized for any large-scale financial crimes. Most people’s concerns about a gift card is either losing it. The real concern lies not in lost gift cards, however, but in the broader trend: Nonbank institutions managing vast sums without commensurate oversight — and scale matters. A lost gift card is a personal inconvenience; but an unregulated institution managing billions of consumer dollars in leveraged capital is a systemic one.

Shadow banking encompasses credit and lending activities by institutions that are not traditional banks, and crucially, they do not have access to central bank funding or public sector credit guarantees. And because they are not subject to the same prudential regulations as depository banks, they do not need to hold as high financial reserves relative to their market exposure, allowing for very high levels of leverage which in turn can magnify profits during boom periods and compound losses during downturns.

The shadow banking ecosystem is diverse, and each segment of it presents distinct risks:

• • Hedge funds and private equity firms��— Firms like Blackstone, KKR, and Apollo manage vast capital pools using leveraged strategies under limited oversight. Their size and borrowing levels may mean that market reversals can trigger rapid deleveraging, spilling risk into broader markets.
  • Family offices��— A private company or advisory firm that manages the wealth of high-net-worth families, these can operate with even less transparency and often outside direct regulatory scrutiny, enabling them to engage in extreme leveraging and posing risks of sudden collapse.
  • Nonbank mortgage lenders and FinTechs��— This group faces lower capital requirements than traditional banks, leaving thinner buffers to absorb losses during downturns, which can be especially concerning considering this sector’s rapid growth.
  • Crypto exchanges��— Like much of the cryptocurrency ecosystem, these exchanges operate in jurisdictional gray zones, complicating enforcement and enabling illicit financial flows.
  • Money market funds — While these are generally perceived as safe, they can suffer runs if confidence in underlying assets erodes, which can force fire sales that destabilize related markets.
  • Special Purpose Vehicles (SPVs) and Structured Investment Vehicles (SIVs)��— These investment instruments allow large institutions to move risk off their balance sheets, rendering such activity invisible to regulators.

Shadow banking may be the single greatest challenge facing financial regulation. These non-traditional institutions act like banks, but without the safeguards that make banks accountable. And where accountability is absent, opportunity often fills the void.

The same opacity that makes shadow banking difficult to regulate also makes it attractive to those with less legitimate intentions. Without mandatory reporting requirements, standardized oversight, or the threat of deposit insurance revocation, these institutions can become conduits for money laundering, fraud, terrorist financing, and sanctions evasion in ways that traditional banks simply cannot. The question is no longer whether these vulnerabilities exist, but how they continue to be exploited.

The challenge of regulation

The global financial system has always evolved faster than the rules designed to govern it. What began as a coffee loyalty program and a few alternative lending platforms has quietly morphed into a parallel financial universe, one that moves trillions of dollars with a fraction of the transparency that traditional banking requires. That gap between innovation and oversight is not just a regulatory inconvenience, it’s an open door for illicit actors.

Closing that door will require more than periodic enforcement actions or piecemeal legislation. It will require regulators, lawmakers, and institutions to reckon honestly with how broadly the definition of a financial institution has expanded, and who bears the risk when things go wrong. Because historically, it has not been the institutions themselves; rather it has been the customers, the investors, and ultimately the public.

The first step, of course, is awareness. Recognizing that your money does not need to be in a bank to be at risk and that the custodians of that money need not be offshore shell companies to operate in shadows, can transform how we think about financial safety.

The line between a convenient app and an unaccountable financial intermediary is thinner than most realize. And in the world of financial crime, thin lines have a way of vanishing entirely.

You can learn more about the��many challenges facing financial institutions today��here

Key takeaways:

• • • Only IEEPA‑based tariffs are up for refund — Refunds will flow electronically to importers of record through ACE, the government’s digital import/export system, but only once CBP’s process is finalized.

    • Liquidation and protest timelines are now critical — An organization’s tax concepts that directly influence which entries are eligible and how long companies have to protect claims.

    • Tax functions must quickly coordinate with other corporate functions — In-house tax teams need to coordinate with their organization’s trade, procurement, and accounting functions to gather data, assert entitlement, and get the financial reporting right on any tariff refunds.

