ST JOHNS, Antigua – You meet at a time [Thursday, 27 June 2019] when the financial services sector of our region is under assault by forces in the external community.
Disguised as concerns over “profit erosion”, “tax havens”, “money laundering” and “counter-terrorism financing”, the objectives of these external agencies appear to be designed to cripple competition in the financial services sector.
Having dominated the sector until the mid-1980s, financial centres in developed countries found that newcomers to the sector, particularly in the offshore sector, were becoming highly competitive.
Lower tax rates and efficient and lower cost services for a range of products from jurisdictions in the Caribbean, led the European Union (EU), through the Organization for Economic Co-operation and Development (OECD) launching its “harmful tax competition initiative”.
In effect, that initiative was designed to try to stop competition in financial services by coercing smaller jurisdictions to adopt tax rates that approximated the higher rates in Europe.
Regrettably, smaller jurisdictions did not coalesce to resist this imposition on their sovereign rights by a body that had no international authority to do so. Instead, some jurisdictions individually acquiesced to OECD and EU pressure, fracturing any attempt at unified resistance.
The acquiescence of sovereign rights is a slippery slope; Once the slide begins, the fall is difficult to stop, and almost impossible to reverse.
Over the years, the EU and OECD’s assault on the Caribbean’s offshore financial sector crept into the onshore sector, engulfing all in their increasing demands to push our jurisdictions out of the business of providing international financial services.
Now, we have come to the point where in March of this year, the EU blacklisted countries that they claim do not meet tax good governance.
Five Caribbean countries were on that list – Barbados, Belize, Bermuda, Dominica, and Trinidad and Tobago. Others were placed on a monitoring list because we have made commitments to implement changes in our legislative and enforcement regimes by December of this year, .
Those jurisdictions are Antigua and Barbuda, The Bahamas, St Kitts and Nevis, Saint Lucia, Anguilla, the British Virgin Islands and the Cayman Islands.
As a group, CARICOM countries have expressed concern that the new listing by the EU Council constitutes an infringement of our sovereign right of self-determination. We have said that it is starting to border on anti-competitive conduct, targeting the decimation of international business and the financial services sector in the Caribbean.
CARICOM has said collectively that we believe the EU Council is trying to destroy the financial sector in our member states even as we try to develop resilience in our economies to mitigate our inherent vulnerabilities of small size, limited resources, and exposure to natural disasters.
But, we live in a world of intolerance for the development aspirations of the small and of the increasing imposition of the doctrine that might is right.
Of course, we could collectively take the EU to the World Trade Organization on the basis that its actions are a restraint on our ability to trade. It is not an option that we should take off the table.
We should not take it off the table because it appears that no matter how much our jurisdictions adopt draconian laws and pay for expensive enforcement machinery; new and more intrusive demands are made.
We have wounded our financial services sector by a thousand cuts already. Is it that the only time that external forces will be satisfied is when our financial services sector is dead and buried?
I say we cannot allow that to happen. I say, we have a right to compete in the global marketplace on a level playing field with all.
I say, that the interests of our economies and of our people are as important and vital as anyone else’s, and we should fight for them against injustice and imposition.
You are all aware of the serious threat posed to the economies of our countries and the well-being of our people from de-risking and the loss of Correspondent Banking Relationships (CBRs).
Without CBRs, the global financial and trading system would come to a halt and affected countries will drop into poverty from which recovery will be costly both in time and money, but more importantly in human life.
This grave threat has been hanging over the Caribbean now for almost half a decade; and it shows no sign of abating. Right now, in many parts of the region, the majority of banks are reduced to only one correspondent bank, and at an extremely high cost.
Consequently, the cost of doing business is escalating, even as we try to cope with high debt, incurred largely to recover our countries from disasters. But, since 1966 the UN has recognised and codified in international law the right of people to pursue their economic development as a fundamental human right.
In this connection, deprivation of CBRs to our countries is deprivation of a fundamental human right. It is about the right to survive and to prosper and not to wash-up on the shores of the rich, begging for a living if not for life itself.
As the recently appointed chair of the heads of government of the Organisation of Eastern Caribbean States (OECS), I have made it clear that under my watch there will be an organized and vigorous promotion to identify CBRs for re-engagement, re-assessment and re-risking of our financial institutions.
We are ready to work with the Caribbean Association of Banks, our Central Bank, and international banking authorities to promote agreed strategies that will demonstrate that our jurisdictions are compliant with the various requirements of all the external agencies.
We will also comply with the Financial Action Task Force’s AML/CFT guidelines to ensure that we are not included in any black or grey lists; but where those lists are unreasonable and unfair, we will publicly and openly voice our concerns.
We will not silently fade away, allowing our countries to wither and our people to suffer.
Some of our Caribbean jurisdictions have been improperly labelled as “tax havens”. A “haven” implies that our banks hold profits and large deposit for multi-national corporations and high net worth individuals.
