CORRESPONDENT BANKING AT A CROSSROADS IN THE CARIBBEAN

The unfolding CBI/CIP scandal, involving illegal sales in the countries of the East Caribbean that offer economic citizenships has complicated an already difficult situation for American financial institutions already considering the termination of correspondent banking relations with indigenous banks in the region, for valid risk management reasons. Their contemplated De-Risking actions, which are opposed by a US Government that favors giving the nations of the caribbean access to the New York banking structure, now have a major additional reason for action, namely the fact that illegally- discounted CBI payments, which are routed through US banks with correspondent accounts, constitute money laundering violations, for which the bank could be found liable under American anti-money laundering laws.

While one US bank has attempted damage control by blocking CBI payments, another is said to have commenced quietly terminating its correspondent banking relationship, one must assume that all American banks with such accounts are actively considering such action, which could have serious economic consequences on the EC countries losing those valued connections.

Are there any alternative solutions? We suggest the following as possibilities:
(1) Inasmuch as sub-standard compliance at EC banks, complicated by rampant corruption, is what scares the American banks, perhaps they should themselves undertake to upgrade the AML/CFT capabilities of their corresponding banks, AND to install, inside those banks, a senior compliance officer of their own as a monitor. Upgrade and closely monitor in the field.
(2) Until and unless those countries' compliance programs can be trusted to keep illegal CBI payments from being sent into the US, to redline ALL CBI money, forcing immediate and complete reform, since the programs accept US Dollars, and they cannot survive without access to the US financial system.

While we cannot cut the Caribbean nations off from their American financial lifeline, US banks, which operate risk-based compliance programs, can no longer live with what has become an untenable situation, due in large part to the EC countries total failure to police CBI. Perhaps those banks need to step up themselves, and create a solution, before taking that fatal step, and closing all correspondent accounts out of desperation.The vast majority of West Indians need financial access, and if there is a way out of the problem, US banks should build one.