3 January 2019

De-Risking In Jeopardy

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Another senior, long-standing international banking brand is abandoning Antigua.
Antigua and Barbuda Finance and Banking
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Another senior, long-standing international banking brand is abandoning Antigua.

This time it is the Bank of Nova Scotia, operating as Scotiabank, that has chosen to recognise the significance of risk versus reward by its newly publicised de-banking and de-risking decision.

Scotiabank has announced its intention to sell its operations in nine Caribbean countries, subject to regulatory approval, including Antigua & Barbuda, to Republic Financial Services Ltd., a Trinidad & Tobago financial services provider.

Notably, this is a further Canadian Institution that is re-positioning itself within a climate of anti-money laundering currently strengthening in mainland Canada.  

Meanwhile, Antigua's Prime Minister Gaston Browne has expressed his shock at Scotiabank's decision and has told the institution that it will require both local regulatory and his Government's approval to sell its Antiguan subsidiary.  Furthermore, any such approval would be conditional on the buyer being an Antiguan entity.

Scotiabank does not share this view and has agreed to a sale of its entire Caribbean holdings to the well-established and reputable Republic Bank Limited, headquartered in neighbouring Trinidad & Tobago.

Scotiabank claims it has carefully chosen Republic Financial Holdings to acquire its portfolio in a move that responsibly reflects its regulatory banking responsibilities to shareholders and customers.

Looking at the history of Republic Bank is useful.

Colonial Bank, the forerunner of Republic Bank was established in 1837 by Royal Charter.  In 1925, it merged with the Anglo-Egyptian Bank (est. 1864) and the National Bank of South Africa (est.1891) to form Barclays Bank, Dominion, Colonial and Overseas.  In 1972, Barclays DCO became Barclays Bank International Limited.

The name was changed to Republic Bank Limited in 1981 and Barclays sold its stake in 1989. In the years that followed, the Bank continued to develop.  This included the purchase of 20% of Canadian Imperial Bank of Commerce (West Indies) Holdings Limited.  This gave RB links to holding company's branches in the Caribbean islands of Antigua & Barbuda, Jamaica, Barbados, St. Vincent and St. Lucia.   The Bank still has correspondent banking relationships with Barclays, Toronto Dominion and Bank of New York.

On the other hand, local banks in Antigua have less distinguished origins and reputations.

It is recent history that Antigua & Barbuda has been recklessly responsible for a long list of bank failures, through government loan repayment defaults, breaches of financial and constitutional obligations, and a judicial system which allows itself to be ignored in most cases dealing with the Government. 

Indeed, the most spectacular failure remains Stanford International Bank, which collapsed as the hub of what was the world's greatest Ponzi fraud, arguably facilitated by correspondent banking relationships with HSBC and Canadian Bank Toronto Dominion.

While the relationship between Stanford and members of both administrations in power during his heyday in Antigua is common knowledge, Leroy King, the Antigua & Barbuda banking regulator at that time, is still clinging to Antiguan soil in a series of successful attempts to avoid extradition to the US to answer charges of complicity to the fraud.

Not satisfied with the Stanford debacle, Antigua's further regulatory enforcement saw itself mired in the Odebrecht scandal also known as "Operation Car Wash," involving the Brazilian construction company, which according to Transparency International allegedly distributed bribes and inducements to officials in over twelve countries.

In 2010, Vinicius Veiga Borin, an Odebrecht whistle-blower, claimed that he and two other AOBB officials with two unnamed executives from Odebrecht acquired 51 percent of Meinl Bank AG in Antigua, which at that time was almost inactive.

In their subsequent court pleas, they stated that they ran the Bank from Sao Paulo and money went from Odebrecht via Meinl Bank AG in Antigua to other banks, including Andorra Private Bank.

No records have appeared in Antigua, Andorra or Austria, where Meinl is registered, to show that the Bank was under investigation. 

However, in a case brought by the US Department of Justice in the US District Court in the Eastern District of New York against Odebrecht in December 2016, which included the following allegation:

"In or about mid-2015, Odebrecht Employee 4 attended a meeting in Miami, Florida, with a consular official from Antigua and an intermediary to a high-level government official in Antigua in order to conceal Odebrecht's corrupt activities.

Odebrecht Employee 4 requested that the high-level official refrain from providing to international authorities various banking documents that would reveal illicit payments made by the Division of Structured Operations on behalf of Odebrecht, and agreed to pay US$4 million to the high-level official to refrain from sending the documents."

