AS U.S. banks continue to end correspondent relations with indigenous banks in the Caribbean over money-laundering concerns, a regional conference comprising international stakeholders has supported the idea of dialogue to decide on the way forward.Since banks in the U.S. signalled their intention to end correspondent relations with banks in the Caribbean, the region has been pushing to have this decision reversed, given the financial implications this would bring.
As such, the conference, which was held on October 27 and 28 in Antigua and Barbuda, was intended to seek solutions to this troubling issue of the withdrawal of correspondent banking relations, de-risking and the labelling of the Caribbean as a tax haven.
The conference was attended by senior representatives of international financial institutions, including; the International Monetary Fund and the World Bank; regulatory bodies; the European Union Commission; the Organisation for Economic Co-operation and Development (OECD) Global Forum; commercial banks; central banks; governments; the Caribbean Community (CARICOM) Secretariat; and the Caribbean Development Bank
Endorsed at this conference was a recommendation made by the Financial Action Task Force (FATF) and the Financial Stability Board (FSB) that ongoing dialogue is needed between correspondent and respondent institutions on the matter. FATF and FSB said, “It is important for correspondent institutions to maintain an ongoing and open dialogue with the respondent institution(s), including helping them understand the correspondent’s anti-money laundering/countering the financing of terrorism policy, engaging with them to improve their controls and processes.”
And this was welcomed by the participants at the conference, who agreed that it is a vital platform from which both correspondent and respondent banks can engage in constructive dialogue leading to a permanent solution. Accordingly, the conference called on international banks to continue their provision of correspondent banking relations, while all parties implement the guidance of the FATF and the FSB.
The financial watchdogs also concluded that withdrawal of correspondent banking relations “is a serious concern” to them “to the extent that de-risking may drive financial transactions into non-regulated channels, reducing transparency of financial flows and creating financial exclusion, thereby increasing exposure to money-laundering and terrorist financing risks.”
Caribbean governments, regulators and banks, participating in the conference, committed the regional jurisdictions to redouble their efforts to achieve full compliance with the international standards set by the FATF, the FSB and the OECD Global Forum. As a result, the sum of 4.5M euros pledged by the European Union (EU) to CARIFORUM/CFATF was welcomed by the conference as a means to address such deficiencies that exist. Other countries were urged at the conference to follow the lead of the EU.
The conference also agreed that Caribbean banks should work with correspondent banks to develop pro-forma model agreements which incorporate the principles enshrined in the FATF guidance note as a basis for negotiating the provision of correspondent banking services in the future. In relation to the “unfair and unfortunate” labelling of the Caribbean as a tax haven, the conference noted in a statement that such labelling is grounded more in perception than reality. And having agreed that this labelling is grounded in perception, participating Caribbean jurisdictions resolved to launch a targeted and focused campaign aimed at eliminating this “false characterisation.”
Additionally, Caribbean jurisdictions acknowledged that some jurisdictions have been tardy in passing legislation for the common reporting standards, and this is a key criterion used by the Global Forum in assessing jurisdictions. They also agreed that harmonisation of legislation and regulation needs to be pursued.
And what was recognised by these countries was that efficiencies can be gained from regional collaboration that bundle national operations. They highlighted the fact that the Eastern Caribbean Currency Union countries have decided to consolidate their national Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) work into one regional operation under the purview of the Eastern Caribbean Central Bank.
However, one of the areas of concern for the international community is the Caribbean’s perceived lack of enforcement action. It was agreed that this is an issue that must be addressed by dedicating more resources to Financial Intelligence Units (FIU) and other relevant agencies including the CFATF to perform their functions more effectively.
As a result, the Caribbean jurisdictions agreed that they have to prepare themselves adequately for evaluations by international agencies. This therefore calls for them to establish Frameworks for National Risk Assessments, National Action Plans and National AML/CTF committees, as a matter of urgency to help identify the areas of weakness within their systems, including client information systems.
In that regard, it was pointed out that data systems have to be improved, and the Action Plan for Statistics approved by their Heads of Government last July during CARICOM Heads of Government meeting should be implemented. These initiatives, the statement said, are intended to strengthen the financial reporting systems and provide greater transparency, which should raise the level of comfort of correspondent banks.