The financial services sector faces a new threat that could thwart the island’s economic development and impact negatively on the local banking sector if quick action is not taken to address it.
Banks in the region are beginning to lose access to correspondent banks abroad, after they have been warned that their systems and procedures regarding money laundering were inadequate, inappropriate and much too risky.
A correspondent bank is a financial institution that conducts business transactions, accept deposits and gathers documents on behalf of another financial institution.
Local officials explain that relatively new international regulations intended to combat money laundering and the financing of terrorism required international banks to be satisfied that their correspondent banks in other countries were undertaking the relevant due diligence and that they knew their customers.
Participating in the debate on the Appropriations Bill 2016 in the House of Assembly this week former Prime Minister Owen Arthur described the issue as “a very, very serious matter” that, if not fended off, could threaten the future of the Barbados economy.
“I am not going to point fingers at anybody, but the Caribbean will not escape. It is the image that the Caribbean is soft on perpetrators of financial crimes. We have some interesting and well-written legislation in respect of combating money laundering and combating financial crime,” Arthur said.
However, he argued that while existing legislation addressed issues such as the proceeds from money laundering, the region was considered a place where people were allowed to get away with major financial crimes.
Arthur explained that international regulators had “the sense that the Caribbean is always ready to lock up a man for corned beef and sardines” but go easy “when fellows carry way $5 million”.
“What I am saying is that the Caribbean does not have a wonderful record in dealing with issues in relation to bringing people swiftly to justice for financial fraud and things that may equate to money laundering.
“Anything that stops the Caribbean from becoming a capital inflow driven economy and an export driven economy means that we do not have a good future. And this correspondent banking issue therefore strikes at the very development strategy, without which, we are not going to make it,” warned the former Minister of Finance.
Arthur advised the region to establish a committee to deal with correspondent banking activities by way of advocacy.
And he warned that as the rules to international banking and financial services were constantly being changed and new ones added, it was necessary that ministers of finance, central bank governors and other stakeholders “do everything that is necessary, no matter how expensive it is” to ensure that the Caribbean complies and exhibit zero tolerance to anything that represents money laundering.
The issue was also raised today at the international business and financial services sector conference at the Central Bank, where President of the Barbados International Business Association (BIBA) Andrew Alleyne revealed that at least three jurisdictions had so far been affected.
“To add further fuel to fire the Caribbean has been unfairly branded as high risk and as a result some of the correspondent banks have begun to withdraw some of their correspondent relations from the Caribbean,” Alleyne reported.
He said Bank of America had severed its relationship with the Bank of Belize, forcing the closure of several indigenous banks, as well as with Antigua’s Caribbean Union Bank. In addition, Barclays has advised Jamaica National Bank that it will terminate their relationship on April 1, he added.
Alleyne argued that the focus on the Caribbean was not based on an objective assessment of this region’s risk. Instead, he said, it was based on a lack of understanding of the Caribbean by risk managers who were largely unfamiliar with the region’s high regulatory and compliance standards, which in many instances exceeded those of the world’s richest countries.
Also addressing the conference, which was being held under the theme Reflecting on the Past, Planning for the Future, Governor of the Central Bank Dr DeLisle Worrell said this was perhaps “the single most important issue in global discussions at the moment”.
Describing correspondent banking and de-risking as critical, Worrell said he was satisfied that the Caribbean, which recently established a 15-member technical team to address the issue, was at the centre of the “technical work that was being done.