LAST WEEK’S CONTRIBUTION dealt with the contextual framework pertaining to “the challenges facing the small and highly vulnerable economies of the Caribbean in relation to correspondent banking, de-risking and being labelled as tax havens” and the fact that these are not issues that can be ignored.
Today, I will look at short-term strategies that Caribbean countries can consider to mitigate the burdens on our already fragile economies as we cope with these crucial threats.
Here is a simple fact: United States and US-based banks are afraid of hefty fines from local regulators for any “lapses” in relation to money laundering utilising their banks. The fines they face potentially, compared with the revenues they receive from having a corresponding relationship with Caribbean banks, make them risk-averse. A simple cost-benefit analysis incentivises them to cut relations or “exposure” with our banks.
This was, of course, not always so. This is a relatively new development – a product of the super-sensitive, anti-terrorist mind-frame following 9/11 and its aftermath. De-risking, therefore, while carried out by US banks, is not driven by them, but rather by agencies of the US government. This is important to understand, as it is with these agencies (regulatory authorities) and their political bosses that Caribbean governments and financial institutions need to principally engage in search of meaningful solutions.
Hence, we in the region need the following from both these regulators and their political bosses: their regulatory expectations, assistance in achieving these goals, immunity for the US banks that would remove the de-risking threat, help in building systems and the training of our banking and regulatory staff to achieve what you expect of us in terms of defeating money laundering within our banking sector, and representatives to be based in the Caribbean to directly monitor our anti-money laundering arrangements and to advise us on a real-time basis of measures to thwart this problem within our financial system.
Additionally, we need the following from the political directorate of the US regulators:
• Full political backing and financing of help to the Caribbean financial systems from your regulators.
• Direct financial support to our financial regulatory institutions to achieve, in the shortest time feasible, the expectations of your government and regulators in terms of severely curbing money laundering within our financial systems.
Given that the administration in the US has multiple power centres, Caribbean governments need to adopt an aggressive diplomatic posture of interfacing with all the power centres; building support from as many as possible (Black and Hispanic Caucus in Congress, the Defence and Security establishments, the presidency and key advisors, and so on).
Also, mobilise elements in the media, Wall Street, and all other influential persons and organisations.
Finally, while all of this is being done, discussions along the same lines, for similar regulatory assistance, should be sought from Canada, the United Kingdom, the European Union (EU) Commission and key EU governments such as Germany, France, and Italy. This aspect of our immediate strategic response could become critical if the Caribbean is forced into an impossible corner by American intransigence, despite the region’s good faith efforts to resolve the issues.
Email: bfrancis@uwi.edu.bb