International banks are quietly leaving the Caribbean sinking Ship of State.
Meanwhile, the Antigua & Barbuda Government was recently publicly celebrating a perceived achievement: the US Congress had overridden President Trump's only veto of his Administration and passed a bill known as the William M. Thornberry National Defense Authorization Act for the fiscal year 2021.
Antigua anticipates this bill may give Congress greater control over US banks and, in particular, the banks' plans to further reduce correspondent banking exposure.
The Government of Antigua & Barbuda claims this apparent success is the result of substantial pressure and petitioning by Prime Minister Gaston Browne and his Guyana-born wingman, former journalist, Sir Ronald Sanders, KCK, KCMG, AM, Antigua's Ambassador Extraordinary and Plenipotentiary to the United States of America and to the Organization of American States, non-resident High Commissioner to Canada -- and failed candidate for Commonwealth Secretary-General.
Sanders claims that Democratic Congresswoman Maxine Waters, the current Chairman of the House Financial Services Committee, has been "bombarded" by Antigua & Barbuda on the issue that the de-risking policies of US global Banks were depriving the Caribbean island nations of proper correspondent banking, and that she had promised corrective action in return.
Sanders is reported as saying that deal making in the US Congress is "more art rather than a science. It results in matters inserted in a law where it may seem to have no relevance. But that is the trade for support that occurs. In the result, the promised action was delivered in the NDAA."
To neutral observers, the obscure addition of de-risking legislation to a National Defense Authorization Act is a rather stretched interpretation of the Act's stated purpose. However, it is not difficult to follow, given the habitual Antiguan framework of mis-direction, deceit and lack of transparency, which Ambassador Sanders diplomatically characterises as having achieved an art form.
As to the outcome of the particular legislation being celebrated, time will tell whether it will ever resurface among the other unrelated bits of legislative wishes included in this particular omnibus.
Correspondent banking and its abuses have long held the attention of the US Congress.
As far back as 2001, the US Congress investigated correspondent banking, and issued a damning report entitled, "Role of U.S. Correspondent Banking in International Money Laundering."
The Executive Summary of the 2001 Report to Congress makes points as relevant today as they were then.
"The failure of U.S. Banks to take adequate steps to prevent money laundering through their correspondent bank accounts is not a new or isolated problem. It is longstanding, widespread and ongoing.
The result of these due diligence failures has made the U.S. correspondent banking system a conduit for criminal proceeds and money laundering for both high risk foreign banks and their criminal clients.
Of the ten case histories investigated by the Minority Staff, numerous instances of money laundering through foreign banks' U.S. bank accounts have been documented, including:
- laundering illicit proceeds and facilitating crime by accepting deposits or processing wire transfers involving funds that the high risk foreign bank knewor should have known were associated with drug trafficking, financial fraud or other wrongdoing;
- conducting high yield investment scams by convincing investors to wire transfer funds to the correspondent account to earn high returns and then refusing to return any monies to the defrauded investors;
- conducting advance-fee-for-loan scams by requiring loan applicants to wire transfer large fees to the correspondent account, retaining the fees, and then failing to issue the loans;
- facilitating tax evasion by accepting client deposits, commingling them with other funds in the foreign bank's correspondent account, and encouraging clients to rely on bank and corporate secrecy laws in the foreign bank's home jurisdiction to shield the funds from U.S tax authorities; and
- facilitating Internet gambling, illegal under U.S law, by using the correspondent account to accept and transfer gambling proceeds."
The Report summary concludes with the following:
"While some U.S. banks have moved to conduct a systematic review of their correspondent banking practices and terminate questionable correspondent relationships, this effort is usually relatively recent and is not industry-wide.
Allowing high risk foreign banks and their criminal clients access to U.S. correspondent bank accounts facilitates crime, undermines the U.S. Financial system, burdens U.S. Taxpayers and consumers, and fills U.S. Court dockets with criminal prosecutions and civil litigation by wronged parties.
It is time for U.S. Banks to shut the door to high risk foreign banks and eliminate other abuses of the U.S. correspondent banking system."
Again, under Carl Lewin's stewardship, in July 2018, a further hearing entitled Tax Haven Banks and U. S. Tax Compliance, set the scene for the next decade of international regulation and de-risking.
What followed was the strengthening and enforcement of Know your Client requirements and the thrust to identify true beneficial ownership.
As a result, the majority of banks that had previously offered correspondent banking relationships weighed the costs of compliance and the reputation and penalty risks to the financial benefits of trade with inferior institutions that either could not or would not meet the new international standards.
To most, it was a no-brainer and de-risking gained massive momentum.
Correspondent banking in its various forms, traditional, nested, payable through (pass through) were doomed.
The SWIFT KYC Registry started in 2014 has also failed to halt de-risking.
The Belgian-based Society For Worldwide Interbank Financial Telecommunications is basically a payment messaging service that uses its SWIFT Address BIC (Bank Identifier Code now known as the Business Identifier Code, since SWIFT permitted some corporates to directly access and others to be a party to its network) and the IBAN (International Bank Account Number) to notify parties of funds exchange.
Some saw this as a potential replacement for the risks of correspondent banking but others were quick to point to the failure of trusted third parties in conducting the levels of due diligence needed to combat money laundering and terrorist financing. As matters stand, third party due diligence does not absolve banks of failing to meet international compliance requirements.
Whilst humanitarian aid and support for developing countries is vital, those desirous of such assistance must help the process by instituting minimal standards of internationally acceptable business practices and behaviour.
Largely unregulated online gambling, crypto-currency hubs, expropriation of private property without compensation, persecution of journalists and manipulation of the legal system do not signal fit and proper jurisdictions, or even effort being made towards financial respectability.
Arguments that no banks in the Caribbean have been guilty of financial crime are absurd and do not engender trust or consideration.
It is equally puerile to suggest -- or threaten -- that a lack of proper banking facilities will result in transactions being driven underground into unregulated and dubious routes.
To state that no bank in any Caricom country has ever been fined for money laundering, terrorist financing or tax haven activities is deeply mis-leading. Whilst Caribbean institutions may never have been "fined" for their considerable wrongdoings, there are other means besides fines of reducing a perceived international financial threat: many, if not most of the entities so recognised, have been closed down altogether.
Consequently, regardless of obscure directives, deeply embedded in unrelated legislation of a single foreign country, until the region's governments adopt and demonstrate internationally acceptable standards, de-risking will continue at pace.
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