Within a week of this information becoming public, Antigua & Barbuda's Ambassador to the UAE, Casroy James, issued a Press Statement regarding his involvement in the bribery allegation by disclosing that he attended such a meeting, in his capacity as sole principal of a company, duly authorised and licensed as an agent of Antigua's Citizenship by Investment Programme to provide "professional consultancy services" for which "certain advance payments were made to my company."  

In spite of further expressions of ignorance and innocence, including a statement that "I have instructed that 100% of the custodial funds being held on account for the stated CIP purpose be immediately returned to the remitter, the Meinl Bank (Antigua) Ltd.'s affiliated entity."

Ambassador Casroy James' appointment was subsequently revoked and Antigua & Barbuda's Honorary Consul, Louis Franka, was dismissed.

Antigua's Financial Services Regulatory Commission appointed an "Official Administrator" to take control of the operations of the Meinl Bank Antigua Limited and dismissed three of its directors.  It also revoked Meinl Bank's licence.

Meanwhile, mergers and regulatory interventions have reduced the number of commercial banks in Antigua and Barbuda down to four local institutions and several of those have been "saved" by Government, Central Bank and regulatory involvement.

The first to fall was the Bank of Antigua, which the Central Bank saved following the collapse of R. Allen Stanford's financial empire. The Antigua and Barbuda Government, together with local and regional private institutions, reorganised it in the Eastern Caribbean Amalgamated Bank ("ECAB").  The Government of Antigua & Barbuda retained an interest in the new Bank.

A mere two years later, the Antigua and Barbuda Investment Bank ("ABIB") was brought down next.

The story of its collapse is well documented on various websites.  A condensed version of that process would state that the Government overborrowed from the bank, delayed payments due, bringing the Bank's deposits below minimum required by the Eastern Caribbean Central Bank and invited the Central Bank to exercise its regulatory responsibility and close down the bank.

Subsequently, the Central Bank and the Antigua & Barbuda Government announced that they had succeeded in making proper arrangements to protect depositors in the failing ABIB by absorbing its operations and accounts into ECAB.   The Government of Antigua & Barbuda's interest in ECAB was increased by this arrangement.

Another bank currently "competing" with ECAB on Antigua's local scene.  

Founded by Bruce Rappaport in 1983, two years after Antigua & Barbuda proclaimed their independence, the Swiss American Bank Ltd. became the first licensed bank in Antigua governed by the International Business Corporation (IBC) Act of 1982. 

Internationally active, it soon fell foul of its original mandate and became a player in many of the major scandals which brought Antigua to the public's attention. (The Wikipedia article on Bruce Rappaport is available as a brief summary of his bank's activity.)

Shortly after Rappaport's death in 2010, the Swiss American Bank Ltd changed its name to Global Bank of Commerce, Ltd.  

The final bank to note is the Caribbean Union Bank and its $30 million Antigua & Barbuda Government investment, backed by an 80% shareholding.

In 2016 Prime Minister Browne claimed, "It is true that CUB may not have been the strongest of banks, but for various reasons, including strategic reasons, we have chosen to take an equity stake in the bank. It was not difficult for us to consolidate CUB with ECAB (Eastern Caribbean Amalgamated Bank) without buying the bank. That was the option available to us, so even if there is a notion that CUB was not healthy and it needed a bailout, we would have had to bail it out anyway," he argued.

Browne was also seeking to justify the move by declaring optimism about the Bank's prospects following his Administration's intervention.

He went on to say, "I believe that in due course that they will see the wisdom of that acquisition. Again, we have a government that is sufficiently entrepreneurial that we believe that we can take up certain prudent risks in various sectors of the economy in order to ensure that the economy functions in a way which is... more efficient than it is presently."

When announcing his Government's intention to take over CUB, Prime Minister Gaston Browne, whose professional experience in banking matched that of a commercial banking manager of the Swiss American Banking Group, told commercial banks to expect competition from the Government, accusing them of being risk-averse.

The Caribbean Union Bank, incorporated in 2004 and the Global Bank of Commerce Ltd share the same building.  Mr Brian Stuart-Young is Chairman of GBC and a director of CUB.

In May 2018 the Caribbean Union Bank announced that it had produced an operating profit of EC$1 million dollars.

The choice made by the Bank of Nova Scotia is obvious.  The opportunity for expropriation of yet another provider of Foreign Direct Investment equally so. We shall now watch the outcome and its consequences which will undoubtedly affect stakeholders on both sides. It appears to be growing into a dispute.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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