In Belize, the nation’s central bank has taken over processing international business payments after most of the country’s commercial banks have been cut off by former U.S. banking partners. In Jamaica, U.S. bank account holders are receiving notice to take their money elsewhere. And in Guyana, checks in U.S. dollars are taking longer to clear.
Already struggling to keep their vulnerable economies afloat, countries in the Caribbean region are facing a new financial crisis. Tighter banking controls and the fear of hefty fines are persuading an increasing number of U.S. commercial banks to cut ties with Caribbean banks and remittance providers.
There are some countries right now that are actually chartering planes to fly cash.
St. Lucia Prime Minister Allen Chastanet
Known as “de-risking,” the phenomenon is global and intensifying, with the Caribbean bearing the brunt, regional leaders and international financial institutions say.
“There are some countries right now that are actually chartering planes to fly cash,” said Saint Lucia Prime Minister Allen Chastanet. “It’s ridiculous.”
On Wednesday, Venezuela became the latest country to lose a U.S. bank. Citigroup, which has been doing business in the South American nation for almost 100 years, announced that it was discontinuing some banking operations.
The issue revolves around so-called correspondent banks, which handle international bank-to-bank transactions in U.S. dollars, like credit card charges at hotels, remittances and payments related to trade and finance.
“Africa, Latin America, everybody is having problems with correspondent banking,” said Wilfred Elrington, the foreign minister of Belize. Though it is located in Central America, Belize is part of the 15-member Caribbean Community regional economic organization known as Caricom.
The bank shutdown was the leading discussion item during Caricom’s recent summit in Guyana.
“Without correspondent banking services, there are significant implications for trade, investments, and even humanitarian consequences,” said Antigua Prime Minister Gaston Browne, calling it “perhaps the single, largest risk facing Caribbean countries.”
Nowhere in the region is the impact being felt as strongly than in Belize, where only two banks have managed to retain full banking services with commercial U.S. banks.
Banks will not deal with us.
Belize Foreign Minister Wilfred Elrington
“We cannot in fact do business in U.S. currency because banks in the United States simply won’t entertain our overtures to process our documents, credit card payments, foreign payments,” Elrington said. “Banks will not deal with us.”
Since May, at least 16 banks in five countries across the Caribbean region have lost all or some of their banking relationships, according to a recently published International Monetary Fund report. The impact of the loss has varied, the report said, but continued withdrawals could potentially undermine the financial stability, inclusion, growth, and development goals of the Caribbean.
U.S. banks argue that given the Caribbean’s small size and the hefty fines now being imposed by regulators trying to stem terrorism financing and money laundering, the risks of clearing checks or transferring money as intermediaries just isn’t worth it.
But that argument, Caribbean leaders say, doesn’t take into consideration the unintended consequences.
In Asia and the Pacific, for example, surveys suggest that account closures have adversely affected remittance costs and the flows in rural and remote regions, the IMF report found.
In the Caribbean, some local banks have been forced to close their doors after having ties cut, and money transfer operations have closed after being prevented from opening U.S. bank accounts.
“While you’re promoting these kinds of transfers, remittances as a good thing on the one hand, on the other, you’re making it difficult on the banking side,” said a Haitian banker, who declined to be named. “It has reached the point where it is a full crisis.”
The IMF said Haiti, which received $2.2 billion in remittances last year, could suffer immediate effects should the cost of wiring money rise sharply in countries like the Bahamas, source of many remittances to the impoverished Haiti.
So far, two local banks and four international banks in the Bahamas have had their relationships severed. Western Union also closed, according to a report prepared by the Caribbean Development Bank.
Bahamas Prime Minister Perry Christie said the U.S. government and others “have a responsibility to understand that some of the initiatives they take seriously undermine the way of life of people in our region.”
The latest assault is reminiscent of the days when the Bahamas and many other Caribbean nations that serve as offshore financial centers were black-listed as tax havens, he and others said.
“We passed new laws, anti-terrorism laws, anti-money laundering laws. We passed levels of accountability. We signed tax exchanged treaties. Whatever was necessary to demonstrate our commitment as a jurisdiction of integrity, we complied,” Christie said. “And again, this new development comes up, which challenges us.”
Trevor Braithwaite, deputy governor of the Eastern Caribbean Central Bank, said Caribbean offshore financial centers such as the Bahamas and Barbados seem to be more vulnerable to terminations than others. And the leaked Panama Papers, which provided an unprecedented view of the secret offshore world, hasn’t helped, he added.
“As with anything else the Caribbean, we’re always painted … with a wide brush,” said Braithwaite, who has three banks in his Eastern Caribbean region that will have ties cut as of next month. “We’ve been saying, ‘If there are gaps, tell us where they are and let us see if we can get a program to cover this area.’ …We are not getting much; we are just getting termination letters.”
Warren Smith, president of the Barbados-based Caribbean Development Bank, said while some island-nations do need to strengthen their money laundering laws, U.S. and Canadian banks have made a financial decision that could force people to find other ways to move money, defeating the intention of the tighter controls.
Caribbean countries, he said, should consider pooling screened transactions to reduce the costs to correspondent banks and the possibility of a flawed transaction getting through. Leaders also should continue to meet with political and diplomatic leaders, and update them on the progress they are making in having their jurisdiction be considered “less risky.”
“Yes, at this point, it appears that the folks you are talking to are tone deaf. But I don’t think we have any alternative but to continue to ramp up the engagement, to continue to build awareness of what is happening to the countries,” Smith said.
So far, leaders haven’t had much success. Browne, the Antigua prime minister, says he’s personally written to Obama to no avail.
Earlier this year, Belize Prime Minister Dean Barrow traveled to Washington to meet with U.S. regulators, both on behalf of himself and Caricom. The bank exits, he told them, were hurting his poor, English-speaking Central American nation, which was finding it increasingly difficult to engage in trade.
“The regulators all agreed that, absent a solution, our economies, our societies would go belly up,” Barrow told leaders as he recalled the visit.
However, outside of “tea and sympathy,” Barrow said he didn’t get much else.
Still, leaders agreed to step up lobbying efforts and say they plan to hire a U.S. lobbying or law firm. They also are planning a conference in the region later this year to discuss the ramifications of U.S. bank withdrawals.
“The U.S. must appreciate the vulnerabilities of this region and the sensitives of this region,” Chastanet said. “If in fact you allow correspondent banking to go, we will become rogue states; so they will have bigger problems on their hands, which is going to cost them even more money.”