This week's announcement, from Canada's Scotiabank, that it is selling off its interests in nine East Caribbean states to a Trinidad-based regional bank, was met with dismay by local governmental officials, who angrily explained in local media that all such transfers were subject to local regulatory approval, and that they had not received advance notice of the sale. One official, PM Gaston Browne from Antigua, arrogantly stated that "local investors" should have been afforded a Right of First Refusal on the branch located there. (He has forgotten how a number of Antiguans who are wealthy cannot afford to disclose their Source of Funds.)
Everyone appears to be missing the point; Scotiabank publicly asserted that the sale had to do with its increased focusing upon its expanding Latin America and that it will remain in other parts of the Caribbean, but facts tell a different story:
(1) De-Risking: increased regulatory pressure, especially from agencies located in the United States, but also from Canada, is believed to have been the principal factor. Scotiabank rightly fears the long arm of regulatory civil fines and penalties, being issued in a very public way. Given the low profit-low volume of financial business in the East Caribbean, why risk a major run-in with US regulators, when you are not taking substantial profits out of the region ?
(2) The CBI madness; Citizenship by Investment (CBI/CIP) programs, in five of the nine jurisdictions being exited by Scotiabank, have attracted dirty money from dodgy applicants. Local government officials have accepted bribes and kickbacks, and that money must also go into the local financial system. No bank wants to unwittingly take the proceeds of crime, and later have to face regulators, when their career criminal CBI client is arrested by law enforcement abroad.
(3) Bearer share corporations, offshore banking licenses and a lack of transparency regarding Beneficial Ownership of companies: These problems remain major roadblocks to international acceptance of the East Caribbean as a low-risk region for compliance. Unless there is true reform, there's no reason for Scotiabank to remain in jurisdictions where money laundering-friendly laws exist, because they attract illicit capital.
Some politicians have said they will not approve the sale in their countries. These local threats to declining regulatory approval for the sale could result in Scotiabank simply closing those offices in the nine countries, leaving local residents with one less financial institution to assist them in their business, as well as personal, banking activities. This macho posturing will only result in hurting the people these politicians have sworn to represent wisely.
Finally, will the countries in the region actually learn from the experience, and enact the extensive reforms necessary to lift them up into low-risk status ? We cannot say, but if they do not act, look for still more deadly De-Risking in the Caribbean's future.
Chronicles of Monte Friesner - Financial Crime Analyst
Contributed by Kenneth Rijock - Financial Crime Consultant