WASHINGTON, DC — When the United States Supreme Court issued its much-anticipated ruling on President Donald J. Trump’s authority to impose mass tariffs under the International Emergency Economic Powers Act (IEEPA) in February it set the stage for what it to come.

The Court ruled the president did not have authority under IEEPA to impose the tariffs that generated an estimated $163 billion of revenue in 2025. In response, the Court of International Trade (CIT) issued a ruling in requiring the U.S. Customs and Border Protection (CBP) to issue refunds on IEEPA duties for entries that have not gone final. That order, however, is currently suspended while CBP designs the refund process and the government considers an appeal.

At��the recent , tax experts discussed what this ruling means for corporate tax departments, outline what is and isn’t a consideration for refunds and the steps necessary to apply for refunds.

As panelists explained, the key issue for tax departments is that only IEEPA tariffs are in scope for refund — many other tariffs remain firmly in place. For example, on steel, aluminum, and copper; Section 301 tariffs on certain Chinese-origin goods; and new of 10% to 15% on most imports still apply and will continue to shape effective duty rates and supply chain costs.

So, which entities can actually get their money back?

Legally, CBP will send refunds only to the importer of record, and only electronically through the government’s digital import/export system, known as the Automated Commercial Environment (ACE) system. That means every potential claimant needs an with current bank information on file. And creating an account or updating it can be a lengthy process, especially inside a large organization.

If a business was not the importer of record but had tariffs contractually passed through to it — for example, by explicit tariff clauses, amended purchase orders, or separate line items on invoices — they may still have a commercial basis to recover their share from the importer. In practice, that means corporate tax teams should sit down with both the organization’s procurement experts and its largest suppliers to identify tariff‑sharing arrangements and understand what actions those importers are planning to take.

Why liquidation suddenly matters to tax leaders

As said, the Atmus ruling is limited to entries that are not final, which hinges on the . CBP typically has one year to review an entry and liquidate it (often around 314 days for formal entries) with some informal entries liquidating much sooner.

Once an entry liquidates, the 180‑day protest clock starts. Within that window, the importer of record can challenge CBP’s decision, and those protested entries may remain in play for IEEPA refunds. There is also a 90‑day window in which CBP can reliquidate on its own initiative, raising questions about whether final should be read as 90 days or 180 days — clearly, an issue that will matter a lot if your company is near those deadlines.

Data, controversy risk & financial reporting

The role of in-house tax departments in the process of getting refunds requires, for starters, giving departments access to entry‑level data showing which imports bore IEEPA tariffs between February 1, 2025, and February 28, 2026. If a business does not already have robust trade reporting, the first step is to confirm whether the business has made payments to CBP; and, if so, to work with the company’s supply chain or trade compliance teams to access ACE and run detailed entry reports for that period.

Summary entries and heavily aggregated data will be a challenge because CBP has indicated that refund claims will require a declaration in the ACE system that lists specific entries and associated IEEPA duties. Expect controversy pressure: As claims scale up, CBP resources and the courts could see backlogs. If that becomes the case, tax teams should be prepared for protests, documentation requests, and potential litigation over entitlement and timing.

On the financial reporting side, whether and when to recognize a refund depends on the strength of the legal claim and the status of the proceedings. If tariffs were listed as expenses as they were incurred, successful refunds may give rise to income recognition. In cases in which tariffs were capitalized into fixed assets, however, the accounting analysis becomes more nuanced and may implicate asset basis, depreciation, and potentially transfer pricing positions.

Coordination between an organization’s financial reporting, tax accounting, and transfer pricing specialists is critical in order that customs values, income tax treatment, and any refund‑related credits remain consistent.

