Banking issues must be ironed out as U.S., Cuba repair relations

Cubans line up outside a bank in Havana. U.S. banks will be allowed to open correspondent accounts in Cuban banks but it’s an open question on how eager American banks are to engage.
Cubans line up outside a bank in Havana. U.S. banks will be allowed to open correspondent accounts in Cuban banks but it’s an open question on how eager American banks are to engage. EFE

For almost a year, the two Cuban diplomatic missions in the United States have had no banker. That has meant no checking accounts, using cash to pay bills, and Cuba travel providers sometimes hauling in briefcases full of cash to pay for visas.

During normalization talks in Havana last month, Cuba’s chief negotiator Josefina Vidal said it would be difficult to open respective embassies while Cuba still had no banker for its diplomatic missions and remained on the U.S. list of state sponsors of terrorism.

But those are just a few of the sticky issues that must be ironed out as Cuba and the United States seek to repair their tattered relationship.

While financial regulations outlined by the U.S. Treasury Department’s Office of Foreign Assets Control in January will allow U.S. travelers to use credit and debit cards on the island as well as permit U.S. banks to open correspondent accounts in Cuban banks, there are still more questions than answers when its comes to the new rules.

“There’s a lot of curiosity at this point,” said David Schwartz, president and chief executive of the Florida International Bankers Association, “but there’s a long way to go to understand the meaning of all these changes.”

But with the U.S. policy shift on Cuba, there is more urgency in finding a solution to the Cubans’ banking problem, said Roberta Jacobson, assistant Secretary of State for Western Hemisphere Affairs.

“It’s very important to the functioning of embassies. We have been trying to help them with it and will continue to work on it,” she told the Miami Herald.

On July 12, 2013, M&T Bank of Buffalo, N.Y., informed the Cuban Interests Section in Washington that it was getting out of the business of handling the accounts of foreign missions and planned to close the accounts of both the Interests Section and Cuba’s United Nations mission in New York.

M&T gave Cuba an extension while it looked for a new bank, but the accounts were finally closed on March 1, 2014 and the bank stopped taking any deposits from Cuba last Feb. 14. Since then, Cuba hasn’t been able to find a U.S. bank or international bank with branches in the U.S. to handle its accounts.

There have been occasional disruptions in consular services as the banking impasse stretches on and the diplomatic missions can only accept cash for passport handling, visa fees and other consular matters.

One of the big reasons Cuba is having so much trouble finding a banker is its continued presence on the U.S. list of state sponsors of terrorism — countries deemed to have repeatedly provided support for acts of international terrorism.

“That’s why no bank wants to take a chance,” said Fernando Capablanca, managing director of Whitecap Consulting Group in Coral Gables.

Cuba has been on the list since 1982, but as part of President Barack Obama’s policy to normalize relations, he ordered a review of whether Cuba supports international terrorism. The review began Dec. 17 — the same day the policy shift was announced — and is to be completed within six months.

In its 2013 report, the State Department said there was “no indication that the Cuban government provided weapons or paramilitary training to terrorist groups” but it found the government “continued to harbor fugitives wanted in the United States.”

Capablanca points out that personal accounts of mission employees in Washington and New York are also affected.

“A bank might need a whole department just to handle the Cuban accounts,” said Andy Fernández, who heads Holland & Knight’s Cuba Action Team/Financial Services. That’s because a bank must monitor whether the underlying activity generating the money flowing through the accounts is permitted under the embargo and the new regulations, he said.

Under the new rules, prior approval from OFAC is no longer needed before engaging in financial transactions with the Cuban missions or their employees, but banks are still wary.

Many of their compliance policies, for example, prohibit them from doing business with any country on the terrorism list, which also includes Iran, Sudan and Syria, Fernández said.

Banks that have run afoul of U.S. prohibitions on doing business with sanctioned countries have faced stiff penalties. Foreign banks, such as ING, Credit Suisse, Lloyds, Barclays, and HSBC have paid hundreds of millions of dollars in fines to the U.S. because of transactions involving countries on the list.

Last year, the French bank BNP Paribas was fined a record $8.9 billion for concealing U.S. dollar transactions with Sudan, Iran and Cuba.

Meanwhile, both American Express and MasterCard have said they plan to do business in Cuba under the new regulations. MasterCard will stop blocking its cards issued by U.S. banks on March 1 and American Express is still working out the details.

MasterCards issued by non-U.S. banks are already accepted in Cuba, but American Express will have to lay the groundwork by signing up merchants and getting terminals set up.

U.S. banks also will have to decide whether they want to support card transactions in Cuba. “Because of the demands and pressures from federal banking regulators, we don’t know if U.S. banks will be comfortable processing transactions in Cuba,” said Fernández.

Not only do banks worry about federal banking regulations, but some post-financial-crisis state regulations, which have nothing to do with Cuba, might also make them hesitant to take on Cuba-related business, said Augusto Maxwell, who heads the Cuba practice at the Akerman law firm in Miami.

In the aftermath of the financial crisis, he said, banks have tended to concentrate on business segments that are the most profitable and the most familiar.

Venturing into Cuba could be a “compliance nightmare for a bank without much of a reward,” Schwartz said.

Right now, Schwartz and Fernández said banks are studying the new rules. “Everyone needs to keep an eye on how the regulations evolve,” said Schwartz.

OFAC is expected to issue further guidance on how the new regulations should be interpreted, Fernández said.

It also would help if bank regulators provided clarification that banks won’t be penalized for engaging in authorized activities in Cuba, said Capablanca.

“I think the banks will take a wait-and-see attitude for a few months before sticking their toes in the water,” Fernández said. But ultimately what may prompt them to take the plunge is if their customers begin to do business in Cuba under the new commercial opening.

“If their clients begin to do business in Cuba,” he said, “that will be the driver.”

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