Caribbean Trade Law and Development

Blog

  • Caribbean Region Most Affected by Loss in Correspondent Banking Relationships, according to World Bank Survey

    Caribbean Region Most Affected by Loss in Correspondent Banking Relationships, according to World Bank Survey

    Alicia Nicholls

    The withdrawal by international banks of correspondent banking relationships with Caribbean-based banks and money transfer businesses has once again been making headlines in the Caribbean. This week Antigua & Barbuda’s Prime Minister raised the issue at the Fourth Summit of the Community of Latin American and Caribbean States (CELAC), terming it a “clear and present danger”. Last year mere weeks after Prime Minister Barrow of Belize raised the issue in his address at the Summit of the Americas in Panama, the Bank of America severed ties with Belize Bank, the largest bank in Belize.

    Correspondent banking relationships are Caribbean countries’ umbilical cord to the international financial system. They allow for the conduct of international trade and investment by facilitating crossborder payments, as well as the receipt and sending of remittances through international wire transfers. At the microlevel these relationships help local exporters to receive payments for their goods and services, local businesses to pay for imports, and poor families to receive remittances for their day to day survival. As I mentioned in an earlier article, the loss of correspondent banking relationships could spell disaster for the small, open economies of the region which are highly dependent on trade and investment flows, with implications for poverty reduction and eradication.

    World Bank Survey

    The Caribbean’s fears are not unfounded. According to the findings of a survey published by the World Bank in its report “Withdrawal from Correspondent Baking: Where, Why, and What to do About it” in November last year, the World Bank found that “small jurisdictions with significant offshore banking activities are particularly affected by the decline of CBRs”. More ominously, according to the Report, the Caribbean Region seems to be the most affected by a decline in correspondent banking relationships.

    It also noted that United States banks have been most frequently identified as withdrawing their correspondent banking services. According to the Report, the services which respondents mentioned as being the most affected by the loss of correspondent banking are “cheque clearing and settlement, cash management services, international wire transfers”, while banking authorities and local/regional banks identified trade finance.

    While the report noted that the majority of respondent banks have been able to find alternative banking relationships, in some cases the time and cost of finding new relationships are significant and not always on comparable terms and conditions as with the previous correspondent bank.

    The survey highlighted several reasons identified by international banks for withdrawing their correspondent banking services and noted that for large international banks, the main reasons were AML/CFT (anti-money laundering and counter-terrorism financing) and CDD/KYC (customer due diligence and know your customer) related concerns.

    In concluding, the Report provided a number of recommendations for both respondent banks and correspondent banks. One of the recommendations was for correspondent banks to consider the respondent bank’s business when making their decision to end a relationship, including by outlining the reasons for withdrawal, considering giving longer notice periods and considering the use of restrictions as opposed to outright termination.

    Caribbean seen as “Risky business”

    For the Caribbean, the loss of correspondent banking relationships, mainly as a result of banks’ de-risking practices, is intertwined with the fight against the arbitrary blacklists the region’s offshore financial jurisdictions are constantly called on to defend themselves against. Last year, both the EU and the District of Columbia (US) published blacklists which included Caribbean countries, causing regional governments to spend consider time advocating for their removal. Either way, the net result of these arbitrary actions would appear to do little to mitigate international banks’ perception of the Caribbean as literally a “risky” place to do business. The Financial Action Task Force (FATF) has reiterated the risk-based approach to AMT/CTF on a case-by-case basis as opposed to the wholesale de-risking which many banks are doing.

    The way forward

    The World Bank’s report is welcomed as it has provided some empirical evidence to support the concerns of Caribbean countries and in so doing helps to place a global spotlight on this issue. The Financial Stability Board (FSB) Report to the G-20 on actions taken to assess and address the decline in correspondent banking referenced the World Bank Report. The FSB has partnered with several organisations, including the World Bank, IMF among others, to address this issue through a four-point action plan which it has articulated in its report to the G-20.

    The E15 Initiative Report entitled “Strengthening the Global Trade and Investment System in the 21st Century” which was launched at World Economic Forum’s Annual Meeting at Davos this year noted that while data was scarce it would appear that developing countries are most affected by limited correspondent banking relationships and has offered some very timely proposals.

    Given the potential threat this issue poses to the region’s economies, it is incumbent on Caribbean banks to continue to observe the highest regulatory standards, including on AML/CTF and CDD/KYC. The Caribbean Association of Banks (CAB) has commendably been at the forefront of advocacy in regards to the issue of correspondent banking and their continued advocacy will be important.

    Former Prime Minister of Barbados and economist, Owen Arthur, at a Roundtable discussion on Correspondent Banking held in Kingston, Jamaica earlier this month has called on regional leaders to adopt coordinated regional measures to address the issue. Caribbean leaders must continue to raise the issue at the diplomatic and multilateral levels at every opportunity, and join forces with other similarly affected countries in advocating for an immediate global solution to the problem, including action on some of the proposals highlighted in the World Bank’s and E15 Initiative’s reports.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. The Author is not affiliated with the World Bank, the Caribbean Association of Banks or any bank. You can read more of her commentaries and follow her on Twitter @LicyLaw.

  • Cuba: US eases restrictions on trade financing

    Alicia Nicholls

    The United States’ Office of Foreign Assets Control (OFAC) and the Department of Commerce have announced today several further amendments to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR). These amendments further implement the new direction toward Cuba that President Obama outlined in December 2014.