Action items for corporate tax departments

Corporate tax teams do not need to become customs experts overnight, but they do need to lead a coordinated response. Practically, that means they should:

• • • confirm whether their company was an importer of record and, if so, ensure ACE access and banking information are in place now, not after CBP turns the refund system on.
    • map which entries included IEEPA tariffs, identify which are non‑liquidated or still within the 180‑day protest window, and file protests where appropriate to protect the company’s rights.
    • inventory all tariff‑sharing arrangements with suppliers, assess contractual entitlement to pass‑through refunds, and align with procurement and legal teams on a consistent recovery approach.
    • work with accounting to determine the financial statement treatment of potential refunds, including whether and when to recognize contingent assets or income and any knock‑on effects for transfer pricing and valuation.

If tax departments wait for complete certainty from the courts before acting, many entries may go final and fall out of scope. The opportunity for tariff refunds will favor companies that are data‑ready, cross‑functionally aligned, and willing to move under time pressure.

You can find out more about the changing tariff situation here

Key insights:

• • • Nature-related risks underreported — Companies’ nature-related interfaces are underreported across industries, despite being increasingly seen as decision-useful information for investors and regulators.

    • Stricter requirements for disclosure growing — Both voluntary and mandatory frameworks are increasing their requirements for nature-related disclosure.

    • Organizations should be proactive — Getting ahead of disclosure trends means that organizations should be measuring their nature-related interface as well as integrating nature-positive transition planning to their business strategy.

As the impacts of nature loss become more prevalent, companies are on business risk and performance. This is due to both physical nature-related impacts and increasing stakeholder pressure on organizations to integrate long-term nature-positive strategies. Managing nature-related impacts and dependencies is a framework-driven mandate for all boards of directors to consider.

Why nature matters

All businesses impact and depend on the four realms of nature: land, freshwater, ocean, and atmosphere to some extent, with the highest impact sectors being . These dependencies could include the provision of water supply to an organization, or services provided by nature to a business, such as flood mitigation. A could result in a $2.7 trillion GDP decline annually by 2030. In turn, most businesses also positively and negatively impact nature.

Financial flows that were determined to be harmful to biodiversity reached , including private investment in high impact sectors, with only $213.8 billion (€184.6 billion) invested in conservation and restoration. Despite this financing gap, less than 1% of publicly reporting companies currently disclose biodiversity impacts, indicating the need to align incentives and policies with nature-related outcomes.

Indeed, nature does not have a single indicator, like greenhouse gas (GHG) emissions; instead, its measurement involves multiple complex, location-specific factors. Despite this, disclosure of nature-related risks and impacts are increasingly being required by regulators.

Regulatory incentives to disclose

The disclosures being driven by regulatory frameworks include material information on all nature-related risks, particularly those requested by the International Sustainability Standards Board (ISSB) and European Sustainability Reporting Standards (ESRS). The ISSB Biodiversity Ecosystem and Ecosystem Services project (BEES) was initially considered a research workplan but was modified to a standard-setting approach.

Through its work, the ISSB due to: i) the deficiencies in the type of information on nature-related risks and opportunities reported by entities, which are identified as important in investor decision-making; and ii) the requirement of nature-related information that is not included in climate-related disclosures, including location-specific information on nature-related interface and nature-related transition planning.

On Jan. 28, all 12 ISSB members voted to , which included two important implications. One is that standard setting is to cover all material information on nature-related risks and opportunities that could be expected to affect an entity’s prospects. And two, it mandated that entities applying International Financial Reporting Standards��S1 and S2 for climate-related disclosures supplement these with nature-related risks and opportunities disclosures as well.

Similar to the ISSB requirements to report material nature-related risks and opportunities, the ESRS also requires information to be disclosed for material impacts, risks, and opportunities found in an entity’s double-materiality assessment. The Task Force on Nature-related Financial Disclosures (TNFD) and its European counterparts have been in close collaboration since 2022, and all 14 TNFD recommendations have been incorporated throughout the ESRS environmental standards.

Companies that are required to comply with the EU’s sustainability reporting mandate also will be required to collect similar data for their future ESRS data points disclosure.

Alongside regulatory requirements, there are voluntary requirements and investor pressure to consider for many organizations. These include investor coordination initiatives on nature such as Nature Action 100 and considering which investors look at Carbon Disclosure Project (CDP) data.

