Apr 19, 2018 News
…despite strengthened AML framework –Finance Minister
By Kiana Wilburg
It has been several months since the authorities here got kudos for strengthening Guyana’s Anti-Money Laundering and Countering the Financing of Terrorism (CML/CFT)Framework.
In spite of this, it appears that Guyana is still experiencing difficulties when it comes to its relationships with foreign money transactions. This was confirmed recently by Finance Minister, Winston Jordan.
The economist noted at his most recent press conference that there continues to be challenges.
He said, “The only banks as you know that are affected by correspondent banks are those that are indigenous to Guyana. Scotia Bank is not affected; I don’t think Bank of Baroda is affected. I don’t know if Republic Bank is affected but the ones that are indigenous to Guyana like Citizens Bank and GBTI, Demerara Bank…they have their challenges.”
The Finance Minister continued, “In the case of Citizens Bank for example, they are using Crown Agents Bank. I don’t know if this is being done also for GBTI… But I can tell you that it is costly because I had to put through a transaction there and I was mortified by the cost for the transaction and the speed at which transactions get done.”
The economist added, “…It is a problem and we can’t duck and hide from it. It has nothing to do with the strength of our AML (framework) and so on. What has happened is because of all these impositions that have taken over the past years, banks have seen their profits dwindle and their risks going up.
“For them the risk is too great to take so they jump off, countries like ours, rather than having minuscule profits and headaches and more headaches, more paper work…”
The Finance Minister said that Guyana’s authorities can strengthen the systems as much as it wants but if international banks do not feel comfortable, they are going to stay out of the local market.
JABS AT ECONOMY
The derisking phenomenon, which has resulted in foreign-owned banks terminating correspondent banking relationships with locally-owned banks, continues to affect the economy.
This was noted by Finance Minister, Winston Jordan since last year.
At the end of October 2017, the economist said that more than two-thirds of the locally owned banks were unable to facilitate third-party foreign currency cheques, and only one bank has been executing wire transfers.
The Finance Minister said that this has led to increased cost of financial transactions, which has the potential to reduce trade and investments, as well as remittances from abroad.
He said that the Government is making efforts to work with Caribbean neighbours and international institutions to develop a methodology to facilitate analysis of the impacts of these lost relationships, as well as to inform measures that can be put in place to mitigate against future losses.
If de-risking continues, unchecked, all Caribbean states can ultimately experience an economic collapse.
This fiscal forecast was delivered by Jordan at a high level meeting, which was held in the USA.
There, Jordan spoke on behalf of the economies of Guyana and the rest of the Caribbean. He also elaborated on issues between those states and the IMF as well as where more help can be provided in certain areas.
One of those crucial challenges he spoke to was the withdrawal by international banks of correspondent banking relationships, a process known as “de-risking”.
Jordan said that this comes at a time when, more than any other time, the financial system of Caribbean nations such as Guyana, is deeply integrated with, or substantially connected to, those of other countries across the world through correspondent banking.
While this trend has affected countries around the globe, Jordan said that the small economies of the Caribbean have been hit especially hard.
The Finance Minister said that in the first half of 2016 alone, at least 16 banks, across five countries in the region, have lost all or some of their correspondent banking relationships.
The economist stressed that Correspondent banking is the lifeblood of global commerce.
He said that healthy correspondent banking relationships are essential because they facilitate trade, foster economic growth, create legitimate avenues for growing remittances and provide access to financial services.
Jordan said that the adverse effects of de-risking on international trade, financial stability and growth, and money transfers and remittances have already been felt in many of the Caribbean countries.
The Finance Minister said, “If de-risking continues unchecked, all Caribbean states can expect to experience some level of macroeconomic instability, financial exclusion and, ultimately, economic collapse.
“The recommendations that have been posited, such as bundling of services, taking out insurance, and collectively approaching correspondent banks appear to be unrealistic.”
The Finance Minister said that the issue is further complicated by the fact that banks in the Caribbean do not have a long list of international banks with which they can form correspondent banking relationships.
He said that the progressive loss of correspondent banking relationships will increase so will the already disproportionately high level of operational risk.
Jordan said that over the last three years, the region has been addressing this issue not only through the implementation of The Financial Action Task Force (FATF) recommendations on Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT), but, also, through numerous studies, reports and high level meetings with organizations such as the International Monetary Fund (IMF), World Bank, United Nations and the Commonwealth Secretariat.
“In spite of numerous promises to address the problem, however, there has been virtually no progress to staunch the haemorrhaging by these banks. This non-action, in light of the substantial work that has already been done, is worrisome,” the Finance Minister expressed.
He has since called on the International Monetary Fund to play a more realistic and proactive role in dealing with this phenomenon.
He said, “It is the IMF to whom we look to aggressively support Caribbean nations in taking a multi-faceted approach to fighting de-risking, consistent with the Financial Stability Board’s four-point plan.”
The Finance Minister said that this plan includes a further examination of the issue, clarification of regulatory expectations, capacity-building jurisdictions where respondent banks are affected, and the strengthening of tools for correspondent banks to perform due diligence checks.
He said that implementing this plan will require cooperation with both international banks and regulators in the United States, Europe, and other regions where international banks are domiciled.
“We must ensure that rather than being cut off from international banks, our local financial institutions and supervisors can learn from their best practices for AML/CFT risk management,” expressed the economist.
The Finance Minister insisted that the IMF can play a critical role by facilitating engagement and collaboration among international banking institutions, global supervisors, and the nations suffering from this wave of de-risking, by pressuring these institutions to take immediate action.
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