    Key among these amendments is that US banks will now be allowed to provide financing for most types of exports and re-exports to Cuba, with agriculture commodities and items being the major exception.

    Summary of amendments 

    In summary, the amendments include:

    • Removing financing restrictions for most types of authorized exports and re-exports to Cuba.
    • Additional amendments to increase support for the Cuban people and facilitate authorized exports e.g: news gathering, telecommunications, agriculture
    • Additional amendment to facilitate carrier service by air and with Cuban airlines.
    • Expanding authorizations within existing travel categories to facilitate travel to Cuba for additional purposes e.g: information and informational materials, professional meetings and public performances

    For more information, please see this press release from the Department of Commerce.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can read more of her commentaries and follow her on Twitter @LicyLaw.

  • Davos 2016: Proposals for Strengthening the Global Trade and Investment System

    Alicia Nicholls

    A new report by the E15 Initiative entitled “Strengthening the Global Trade and Investment System in the 21st Century” was launched at the World Economic Forum’s Annual Meeting 2016 held January 20-23 in Davos, Switzerland. The new report proposes a set of reforms with the aim of strengthening the global trade and investment system in the 21st century. Small vulnerable economies (SVEs) like those in the Caribbean stand to benefit from many of the proposals if endorsed by the international community.

    According to details on the website of the E15 Initiative, the E15 Initiative report is a product of the E15 Initiative  jointly undertaken by the International Centre for Trade and Sustainable Development (ICTSD) and the World Economic Forum, in conjunction with 16 partnering institutions and 375 international experts over the past two years.

    The E15 Initiative report is timely as it comes at a time of slowing global trade. Global trade is now growing at less than the rate of global GDP, which is not the norm, and last year the WTO revised downward its global trade growth projections for this year. The report also comes on the heels of the failure of WTO members at the 10th WTO Ministerial Conference in Nairobi, Kenya in December to agree on the continuation of the Doha Development Agenda, as well as in the midst of an ever-growing “spaghetti bowl” of regional trade agreements, which includes the recently concluded Trans-Pacific Partnership (TPP) and several other mega-regional trade agreements currently under negotiation.

    The E15 Initiative report has 16 chapters of practical recommendations organised in thematic groups. The reforms proposed are not limited to the WTO’s architecture but include proposals on wider global trade and investment cooperation. As an example, in light of the concerns about fragmentation, one of the proposals is for the establishment of a Regional Trade Agreement Exchange. The report is accompanied by a Synthesis Report which “summarizes and interprets the significance of the proposals for progress on many of the international community’s most important shared imperatives”.

    Proposals of Interest to the Caribbean SVEs

    The report’s recommendations touch on several issues which are of particular concern to SVEs, including the availability of correspondent-banking relationships. The loss of correspondent banking due to de-risking practices by banks in metropolitan countries is an issue of significant import to Caribbean SVEs as it has implications for remittances sending/receiving and the transaction of business with the rest of the world.

    Another recommendation which benefits services-based economies of the region is the proposed development of a comprehensive WTO Framework for Trade Facilitation in Services, while the proposed establishment of an Agreement on Access to Basic Science and Technology is also noteworthy. Other proposals touch on food security, fisheries subsidies and illegal unreported and unregulated (IUU) fishing, trade solutions to climate change, proposals on ensuring trade rules are equitable and predictable and on modernising the coherence of the investment agreements framework.

    For further information on the report, please see the website of the E15 Initiative. The full E15 Initiative report may be accessed here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. The Author is in no way affiliated with the ICTSD, WEF, the E15 Initiative or the report mentioned. You can read more of her commentaries and follow her on Twitter @LicyLaw.

  • WTO Director General Visits Barbados

    Alicia Nicholls

    Director General of the World Trade Organisation, Roberto Azevedo, paid an official visit to Barbados this week. The Director General’s visit to Barbados comes as part of his official visit to the Caribbean. Earlier this week the Director General visited Jamaica where he met with Prime Minister Portia Simpson Miller and other senior government representatives, and gave a speech at the University of the West Indies’ Mona Campus.

    According to Barbados’ Government Information Service, Mr. Azevedo met with Barbados’ Prime Minister, the Rt. Hon Freundel Stuart and Minister of Foreign Affairs and Foreign Trade, the Hon Senator Maxine McClean.

    Barbados has been a strong and vocal supporter of the multilateral trade process. Barbados was a founding member of the WTO and has been a party to the GATT since 1967. The chairperson’s statement on Barbados’ trade policy review in January last year noted, inter alia, that members “praised Barbados’ strong support for the multilateral trading system and the role it has played in the DDA negotiations” and its open and liberal investment and trade regime.  Barbados has played a leading role in advocating for the interests of Small Vulnerable Economies (SVEs) and currently chairs the Africa, Caribbean & Pacific (ACP) group  in the WTO.

    According to a report by Barbados’ Nation News, Minister McClean and Director General Azevedo held a joint press conference at the headquarters of her ministry. During this press conference, Minister McClean is reported to have emphasised the challenges faced by small states like Barbados in the multilateral trading system and reiterated the need for a successful conclusion of the Doha Development Round.

    The future of the Doha Round has been left undecided at the WTO’s 10th Ministerial Conference in Nairobi, Kenya last December. In the Nairobi Declaration, WTO members unprecedentedly stated their disagreement on whether Doha should be ended or continued.

    Details on Director General Azevedo’s official visit to Barbados may be obtained from the official website of the Barbados Government Information Service here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.