While speaking about “The Correspondent Banking Problem and Sustainable Economic Development in the Caribbean” at the State University of New York -UWI Center for Leadership and Sustainable Development in the Caribbean Symposium, Professor Bourne said the policy comprised mainly of bilateral and multi lateral lobbying aimed at improving understanding of the Caribbean situation and creating sufficient goodwill for reversal of the trend towards de-risking in the Caribbean. However, he said central to the Caribbean policy response should be considerations of bank profitability, which is the main driver of de-risking through withdrawal of correspondent banking services. Professor Bourne said compliance risks, compliance costs and costs of monitoring incurred by correspondent banks are important elements in their profitability calculations.
Delivering the address on February 13, Professor Bourne said, “There has been widespread disruption of correspondent banking services provided to Caribbean countries by international banks located primarily in US, Canada and Europe. Countries particularly affected are Anti gua and Barbuda, Bahamas, Barbados, Belize, Cayman Islands, Guyana, Haiti and Turks and Caicos Islands.
“Banking services have been suspended to International Business Companies, international money value transfer services providers (eg MoneyGram and Western Union), cambios and private members’ clubs.
Money value transfer services are used extensively for migrant remittances and for small value international trade payments, investments, and sett lements of commercial debt and other cross-border obligations.” He said that the disruption of correspondent banking services can reduce efficiency and raise costs of international payment arrangements for foreign trade and thereby depress trade and adversely aff ect foreign currency earnings, domestic incomes and employment.
“Curtailment of correspondent banking services to international money value service providers will cause reductions in remittance inflows to Caribbean countries, for most of whom remittances are economically significant contributors to foreign exchange, household income, poverty alleviation, stable livelihoods and social inclusion.
“The cutback in correspondent banking has led to contraction of the International Business Companies industry and the off shore finance industry which have helped to sustain economic growth in several countries.” He said Caribbean countries need to reduce compliance risks by strengthening their regulatory and supervisory systems, which, although already strong with respect to the financial stability of the domestic commercial banking system, is deficient with respect to other financial institutions, other providers of financial services, implementation of customer due diligence policies, monitoring, detection and enforcement action against money laundering and financing of terrorism, and statistical data collection and reporting.
According to Professor Bourne, “The overhaul of some aspects of Caribbean governance is also a critical requirement for achieving international confidence in the quality of financial sector regulation, supervision and monitoring and law enforcement.
Country reputation influences the behaviour of international banks, foreign governments and international institutions. Observable and widely publicised weaknesses in narcotics crime detection and control, protracted judicial administration in both criminal and civil matters, and undue legislative delays contribute to perceptions that Caribbean countries have weak governance systems and cannot be fully trusted to act consistently with respect to international corporate sector and government sector obligations.” In response to e-mailed questions, he said that FATCA is not the only issue or even the main issue behind the derisking crisis. He said FATCA addresses US government tax objectives but does not address international commercial banks’ and banking jurisdictions’ compliance risks and costs in relation to money laundering and financing of terrorism, adding that the reports of the Caribbean Financial Acti on Task Force list many specific requirements with which Trinidad and Tobago and other individual Caribbean countries are not compliant or are only partly compliant.
He said that compliance risks are behind the denial of banking services to private member clubs.
Asked which countries were the most seriously affected, Professor Bourne said Barbados is one of the most affected through the contraction of its International Business Companies industry; Belize through loss of correspondent services to its commercial banking industry; Bahamas, Guyana and Jamaica through suspension of services to international money transfer institutions such as Western Union, and cambios; OECS especially Anti gua and Barbuda through higher charges for continuation of correspondent banking services.
He said the CARICOM approach so far by itself is unlikely to succeed because it does not deal head-on with the profitability concerns of the international banks. Political lobbying may be a useful supplementary acti on but direct acti on to reduce compliance risks and costs for the international banks is necessary.