To use the CDP as an example, 650 investors with $127 trillion in assets they needed in 2025. Further, the CDP is increasing its disclosure requirements for nature-related data in its questionnaire as it progresses to . This includes, for example, requiring disclosures on environmental impacts and dependencies for disclosers, enhancing commodities included in the forests questionnaire, and introducing oceans-related questions in 2026.

All of these heightened requirements underscore the need to measure a company’s nature-related impacts and proximity to its nature-related issues.

Implications for company boards

To align with these additional requirements and investor expectations, corporate decision-makers should consider the questions they are asking related to nature, as well as what data is being collected in relation to the organization’s impact on nature. The following steps can give leaders a starting point for how boards should consider this information:

Track relevant developments in regulatory and investor standards — Ensure there is a management-level understanding of how nature is considered in relevant standards for the company based on its current and anticipated locations of operation and specific industry.

Measure nature-related risks and opportunities — Given that identifying material nature-risks, with a particular focus on location specificity, is a common first step across current mandatory and voluntary regulatory frameworks, organizations should conduct a regularly updated, location-specific assessment on the company’s interface with nature, especially in instances in which these issues are material. Organizational leaders should also produce financial quantification of these risks within an overall materiality assessment and corporate risk register. For guidance, the best practice across these regulatory and disclosure frameworks is to utilize the .

Make further disclosure of any material nature-related information, including financial quantification — Frameworks such as the ESRS require further disclosure of any risks that are found to be material, including financial quantification and scale of the risk.

Integrate mitigation of nature-related risks in business strategies — Upcoming standards and research, such as that from the ISSB, indicates that missing disclosure includes company’s nature-positive transition planning. Consider how to integrate nature into long-term business strategies for full alignment with upcoming regulations and standards, including establishing nature-related governance.

Adopting these processes and integrating nature into corporate decision-making will provide corporations with a more future-proof and resilient business model. The increased adoption of nature within these frameworks is driven by the clear economic impact that our current loss of nature is having. This will only continue to become more of a priority as the impacts of nature loss are increasingly felt worldwide.

You can find out more about the��sustainability issues companies are facing around the environment��here

Key insights:

• • • Geopolitical crises fuel financial volatility and illicit activity — Conflicts have traditionally accelerated capital shifts and flows, creating cover for bad actors.

    • Predictable patterns emerge — Financial institutions should watch for sudden cross-border activity, unusual cash deposits, and transactions from border areas.

    • Conflict zones enable black market expansion — They also should adapt their compliance systems to detect more sophisticated methods used by criminals, tightening screening and enhancing staff training.

While business and international politics may appear cold and calculating, these things are often driven by emotion, especially fear — and fear of instability often drives market volatility.

So it goes as the United States attacks one of the world’s largest militaries and supporters of regional terror groups, causing deepening instability in a Middle East already beset by violence. It is certain that there is already a surge of money flowing in and out of the region for different reasons. Legitimate and illegitimate actors alike will seek to both run away from the crisis and profit from it. However, there are some anti-money laundering specific thoughts that financial institutions need to consider during a time of global uncertainty.

The bottom line — lots of money is on the move. Funding will send aid groups towards the crisis; it will also send logistical supplies, war material, and other necessities. All of these cost money, and defense sectors in multiple countries will be pumping out munitions to refill stockpiles in any country that is related to or in the neighborhood of the conflict.

Not every large transaction is an unusual, reportable event, but financial institutions now need to look one or two layers below the surface. What does not seem related on the surface is always a red flag. Look at beneficial ownership of companies and vessels, look at relations of the owners, not just the ��(OFAC) results of those people themselves. The financial system will, and should, allow the legitimate funds to flow. However, financial investigators must remain diligent to catch bad actors that take advantage of the surge in non-profit activity or the urgency with which legitimate businesses operate in a conflict zone.

Risk Factor 1: Capital flight from regime change

Just as the fall of the Al-Assad regime in Syria caused family funds to flow to as regime members fled the country, you will see the same with politically exposed persons (PEPs) who are inevitably fleeing regime change in Iran. A political crackdown will come. Whether the victors are on the side of the West or not remains to be seen, but some factions are going to flee the country and take family wealth with them.

