There has been much said of late, and much finger-pointing, made by Caribbean leaders who are unhappy that a large number of North American financial institutions have terminated correspondent relationships with Caribbean banks. It is now time for some blunt observations, from one who can objectively frame the issues, and offer meaningful solutions. It is not intended to offend, but to educate, all the interested parties to what is a serious problem.
1. Contrary to public opinion, there is no absolute right of foreign banks to have access to the US financial structure; given America's current law enforcement and regulatory situation, US banks must, in operating their risk-based compliance programs, minimize the possibility that money launderers, financial criminals, and terrorist financiers, will be able to gain entry, through correspondent accounts.
2. Bankers, and compliance officers, now properly fear personal threats to themselves, due to perceived negligence or compliance malpractice. American bankers are now facing potential fines, exclusion from financial institution positions, and even criminal charges, for what regulators or law enforcement deem to be failures. Why should a US banker expose himself or herself, due to deficiencies of banks abroad ?
3. Candidly, Anti-Money Laundering (AML) and Countering the Threat of Terrorist Financing (CTF) programs at most Caribbean banks are not at the level of Banking Best Practices which we see in the United States. This is due to lack of sufficient funding for compliance, use of staff whose training & experience, and authority, is minimal, and insufficient technological resources to successfully complete the tasks at hand each day.
4. Failure of Caribbean banks to create, and operate KYCC, or Know Your Customer's Customer, programs, which allow US banks to actually look into the Caribbean bank's clients' accounts. Unless a bank in New York can rule out a deposit as a possible money laundering event, the US bank will remain in the dark and feel insecure about the transaction. Loss of correspondent relationships begins from such events as this one. This is software that gives onshore banks a window into foreign bank customers, but most Caribbean banks will not use it. They are ignoring the solution at their peril.
5. The negative influence of suspect funds, coming into local Caribbean banks, in connection with the Citizenship by Investment (CBI) programs, being operated by five East Caribbean states, just adds more fuel to the fire. The presence of potentially dirty money, in large amounts, is enough to destroy any correspondent relationship.
As you can see from paragraph four, there are effective solutions to virtually all these critical issues, many of which we owe to technological advances made during the past decade. In future articles, we will analyze each of them, as a practical way out of the current correspondent banking emergency being experienced by Caribbean banks; stay tuned.
Chronicles of Monte Friesner - Financial Crime Analyst
Contributed by Financial Crime Consultant