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Our risks, our bank


Our risks, our bank

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CARICOM BANK FOR INTERNATIONAL TRADE (CBFIT). Never heard of this bank? Neither have I; it is purely a figment of my imagination. An imagined solution inspired by the raging debate on the existential dangers of de-risking.

I first wrote about de-risking in a series of articles in May 2015 which amongst other things made the point that a Caribbean response would be required. Since then several noted Caribbean intellectuals and statesmen have weighed in on the debate with recent contributions by Sir Ronald Sanders, Avinash Persaud and our own elder statesman Owen Arthur.

The tenor of these contributions has been erudite and seem to indicate some measure of unfairness toward the Caribbean.

Be that as it may, appeals to the conscience of the international banking community are unlikely to solve our very serious problem. From all the discussion, we see clearly the broad contours of the dangers; the choking off of the ability of those in the diaspora to send remittances, the inability of a nascent but important offshore business industry to survive due to the inability to conduct international transactions and the inability of businesses to conduct trade transactions all because of a loss of correspondent banking facilities.

The idea that the issue will be resolved if we complain enough is as vain as the wish to maintain secrecy as a competitive advantage on international business.

The hard truth is that international banks are afraid of the large penalties to be incurred if they even inadvertently infringe anti-money laundering (AML) regulations on correspondent banking.

Foreign international banks largely feel that they are too far removed (dealing through intermediaries) to reasonably reduce risks.

New York is compounding the situation through regulations which will hold compliance executives personally responsible for ensuring the effectiveness of their AML controls; they could go to jail. It is a regulation which is likely to be followed in other states and nations.

Which international bank is going to take a bullet for the Caribbean? The reality is that none will. It is not something to lament about; it is an issue that requires the concerted collective response of a Caribbean blessed with some of the brightest people.

The twin drivers of the Caribbean’s problems are risk and reward for the international banks. Analytical texts on AML compliance routinely point to the Caribbean as straddling an axis of evil.

On one end is the endless supply of contraband from South America plus home-grown supplies and on the other end the bottomless pit of North American usage.

They see us as easy targets and conduits for the illicit activity which supports this kind of activity and hence a high risk area; a regulatory San Andreas fault line.

On the reward side, Basel regulations have devalued the correspondent account balances in terms of contribution to required level of banking capital reserves, forcing banks to raise more expensive reserves.

The international standard setting bodies are unlikely to roll back policies which are the product of decades of hard negotiation, so the Caribbean will have to assume the burden of its own risks and move proactively to safeguard its economies.

Consider this. In January, ahead of a major international evaluation of the United States’ (US) system for preventing criminal abuse of the financial system, the American Gaming Association (AGA) released the most comprehensive examination ever conducted of the US casino gaming industry’s compliance with AML compliance.

Investing In America’s Financial Security: Casinos’ Commitment To Anti-Money Laundering Compliance finds that casino gaming companies have significantly boosted their investment and vigilance to combat money laundering and terrorist financing in compliance with the federal Bank Secrecy Act and associated AML regulations.

It also finds that the industry has implemented a sweeping series of customer due diligence procedures to monitor illicit behaviour.

The report was commissioned by AGA and facilitated by one of the Big Four accounting and consulting firms. It is ironic that an industry which is perceived to be the perfect environment for money laundering is taking proactive steps to eliminate the consequences of deep suspicion.

Proactive efforts are likely to create a favourable impression with regulators whose evaluation might otherwise be more punishing, which brings me back to that imagined CARICOM Bank For International Trade.

The mother country got tired of the administrative burden of the colonies, she also hinted we should no longer loiter on steps of the Privy Council. The international banking community is telling us in no uncertain terms that we should take responsibility for own risks.

Could Caribbean nations set up their own bank in the US to handle dollar transactions? I envisage a bank capitalised by CARICOM governments, a bank which would provide the critical correspondent banking for international trade and remittances for member countries.

This is all the more important as regulators have flagged international trade as the emerging trojan horse of money laundering, so it is likely to face increasing scrutiny and strictures.

Such a bank could possibly benefit from less stringent financial regulations as it would not be dependent on the US Federal Deposit Insurance scheme for US deposits.

Though it would be subject to the same AML regulations, a CARICOM bank through its personnel on the ground and decades of dealing, will know its clients better and not regard them with the same degree of suspicion and risk as the international banks which are many times removed from the clients.

The international banking facility which foreign banks in the US use to facilitate dollar transactions would be an invaluable resource.

In any event, we would finally be underwriting our own risks, benefitting from the rewards and safeguarding our future.

Louis Parris is a certified compliance professional, consultant and publisher of the Caribbean Banking Intelligence Anti-Money Laundering Newsletter. Email: [email protected]

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