I have been reading a number of articles of late, in the Caribbean media, bitterly complaining about rampant de-risking at North American banks, and making all sorts of arguments for continued access to US & Canadian financial structures, through correspondent accounts. While some of the arguments certainly have merit, the de-risking situation in North America, where compliance officers at international banks are under increased pressure, and even fear the imposition of personal liability, for perceived ineffectiveness in their AML/CFT compliance programs, is only going to get worse.
North American banks will only retain their correspondent accounts at Caribbean banks if they are afforded a window into the local accounts of the offshore banks, which means Know your Customers' Customer, or KYCC. This means having a software installed in each Caribbean bank, that will allow the bank in New York or Toronto to examine their correspondent bank's local accounts in depth, with the same access as the local bank has. It is as simple as that.
There's no great mystery about how this is accomplished; the Caribbean bank and its Northern correspondent both download commercially-available software. There's even one created locally*, by IT techs in the Cayman Islands, for that express purpose. The problem is, in the Caribbean, with rare exceptions, no banks are willing to do it, notwithstanding that the cost to the banks is minimal.
Why the hesitation? I am afraid the most likely excuses are also the reasons that the North American banks want to close those correspondent accounts in the first place. The Caribbean banks say that they do not want to expose the privacy of their customers. In plain English, they do not want these types of customers/clients exposed:
(1) Accounts of corrupt government officials, and their political allies. An examination of such accounts could show deposits far in excess of an official's known salary and minimal assets.
(2) Accounts of dodgy tax evaders, drug traffickers, or individuals engaged in illegal activities.
(3) Accounts of individuals from sanctioned countries, deposited without any verification of Source of Funds, and who may be intermediaries or terrorist financiers.
(4) Accounts that hold income from Citizenship by Investment (CBI) applicants. Knowing how many deposits, and their country of origin, could provide clues to foreign law enforcement agencies as to the volume of CBI passports issued, and what countries they are coming from.
Unfortunately, unless true KYCC capability is granted to the onshore banks, you can expect increased de-risking, forcing the losing banks to funnel US Dollars through third parties, at increased cost, and with additional delays for clients. If KYCC does not come to the Caribbean, you can count on an eventual deterioration in local economies, and the reinforcement of the perception that bank secrecy exists there only to keep illicit clients out of the sunlight. The banks must choose KYCC to survive.
Chronicles of Monte Friesner - Financial Crime Analyst
Contributed by Kenneth Rijock -Financial Crime Consultant