On March 1, dozens of African startups received a disturbing notification from their banks: their accounts were being suspended. Payments bounced; some couldn’t access their funds. It created chaos, as management teams scrambled to find alternative ways of getting paid.

All of the startups were clients of Mercury, an American neobank for small businesses, which said in emails to the affected companies that its compliance team had flagged the accounts for suspicious behavior. Shortly afterward, Mercury’s CEO, Immad Akhund, emailed to say that the action had been prompted by the fintech company’s bricks-and-mortar banking partner, the Memphis-based Evolve Bank & Trust, which provides the fintech with regulatory cover for services such as FDIC-insured bank accounts and debit card issuing.

The direct cause of the suspension is unclear — Mercury and Evolve Bank & Trust did not respond to requests for comment at the time of publishing — but multiple sources at international and Nigerian banks told Rest of World that the unprecedented sanctions imposed on Russian financial institutions following the country’s invasion of Ukraine have spurred banks to review accounts in “high-risk” jurisdictions worldwide. When this happens, African companies are often caught up.

The suspensions have highlighted a perennial problem for African startups when it comes to international banking. African startups often prefer not to domicile their funds in local banks, where they have to contend with restrictive capital controls. In Nigeria, where the currency’s value has fallen progressively, businesses and individuals are worried that the banking regulator might forcibly convert dollar deposits into the local currency.

But opening an international bank account can be challenging. International “know your customer,” or KYC, rules, created to prevent money laundering, terrorist financing, and other financial crimes, require banks, and anyone who’s processing financial transactions, to collect large amounts of data on their end clients and to monitor their banking activity. These are often very difficult for startups in Africa. National identity records are rarely comprehensive, and there are often no standardized systems for addresses, meaning that the startups struggle to provide even the most basic data that the regulations require.

“Even if you pass the [Know Your Customer] requirements as an African, you can get shut down for vague reasons.”

Speaking on condition of anonymity, one compliance officer at a U.K. bank told Rest of World that when foreign banks discover unusual transaction patterns by African customers or customers based on the continent, rather than investigate, they are more likely just to block accounts en masse.

The difficulty of meeting the bar for KYC in Africa has meant that many parts of the continent are unable to access global payments systems. Fintech companies and banks often won’t work with customers in countries that, like Nigeria, are seen as having a high risk of fraud, leaving local companies and individuals to find unconventional ways to access international platforms or services. Some companies use cryptocurrency and virtual dollar-denominated bank accounts created by local fintechs, but it is not uncommon for people to ask for help from contacts based overseas, and to use hard-currency-denominated gift cards in lieu of dollars, to get around the restrictions.

Opening a U.S. bank account is one of the hardest things an African startup has to do, said Wole Ayodele, CEO of Fincra, a Nigerian fintech providing international business banking services to African startups. “Even if you pass the KYC requirements, as an African, you can get shut down for vague reasons,” he said.

Many investors require startups to incorporate in business-friendly jurisdictions, such as Delaware in the U.S., as a precondition for venture funding. African companies have used Mercury to set up U.S.-domiciled bank accounts to help them receive payments and investment from international partners. Mercury, whose investors include venture capital giant Andreessen Horowitz, provides wire transfers, virtual and physical payment cards, and FDIC-insured bank accounts to small businesses. It has $4 billion in deposits from more than 40,000 companies, in 200 countries, according to its own data.

The overall impact of Mercury’s suspensions is hard to gauge, because founders have been hesitant to comment publicly. However, on background, one fintech CEO said that the measure had led to an investment bouncing back. “The error message was ‘account closed,’” he said. Others said they were locked out of their bank accounts, preventing them from carrying out important transactions.

Modupe Odele, a lawyer who works with startups in Nigeria, said she’d counted more than 100 affected companies from within her network.

Mercury’s Akhund said in an email to clients that resolving the issue is the company’s “highest priority,” but did not give a timeline for it to be fixed. Three companies directly affected told Rest of World they have started engaging with the fintech’s compliance arm to hasten the resolution process. It’s unclear how quickly their accounts will be reactivated, and many in the industry expect that this isn’t going to be an isolated incident.“It’s going to get worse,” Jude Dike, CEO of GetEquity, a Nigerian blockchain-based investing platform, told Rest of World.