Caribbean Banks Found Workarounds After Losing Correspondent Accounts

By Daniel Bethencourt

At least nine Caribbean banks that have lost access to U.S. correspondent accounts as a result of  “de-risking” now access U.S. dollars indirectly, usually at higher costs, through their ties to U.K. and other overseas financial institutions, sources told ACAMS

Years after first drawing global attention, de-risking, which involves the termination of certain accounts by global lenders to mitigate exposure to legal and regulatory penalties and thus reduce compliance costs, still impacts the Caribbean financial services industry.

As a result, Crown Agents Bank, a U.K.-headquartered financial intermediary, now handles U.S. dollar-clearing tasks for several of the affected lenders through its own access to U.S. correspondents, according to Steven Marshall, Crown’s chief commercial officer.

“We would much rather the Caribbean was serviced by a series of banks,” Marshall said. “We’re not the sole bank servicing the region by any means, but there are still a disproportionate number that only have a single clearer, and that’s unhealthy given what’s happened in the past.”

Data administered by the Society for Worldwide Interbank Financial Telecommunication shows a 15 percent decline from 2011 through 2016 in the number of correspondent banks around the world that process dollars or euros. In 2016 alone, Caribbean jurisdictions and small Pacific states experienced the highest rates of decline, at about a 10 percent loss.

“Overall money flowing through most of those corridors remains the same or has even slightly increased, but they go through a smaller number of channels,” Emile van der Does de Willebois, head of financial market integrity and asset recovery at the World Bank, said.

Pinpointing the specific impact of de-risking on Caribbean economies has proven difficult but the trend has limited the amount of services several local and regional banks now provide to their clients and forced remitters to lay off staff amid increased costs, van der Does de Willebois said.

For some institutions, the effect has been especially acute.

One Cayman Islands-based remitter began transporting cash on airplanes after losing its U.S. correspondent account in 2015, according to Sally Yearwood, executive director of Caribbean Central American Action, who discussed the problem in testimony to U.S. lawmakers in June.

Even today, nine of 53 members of the Caribbean Association of Banks, or CAB, a St. Lucia-based industry group that mostly represent smaller lenders in the region, still do not have a U.S. correspondent account, whereas before de-risking began, all members held at least one.

All nine have since onboarded as clients with Crown Agents Bank, which holds direct relationships with U.S. correspondent institutions, Mary Popo, the group’s general manager, told

Crown Agents traces its formation back to the U.K. government’s appointment of representatives to oversee shipping, grants and financial services for colonies in the early 19th century.

According to its website, Crown Agents’ banking arm was privatized in 1997 and acquired by a private equity firm in 2016.

The bank conducts on-site reviews of potential correspondent clients and issues a detailed report on any anti-money laundering program deficiencies they must first address to secure an account, Marshall, the bank’s chief commercial officer, said.

The bank also bars clients from funneling correspondent transactions on behalf of other Caribbean institutions.

“Our position has been somewhat unique and that has given us hopefully an understanding of de-risking,” Marshall said.

Many Caribbean financial institutions that managed to preserve at least some access to correspondent services since 2011 remain in a precarious position.

Seventeen of the 44 CAB members that have direct access to U.S. dollar services hold only one U.S. correspondent account, placing them in a perpetual state of vulnerability, Shaiiede Kallicharan, a St. Lucia-based research officer for the industry group, said.

Others have switched to “second-tier” financial institutions with less robust correspondent services and consequently must pay more per correspondent transaction, Kallicharan said.

A World Bank study published four months ago highlighted a similar state of affairs elsewhere around the globe: financial institutions in eight countries turned to costlier correspondent relationships with second and third-tier lenders after losing their correspondent accounts.

A compliance officer for a Caribbean bank who spoke on condition of anonymity said his firm recently reached out to a Chinese lender in New York in efforts to improve upon the delicate position they hold with correspondents, including Crown Agents Bank, which has played a “very important” role in the region but tends to charge steep fees for providing access to dollars.

The Chinese lender rejected the overture, the compliance officer said.

According to the World Bank study, only a handful of global banks have exited entire regions since the onset of de-risking.

“It’s true that banks complain about losing their correspondent relationships, but the same U.S. banks also open other relationships … in the same country,” Pierre-Laurent Chatain, a financial sector specialist for the World Bank and lead author of the study, said. “Banks did not target specific jurisdictions—they targeted specific banks.”

Topics : Anti-money laundering , Counterterrorist Financing
Source: Cayman Islands , St. Lucia , Jamaica , Antigua and Barbuda , Netherlands Antilles , Bahamas , Turks and Caicos Islands , British Virgin Islands , Aruba , Grenada , St. Vincent and the Grenadines , Barbados , Bermuda , St. Kitts and Nevis , St. Maarten , Curacao , Trinidad and Tobago
Document Date: August 7, 2018