BEHIND THE HEADLINES: The correspondent banking conundrum
AS DIRECTOR of Barclays Bank in the Caribbean shortly before the turn of the 21st century, Tony Marshall had his fingers on the pulse of the region’s financial services sector.
In that position he became thoroughly familiar with every turn, nuance if you will, of the banking wicket, not simply in Barbados or Antigua, where he served with the venerable bank, a pillar of the international financial establishment but the region as a whole.
“I travelled to almost every Caribbean country on banking business,” the ambassador recalled the other day during a conversation in New York.
Now as Barbados’ top diplomat at United Nations (UN), Marshall, once a member of the West Indies Cricket Board, finds himself batting on a familiar, yet sticky wicket: international banking and the diminishing place of correspondent banking in that equation. And his experience across the Caribbean and in New York, where he once headed a branch of Barclays in Brooklyn, plus his detailed knowledge of the business, is being tapped to help the island-nations and coastal states which belong to the world body grapple with a serious threat to their presence in global financial services.
The nightmare is the decision of some of America’s largest banks, J.P. Morgan Chase, for instance, to cut or reduce their correspondent banking relationships with Caribbean commercial financial institutions. In effect, what this means is that banks are finding it extremely difficult or costly or both to interact with the behemoths of global banking.
Why the threat to the area’s banking relationships? Stated simply, many of the global banks located in New York and elsewhere in the United States (US) and Europe are running away because they fear that the Caribbean was making them vulnerable to charges that they may be unwittingly aiding in the financing of terrorism or engaging in money laundering.
“It is a serious issue for us in the region because it can affect the way we do business internationally and in the process it can damage key sectors of the economies” of the archipelago’s island-nations, coastal states and dependent territories, Marshall told BARBADOS BUSINESS AUTHORITY in New York.
In a paper prepared for consideration by his CARICOM ambassadorial colleagues at the UN, Marshall warned that contraction or cessation of corresponding banking by financial services institutions in major markets would be “damaging to the tourist industry”; hurt “trade finance”; slow down the flow of “foreign direct investment”; put a serious damper on the “free flow of remittances from the US to the region”; and serve as a “backward stimulus for Caribbean economies”.
That’s not all. The ambassador also sounded the alarm that if reductions of correspondent banking links continue, the void would create an “environment” that spawns an “underground economy” while dislocating the payment of tens, if not hundreds of millions of dollars in pensions to Caribbean retirees who lived and worked in the US, Canada, the United Kingdom and elsewhere but who have returned to the region to live out the rest of their days in financial comfort.
“The payment of pensions would be hit hard,” said Marshall, who spent at least 40 years in banking before retiring.
Take the case of remittances. According to World Bank and Inter-American Development Bank data Caribbean immigrants send back about US$5 billion to Jamaica, Haiti, Guyana and the rest of CARICOM every year. Their economic importance is reflected in the fact that remittances bring in more foreign exchange to Jamaica than tourism while the Haitian diaspora pours more than US$I billion annually to their birthplace, funds that go directly into their families’ pockets.
Little wonder then that Marshall describes remittances as the “backbone of Caribbean economies.” Those funds are routinely sent back through correspondent banking relationships” and are “strong contributors to the area’s gross domestic product. “The region would be dealt a very serious blow when it comes to remittances,” said Marshall.
Already some of the banks in his birthplace have either seen their ties to US banks cut or threatened, he pointed out. The seriousness of the situation was underscored in April when Prime Minister Freundel Stuart raised the issue with UN Secretary General Ban Ki-moon during a private meeting at UN headquarters on the margins of the signing of the Climate Change agreement in New York. Stuart asked the Secretary-General who is leaving office at the end of the year to aid the region in its fight to keep the corresponding bank ties open.
“I asked the secretary general to assist the Caribbean in its efforts to deal with the problem of correspondent banking,” Stuart told BARBADOS BUSINESS AUTHORITY.
But the Prime Minister isn’t alone in taking the issue to the international community. Gaston Browne, Antigua and Barbuda’s leader, went to Washington to lay out the Caribbean’s case which rests on several pillars. For instance, there isn’t any evidence that the various islands are involved in the financing of terrorism, Secondly, despite all the talk about money laundering, the small states have complied with requirements laid down by the Financial Action Task Force on Money Laundering and Counter Terrorism Financing (FATF), and the Organisation for Economic Cooperation and Development (OECD).
In addition, Sir Ronald Saunders, Antigua’s Ambassador to the Organisation of American States, used his term as the rotating head of the Organisation of American States Permanent Council to defend Caricom against insipid suggestions that not enough was being done by the various member-states to live up to the anti-terrorism financing and money laundering strictures of various international institutions.
For its part, Jamaica articulated the Caribbean’s position on “de-risking” and contraction of correspondent banking in a presentation to the World Trade Organisation’s Committee on Trade in Financial services.
“Despite all the talk about the reasons for the decline in correspondent banking relationship which were in place for decades, the Caribbean states haven’t breached OECD, Foreign Account Tax Compliance Act and FATF requirements,” argued Marshall. “We have a real problem on our hands.”