International banking rules are destroying Caribbean banks  

By Carlton Joseph

Carlton Joseph

In 1996, Caribbean countries were among 180 countries that signed the Financial Action Task Force (FATF).  This body develops and promotes policies to protect the global financial system against money laundering, terrorist financing and financing the proliferation of weapons of mass destruction.  The recommendations plus additional special recommendations were revised in 2003, and in 2021, FATF expanded its mandate to deal with the issue of the funding of terrorist acts and terrorist organisations, and was endorsed by these countries.  These recommendations are universally recognised as the international standard for anti-money laundering and countering the financing of terrorism.

To be in compliance, countries must have measures in place to: identify the risks, and develop policies and domestic coordination; pursue money laundering, terrorist financing and the financing of proliferation; apply preventive measures for the financial sector and other designated sectors; establish powers and responsibilities for the competent authorities (e.g., investigative, law enforcement and supervisory authorities) and other institutional measures; enhance the transparency and availability of beneficial ownership information of legal persons and arrangements; and facilitate international cooperation.

Today, Caribbean leaders are dealing with the problems generated in the local banking system, because of the deployment or lack of deployment of these recommendations.  International banks from Canada, the United States (US), and Europe, have decided that the Caribbean is high risk and have reduced their exposure in the region, either to avoid reputational risks, and/or avoid paying fines, because of weaker compliance, and Anti Money Laundering (AML) regimes.   Caribbean leaders are complaining that the regimes are making it extremely difficult for individuals and businesses to open a bank account, making it difficult for companies to trade or do business, since it could take months to open an account. 

Over the past ten years, FATF has caused most countries in the Caribbean to lose more than 30% of their correspondent banking relationships. This means that wire transfers, conducting business transactions, accepting deposits and gathering documents on behalf of another bank is disrupted or stopped.  It also means that domestic banks lose access to foreign financial markets, and cannot serve international clients, unless they open branches abroad.  Importantly, it is difficult or impossible for people abroad to send remittances to their family back home.  Barbados Prime Minister (PM), Mia Mottley, described the situation best when she expressed that when banks leave, the very thing that FATF set out to achieve, the avoidance of terrorism financing, and the avoidance of money laundering, happens, because the disruptions are driving people underground, and making the countries uncompetitive.  Resulting in Caribbean economies being at risk of becoming failed states.

PM Mottley, emphasized that every country in the world ought to be able to have access to affordable banking services, to fuel trade and to foster and enable remittances.  Citing Russia, she noted that Russia found ways to trade outside the swift banking system, and it didn’t hide its money in the Caribbean.  Also, when FATF wanted to find Russian money launderers, they went to London, New York, Switzerland and Luxembourg.  She concluded: “there has to be a fundamental injustice in a system that puts on a list, not Luxembourg, not the United States of America, not the United Kingdom, but puts Jamaica, Trinidad, Guyana, and Barbados.”  Finally, a leader in the Caribbean with the fortitude to speak the truth to the establishment.

Interestingly, the political leaders in the Caribbean are to blame for signing Internationally binding agreements, that they do not understand, or have not had professional advice, or poor advice from incompetent “professionals”, or operate from a position of weakness, and sign anything that the G-7 agree upon.  Because when one reads the details of the FATF recommendations and the measures that must be in place, it is obvious to any policy professional, that the individual Caribbean countries, does not have the financial or human resources to put these measures in place.  Even if these countries would become a Federation, it still would be a difficult undertaking, but doable.

Caribbean leaders must be at the negotiations, but reserve a two-year evaluation period after implementation, to assess the impacts of these policies.  Only after proper assessment should they sign or endorse any agreements.  Begging for relief, or talking about level playing field, only reveals that you do not understand the economic environment in which you operate.  The Caribbean must stop seeing themselves as consumers and must produce something, it’s only by producing something that the market desires that will adjust the level of the playing field.

America and the Western powers do not care about Caribbean peoples’ standard of living, they care about exploiting your human and natural resources to enrich themselves.  In fact, black and brown people are about 76 million (23%) of the American population, and America does not make any adjustments in their policies to accommodate them.  Do you really believe that they will make accommodations for 18 million black and brown people in the Caribbean?

This banking issue should inform Caribbean politicians that it is time to revisit the West Indian Federation, because as “sovereign” countries they do not have the economies of scale, the population or the land mass to compete, and there is no way they will ever have a “level playing field.”  The Federation wouldn’t have a level playing field, but would be able to allocate the human and natural resources more efficiently and effectively, possibly claim more international waters as boundaries, and reduce the expense of maintaining embassies around the world, plus many other benefits.

Unfortunately, speaking truth to the establishment, begging G-7 countries, and international agencies to create conditions where developing and underdeveloped economies; and countries can have a level playing field in order to deliver education, healthcare, opportunities for trade to create prosperity for everyone, is antithetical to the neoliberal capitalist agenda.  The G7 see the Caribbean, and most of the underdeveloped world, as suppliers of cheap raw materials and labor, and a place for their people to visit as tourists.  Caribbean leaders must change the optics.  Tourism is good business, but when the economy is totally dependent on tourism, and people are perpetual servants to people having fun, it’s detrimental to the psyche of our people and the nation.

(Trinidad-born Carlton Joseph who lives in Washington D.C., is a close observer of political developments in the United States.)