Banks and other financial services should watch for anyone connected to people moving money through neighboring countries in which they may have literally hiked or driven before depositing cash into a financial institution. There are stories of refugees leaving places with gold bands on their arms, cash and false bottom purses, and diamonds in the lining of sweaters. These things will be converted to cash in neighboring countries and put into financial systems less affected by the conflict. An influx of cash throughout the region, therefore, could indicate this type of capital flight.

Risk Factor 2: Illicit finance and black markets

Since the fall of Syria, we have also become aware of that helps fuel addiction and armed conflict. There are certainly other substances and drug trafficking networks about which we know very little on this side of the secrecy veil.

Therefore, this instability will be seen as a time of opportunity for criminal groups. Indeed, with Assad’s security forces no longer controlling middle eastern captagon and other narcotics trade and various armed groups looking for funding sources, this is an illicit business opportunity.

Financial institutions can expect rapid movement of money between unrelated shell corporations, new corporations, and shadow vessels. They also should expect the black market to boom with drugs, contraband Iranian oil, and funds tied to narcotics that they have only yet to discover. Illegal arms will also generate funding, so all of the methods, both formal and informal, used to transfer value will become active.

In fact, large portions of such funding will flow through financial institutions; and peer to peer payment providers, FinTechs, and money transmitters should be especially wary of funds moving rapidly through their platforms. A burst in conflict means a burst in activity from illicit sources; therefore, enhanced, targeted monitoring is a must.

How financial institutions’ risk & compliance teams should respond

First, all financial institutions’ risk & compliance departments need to assess their institutions’ OFAC and sanctions screening search parameters. This is a good time to dial up fuzzy logic capability and reduce match percentage thresholds. In other words, risk tolerance should go down while the metaphorical dragnet gets wider. Surge the department’s personnel capability to compensate if you have to, because that is better than a strict-liability OFAC fine. Remember, OFAC sanctions are closely tied to national security, especially when it comes to Iran. This is not an arena in which leniency can be expected. Compliance teams should look at monitoring systems and thresholds immediately, create geographical targeting models to cover the conflict zone, and consider a command center approach to deal with the fluidity of the situation until things settle.

If your institution has not already taken the hint from regulators, this also is an opportunity to double down on Customer Due Diligence and identity verification. Front line staff and embedded business compliance personnel should receive updated training and job aids to increase awareness and hone internal reporting. Indeed, it is an advanced business skill to understand complex corporate beneficial ownership, much less to detect when it may be tied to illicit activity or corrupt regimes. Now is the time to increase that level of knowledge and thereby make the culture of compliance more robust.

In every crisis there is opportunity as well as risk: Managing the risk allows every company to take advantage of the opportunity, shore up its mission, and strengthen the institution.

You can find out more about��the geopolitical and economic outlook for 2026��here

Key highlights:

• • • Map risks before building— Distinguish between foreseeable harms that may be embedded in your product’s design and potential misuse by bad actors.

    • Safety processes need real authority— An AI safety framework is only credible if it has the power to delay launches, halt deployments, or mandate redesigns when human rights risks outweigh business incentives.

    • Triggers enable proactive intervention— Define clear, automatic review triggers such as product updates, geographic expansion, or emerging patterns in user reports to ensure your safety processes adapt as risks evolve rather than reacting after harm occurs.

In recent months, the human cost of AI has become impossible to ignore. after interacting with AI chatbots, while generative AI (GenAI) tools have been weaponized to create that digitally undress women and children. These tragedies underscore that the gap between stated values around AI and actual safeguards remains wide, despite major tech companies publishing responsible AI principles.

, a senior associate at , who works at the intersection of technology and human rights, argues that closing this gap requires companies to: i) systematically assess both foreseeable harms from intended AI use and plausible misuse by bad actors; and ii) build safety processes powerful enough to actually stop launches when risks to people outweigh commercial incentives.