But the truth is revealed in our reported bank deposit balances that are reviewed annually by professional third-party firms. These balances tell a very different story and show that we are no tax havens.
In the case of Antigua and Barbuda, for instance, the audited and reported balances, recorded by the Eastern Caribbean Central Bank (ECCB) for domestic banks and the Financial Service Authority (FSRC) for international banks, are less than US$4 billion.
US$4 billion in a world economy of hundreds of trillions of US dollars, is far too minuscule to possibly qualify as a “tax haven”.
Audit committees of banks, represented in this room, are aware that the US International Narcotics Control Strategy Report (INCSR), perennially describes every, single country in the Caribbean – without exception – as a “major money launderer”.
The US statute defines a “major money laundering country” as one “whose financial institutions engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking”.
Well, the Caribbean audit committees of the region’s banking sector, as the internal watchdogs over money laundering risks, can attest that no significant proceeds from international narcotics trafficking passes through our banks.
All international transactions are traceable by person, business, bank account and bank, and each of them is vetted by our banks as senders and receivers. Therefore, we are left bewildered over how our jurisdictions are placed in this category of high-risk.
I should point out that this particular US report is not a “blacklist” of jurisdictions, nor are there sanctions associated with it. But it does unfairly create concerns among US banks that, as a result, have been withdrawing correspondent banking relationships.
In this regard, Antigua and Barbuda’s diplomatic representatives in Washington have been in the forefront of efforts to review the sources, process and conclusions of the reports.
This year, some success was achieved, and the report was modified.
Encouraged by this progress, we will continue to urge the US to recognise that the total amount of money transacted by all our banks is far too small to warrant the labelling as “major money launderers”, and they should stop it.
The reputational damage to our banks has frightened US banks and caused them to shy away from providing correspondent banking relationships. This situation is both unfair and unwarranted and threatens to un-bank our countries and plunge our economies into decline.
On a related matter, some of the people in this room are bankers from Antigua and Barbuda and other sister OECS countries that offer economic citizenship to qualified applicants.
They will be aware of the increasing challenges being posed to our Citizenship by Investment (CIP) programmes which have quite literally saved our economies from decline in the face of poor terms of trade, repeated natural disasters, diminished aid and high costs of imports.
The CIP is not unique to the Caribbean. It competes with similar programmes in Europe and North America. Perhaps, that is a reason why, like financial services, it is under assault by external forces.
But CIPs involve greater and stronger due diligence on their transactions than apply to others. Certainly, CIPs prevent money-laundering since funds received by the government for approved applicants are non-refundable. Nonetheless, some correspondent banks have shy-ed away from transactions related to CIPs.
In this regard, I urge Caribbean banks involved in this service to demonstrate to their correspondent banks the extreme care and due diligence used in managing the CIP product. By clear policies and procedures, they should demonstrate why CIPs do not pose a risk to the integrity of correspondent banking relationships. I will go further.
In my capacity as chairman of the OECS, I undertake, if necessary, to assemble a team of government officials, CIP executives, AML/CFT experts and our banks to hold joint meetings with correspondent banks to sensitize them on the integrity and security of the CIP application and approval process.
The CIP programmes are too important to our economies and to the welfare of all, including the banking sector, for us not to run the extra mile that might be necessary to disabuse misconceptions and to build-up confidence in them.
Financial institutions have a pivotal role to play in the financial growth of national economies. Strong financial institutions are identified by strong financial auditing and reporting.
Good reporting will attract confidence in the institution, which will then attract local and foreign direct investments that will grow the national economy.
National prosperity is a circle that requires the good health of our financial institutions. The global financial world is evolving, and our banking sectors will need to participate actively to remain competitive.
Our banks need to be nimble, flexible and well advised by their audit committees to safely meet the challenges and to take advantage of the opportunities presented by the advance of digital banking services.
In the OECS, I commend Governor Timothy Antoine and his team at the ECCB for exploring the issuance of a high-security digital EC currency to operate alongside physical EC cash. This development could accelerate real-time processing and settlements that would benefit businesses and individuals, saving time and improving efficiency.
The strength of our banking sector has a greater role to play now in the prospects of our small economies than at any other previous time. Banks have to place themselves in a position in which they can not only satisfy local regulation, they must also be able to withstand international scrutiny.
That is the only way they will overcome the fears related to securing correspondent banking relations that are so vital to them and to the economies in which they function. But, within that framework, banks must also innovate and contribute to new initiatives that could make our Caribbean region stronger for sound investment and sustainable development.
In all this, audit committees have a vital role to ensure that boards of banks are well-advised; that the integrity of the institutions is safeguarded; and that the deposits of clients are protected.
I know that auditing committees of banks, more than any others, are very mindful of the warning of Warren Buffet that: “Banking is very good business if you don’t do anything dumb.”
I am confident our banks will be better for your scrutiny, your diligence and your sound advice.