Barbados Prime Minister Mia Mottley urged the US 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 “risk reduction” – has hampered Caribbean residents’ ability to open bank accounts, she said, arguing it is an example of “prejudice unconscious” because European jurisdictions with similar antecedents have not suffered the same fate. .
His 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 that are listed, and you’ll see they’re all former colonies and people of color,” she said during the September 14 session. “And look at the countries, although they can open a bank account in a few hours in Delaware or Wyoming, in a few hours in Luxembourg or Zurich, and they remain outside of this list.”
The 2009 financial crisis, coupled with the tightening of international regulations against money laundering and terrorist financing, led the United States and other
foreign financial institutions to try to weed out potentially risky customers, sometimes ending their relationships with Caribbean-based banks.
Effects in the VI
In December 2019, for example, 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 offloaded its banking operations in Anguilla, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, St. Maarten,
and Saint Vincent and the Grenadines to Republic Bank for $123 million.
Besides Scotiabank, banks that have pulled out of the region in recent years include Bank of America, Royal Bank of Canada and Canadian Imperial.
Bank of Commerce.
In 2017, a survey by the Caribbean Banking Association found that 21 out of 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 correspondent account is established in a bank. for the other.
Ms Mottley suggested the US Treasury Department consider guidelines to tackle risk reduction – a move she said would be in line
with its mandate to adopt a “risk-based approach”.
The United States Office of the Comptroller of the Currency previously issued a risk reduction
guidelines that advised financial institutions to carry out periodic risk reassessments of their foreign correspondent accounts.
However, the guidelines, according to a House Financial Services Committee briefing, do 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 government-wide anti-risk reduction strategy, as required by law, scheduled for the end of 2022.
“He says he wants to be risk-aware,” Ms Mottley said of the department. “Well, if he wants to be risk-aware, he has to focus on where the money is rather than creating rules that act as a substitute for money laundering or terrorism.
The Prime Minister insisted that overly cautious due diligence would only drive bad actors underground.
“There is no benefit in driving our citizens underground or making our countries so uncompetitive that our economies risk collapsing.
underdeveloped or failed states,” she added.
Growing up in the Caribbean, opening a bank account was seen as part of the ‘right of passage to becoming an adult’, Ms Mottley said, adding: ‘Today it’s now a gigantic hurdle for us to
let our people do it.
She explained that foreign residents and investors often have to spend “weeks and months” trying to open a bank account as individuals or as a business.
“Our economies cannot function on their own,” she said. “We don’t make enough clothes, we don’t produce our own food, we don’t produce
our own equipment, and therefore unless we are able to exchange
with the rest of the world, we risk becoming financial pariahs.
A by-product of the risk reduction process, she said, is that countries
risk of being blacklisted by the Financial Action Task Force or the
Organization for Economic Co-operation and Development – or other entities inspired by it.
Ms Mottley said another problem with increased due diligence is that it comes with increased costs for banks, who now have to decide
comply or terminate relations with Caribbean countries