Barbados Prime Minister Mia Mottley urged the United States House of Representatives Financial Services Committee earlier this month to discourage US banks from ending correspondent banking relationships with the Caribbean.
The widespread practice — known as “de-risking” — has hindered Caribbean residents’ ability to open bank accounts, she said, arguing that it is an example of “unconscious bias” because European jurisdictions with similar track records have not suffered the same fate.
Her voice was joined by several other Caribbean leaders, who also appeared before the committee to demand a level playing field.
“Look at the list of countries who are listed, and you will see they are all former colonies and people of colour,” she said during the Sept. 14 session. “And look at the countries, in spite of being able to open a bank account in hours in Delaware or Wyoming, within hours in Luxembourg or Zurich, and they remain off of this list.”
The 2009 financial crisis — coupled with tightening international regulations against money-laundering and terrorist financing — led US and other foreign financial institutions to attempt to weed out potentially risky customers, in some cases ending their relationships with Caribbean-based banks.
Effects in the VI
In December 2019, for instance, the Canada-headquartered Scotiabank sold its Virgin Islands branch to Trinidad-based Republic Financial Holdings Limited, which owns the Republic Bank group of banks.
Earlier that year, Scotiabank had also unloaded its banking operations in Anguilla, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, St. Maarten, and St. Vincent and the Grenadines to Republic Bank for $123 million.
Besides Scotiabank, banks pulling operations out of the region in recent years include the Bank of America, Royal Bank of Canada, and Canadian Imperial
Bank of Commerce.
In 2017, a survey by the Caribbean Association of Banks found that 21 of the 23 banks in 12 Caribbean countries had lost at least one correspondent banking relationship, defined as an agreement between a foreign and domestic bank where a corrrespondent account is established at one bank for the other.
Solutions
Ms. Mottley suggested that the US Treasury Department should consider guidelines for combating de-risking — a move she said would be in keeping
with its mandate to adopt a “risk-based approach.”
The US Office of the Comptroller of the Currency previously issued de-risking
guidance that advised financial institutions to conduct periodic risk re evaluations of their foreign correspondent accounts.
However, the guidance, according to a briefing from the House Financial Services Committee, does not encourage banks to terminate entire categories of customer accounts “without considering the risks presented by an individual customer or the bank’s ability to manage the risk.”
The Treasury Department is also completing a governmentwide strategy to combat de-risking, as mandated by law, due in late 2022.
“It says it wants to be risk sensitive,” Ms. Mottley said of the department. “Well, if it wants to be risk sensitive, then it needs to focus on where the money is rather than creating rules that act as a proxy to money laundering or terrorism
financing.”
Too cautious?
The prime minister insisted that overly cautious due diligence will simply drive bad actors underground.
“There is no benefit in driving our citizens underground or making our countries uncompetitive such that our economies are at risk of
underdeveloped or failed states,” she added.
When she was growing up in the Caribbean, opening a bank account was regarded as part of the “right of passage to becoming an adult,” Ms. Mottley said, adding, “Today, it is now a gigantean obstacle for us to have our people do so.”
She explained that residents and foreign investors alike often have to spend “weeks and months” trying to open a bank account as individuals or as
companies.
“Our economies cannot function on their own,” she said. “We do not make enough clothes, we do not produce our own food, we do not produce our own equipment, and therefore unless we are able to trade with the rest of the world, we are at risk of becoming financial pariahs.”
Blacklisting
A byproduct of the de-risking process, she said, is that countries
risk being blacklisted by the Financial Action Task Force or the
Organisation for Economic Cooperation and Development — or other entities that take guidance from them.
Ms. Mottley said that another trouble with enhanced due diligence is that it comes with increased costs for banks, which are now deciding whether to
comply or end relationships with Caribbean countries