AS I SEE THINGS: The ant facing the elephant: 1
The challenges facing the small and highly vulnerable economies of the Caribbean in relation to correspondence banking, de-risking and being labelled as tax heavens cannot and should not be taken lightly by our governments. These matters can potentially ruin our already fragile economies.
To put these issues into context, we have to see the challenges as a scenario that can best be captured as one in which the ant is facing the elephant. And that is no joke.
In fact, given the significance of all of these matters to us in the region, I will dedicate this and the next two columns to exploring key aspects of the challenges ahead and how we can respond as diminutive and susceptible countries.
Let’s be honest. In deciding on an appropriate strategy to defend and promote the interests of Caribbean countries (Organisation of Eastern Caribbean States/Caribbean Community) from loss of correspondence banking relationships, the balance of power between the United States of America and the region must be carefully considered in order to construct a strategy most likely to be effective in this hugely disproportionate relationship.
Indeed, as the managing director of the International Monetary Fund put it recently, Caribbean states are small countries with tiny financial systems. What this means is that there are limited resources available for capacity-building for the tightest possible regulation of the financial system against any probable penetration by money launderers, whether by organised crime, drug and gun-runners or by terrorist groups.
Undeniably, measures imposed upon Caribbean financial institutions, even before Foreign Account Tax Compliant Act (FATCA), have resulted in higher costs of operation, including higher staff levels, and in more time taken to undertake financial transactions.
Also, there is less use of the banking system and a de-banking trend seems to be emerging. These higher operating costs have naturally been passed on by these institutions to their customers. That is, Caribbean citizens, who can ill-afford these extra fees. This is in a context where the United States’ Congress and government, insisting on these additional security measures, have not offered to share any of these costs.
But the story does not end with these hard, cold facts. Imagine FATCA, an American law, aimed at increasing US citizens and “Green Card” holders (living abroad; that is, in the Caribbean) compliance with their tax laws, having to be financed by Caribbean banks and, therefore, by ordinary Caribbean citizens on pain of “financial execution”; that is, legally sanctioned cut-off of correspondence banking relations with all US banks for non-compliance with this American tax.
Are you getting the picture? Do you appreciate why these challenges can be fittingly contextualised as an ant facing an elephant?
Despite this, we have no option but to seek solutions. But, those solutions have to be based on proper understanding of all of the undercurrents, or else we risk making the wrong decisions as far as our strategic response is concerned.
My next two contributions, therefore, will zero in on what possible strategies Caribbean countries can adopt to counter the potentially negative fallouts from all of the issues pertaining to correspondence banking, de-risking and being labelled as tax havens.
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