PLACENCIA, Stann Creek, Wed. Feb. 17, 2016–Countries across the Caribbean are being impacted by the decision by foreign banks, primarily US banks, to cut their ties with indigenous banks in our region amid fear that they could face sanctions from their metropolitan authorities if tainted money passes through their banks. Belize has been grappling with the impacts of what has been called “de-risking” for years now, but the matter came into the public spotlight in 2015 when Belize Bank was cut off by Bank of America, a well-known US bank. The small Caribbean island of Montserrat has only two banks, and one of them finds itself in the same boat.
In 2015 key players in the region stepped up their search for answers, and at their meeting held in Belize this week Heads of Government of the Caribbean Community (CARICOM) decided that they would do everything they can to resolve the region-wide problem which threatens to cripple their economies.
CARICOM Secretary-General, Ambassador Irwin LaRocque, told Amandala that the technical people had been working to address the problem long before the meeting in Placencia, Belize. The milestone reached this week means that CARICOM has “ramped up its action on the political front,” and meetings with officials in the US could begin within the next month or two.
CARICOM chairman, Hon. Dean Barrow, Prime Minister of Belize, said that CARICOM will employ the full gamut of options available to it to confront the banking crisis that is threatening the region. Among the suggestions is for the region to charter its own bank in the US with which to do correspondent banking business. Another suggestion is business mergers to achieve the critical mass needed to make the Caribbean’s banking business more attractive to US banks.
Foreign banks have been cutting ties in the face of possible sanctions for transactions that may be flagged by US authorities, sanctions which may cost them too much for what they are earning from their business with Caribbean banks.
According to Barrow, US regulators have said that they are prepared to look at lessening the weight of the regulatory burden but in a way that would not reduce their effectiveness.
Barrow announced that CARICOM representatives will raise the international profile of the banking issues confronting CARICOM. This, he said, will include approaching the United Nations and the World Trade Organization, among others.
Hon. Gaston Browne, Prime Minister of Antigua and Barbuda, will lead a high level advocacy group, which will do the legwork to meet with international political leaders.
“The goal is to underline to all the key players, including the US Congress, how absolutely existential this issue is for us,” Barrow said.
Barrow, who had previously discussed the threat of de-risking to Belize with US president Barack Obama, would also write Obama on CARICOM’s behalf in his role as Community chair.
Central Bank Governor Glenford Ysaguirre, who represented Belize in Monday’s finance meeting, told Amandala that all CARICOM countries are now seriously affected by the decision by foreign banks, primarily US ones, to reduce correspondent banking services or to entirely sever their correspondent banking relations with banks in the Caribbean.
Ysaguirre said that Belize has been affected since 2012, when Wells Fargo pulled out. Next was HSBC. Last year it had been reported that Bank of America was cutting off ties with Belize banks. Since then Belize banks have established relations with smaller banks, but two banks have received notice of being cut off again within the coming weeks. Again, these Belize banks, whose credit card settlement services would be impacted, are seeking alternative arrangements.
Ysaguirre notes that internationally the US dollar is the preferred international currency for foreign reserves and a lot of major players need it.
In the CARICOM meeting this week Belize proposed the pooling of correspondent banking business, since it appears that small profits from individual jurisdictions is one reason why US banks are shying away from the region.
The Governors of the Central Banks and the committee set up will look at how the mechanism would work for the pooling of correspondent banking services, the CARICOM chair said.
Why is this happening to our region? The Financial Action Task Force (FATF) notes that, “The drivers of de-risking are complex and include: profitability; reputational risk; lower risk appetites of banks; and regulatory burdens related to the implementation of anti-money laundering and counter-terrorist financing (AML/CFT) requirements, the increasing number of sanctions regimes, and regulatory requirements in financial sector.”
Barrow said that all CARICOM Member States are compliant with Financial Action Task Force (FATF) standards. Of note is that Belize and Guyana had been listed for non-compliance, but the countries have since made major progress with implementing international regulations and guidelines.
The Caribbean Financial Action Task Force (CFATF), an associate member of FATF, had issued a statement in November 2013 in which it called on members “to consider implementing counter measures to protect their financial systems from the ongoing money laundering and terrorist financing risks emanating from Belize.” However, after Belize implemented a raft of measures, the warning was subsequently lifted. Even after Belize was cleared, though, US banks continued to delink from Belize. Ysaguirre said that it appears that the US bar has been set even higher than the FATF’s, of which the US is a member.
While there has been much talk about what has been happening in the region, de-risking by banks has been going on for more than a decade. Back in 2004 some foreign embassies in the US had been targeted and their accounts suddenly closed, but the backlash resulted in the renewal of those accounts. Last year, Somalia, which receives over a billion US dollars in remittances each year, almost had that lifeline severed due to cut-off of money transfer services.
As for the Caribbean, leaders note that cutting off Caribbean indigenous banks could have dire consequences for the region, with crushing impacts on the wider economy.
Still, Barrow said that the developments could present an opportunity for the establishment of CARICOM’s single economy model, which includes the establishment of a Caribbean central bank.