Detailing the two-step framework for anticipating and addressing AI risks

To build effective AI safety processes, companies must first understand what they’re protecting against, then establish credible mechanisms to act on that knowledge.

Step 1: Mapping foreseeable arms and intentional misuse

When mapping AI risks during “responsible foresight workshops” with clients, Richard-Carvajal says she takes them through a process that identifies:

• • foreseeable harms that emerge from a product’s design itself. For example, algorithm-driven recommender systems — which often are used by social media platforms to keep users on the site — are designed to drive engagement through personalized content, and are well-documented in amplifying sensationalist, polarizing, and emotionally harmful content, according to Richard-Carvajal.

• • intentional misuse that involves bad actors who may weaponize technology beyond its purpose. Richard-Carvajal points to the example of Bluetooth tracking devices, which initially were designed to help people find lost items, but were quickly exploited by stalkers, who placed them in victims’ handbags in order to track their movements and in some cases, to follow them home.

Tactically, the role-playing use of “bad actor personas” by Richard-Carvajal and her colleagues can help clients imagine misuse scenarios and help ensure companies anticipate harm before it occurs rather than responding after people have been hurt.

Step 2: Building a credible AI safety process

Once risks are identified, Richard-Carvajal says she advises that companies identify mechanisms to address them.��The components of a legitimate AI safety framework mirror the structure of robust human rights due diligence by centering on the risks to people.

Indeed, Richard-Carvajal identifies core components of this framework, which include: i) hazard analysis and to anticipate both foreseeable harms and potential misuse; ii) incident response mechanisms that allow users to report problems; and iii) ongoing review protocols that adapt as risks evolve.

Continual evaluation of new emerging risks is needed

As AI capabilities advance and deployment contexts expand, companies must continuously reassess whether their existing safeguards remain adequate against evolving threats to privacy, vulnerable populations, human autonomy, and explainability. Richard-Carvajal discusses each one of these factors in depth.

Privacy — Traditional privacy mitigations, such as removing information that leads to identifying specific individuals, are no longer sufficient as AI systems can now re-identify individuals by linking supposedly anonymized data back to specific people or using synthetic training data that still enables re-identification. The rise of personalized AI — in which sensitive information from emails, calendars, and health data aggregates into comprehensive profiles shared across third-party providers — can create new privacy vulnerabilities.

Children — Companies must apply a heightened risk lens for vulnerable populations, such as children, because young users lack the same capacity as adults to critically assess AI outputs. Indeed, the growing concerns around AI usage and children are warranted because of AI-generated deepfakes involving real children are being created without their consent. In fact, Richard-Carvajal says that current guidance calls for specific child rights impact assessments and emphasizes the need to engage children, caregivers, educators, and communities.

Cognitive decay — A growing concern is that too much AI usage can harm human autonomy and contribute to a decline in critical thinking. This occurs when , and it has the potential to undermine their human rights in regard to work, education, and informed civic participation.

Meaningful explainability — Companies’ commitment to explainability as a core tenet of their responsible AI programs was always a challenge. As synthetic AI-generated data increasingly trains new models, explainability becomes even more critical because engineers may struggle to trace decision-making through these layered systems. To make explainability meaningful in these contexts, companies must disclose AI limitations and appropriate use contexts, while maintaining human-in-the-loop oversight for consequential decisions. Likewise, testing explanations should require engagement with actual rights holders instead of just relying on internal reviews.

Moving forward safely

While no universal checklist exists for AI safety, the systematic approach itself is non-negotiable. Success means empowering engineers to identify and address human-centered risks early, maintaining ongoing stakeholder engagement, and building safety processes that have genuine authority to delay launches, halt deployments, or mandate redesigns when human rights outweigh commercial pressures to ship products.

If your company builds or deploys AI, take action now: Give your engineers and risk teams the authority and resources to identify harms early, keep continuous engagement with affected people and independent stakeholders, and create governance that have the power to keep harm from happening.

Indeed, companies need to make sure these steps go beyond simple best practices on paper and make these protective processes operational, measurable, and enforceable before their next product release.

You can find more about human rights considerations around AI in our ongoing��Human Layer of AI series��here