By Dr Richard Bernal From Nation News Barbados

Correspondent Banking is of serious concern to the countries of the Caribbean, the diaspora in the United States and to the financial institutions in both the Caribbean and in New York City, the leading financial centre in the world.

The International Monetary Fund points out that correspondent banking is the core business of over 3 700 banks in over 200 countries, so it’s an issue of worldwide importance. The World Bank identified the Caribbean region as the most severely impacted by the crisis of correspondent banking.

In addition, all of this comes against the background of the Inter-American Development Bank’s report that shows that the Caribbean is the region that has most adversely been affected by the global
economic and financial crisis, which started in late 2008.

Finally, as one indicator of the magnitude of the potential impact, over US$10 billion in remittances go into the Caribbean and much of that is through correspondent banking.

The background to the issue is that the United States government passed the Foreign Account Tax Compliance Act in 2010. It is commonly referred to as FATCA and it has been applying FATCA to those persons including those living outside the United States and requiring them to file annual reports on their financial accounts outside of the United States. In addition, it requires all foreign financial institutions to provide information on assets and transactions of US persons, and that has to be filed with the US Treasury.

The motivation for FATCA is two-fold: first, to improve tax compliance and tax revenue collection from US citizens who hold assets outside the US. Secondly, it’s also intended to try to reduce money laundering and money going to terrorist organisations.

Of course, these are goals that both the US and the Caribbean share. However, FATCA in its application is inadvertently causing serious damage to the small developing economies of the Caribbean who are strong allies of the US.

FATCA also has implications for offshore financial centres in the Caribbean. The impact is serious because Caribbean economies are highly open and therefore international transactions and the financing of those transactions are exceedingly important in these economies. It has an impact potentially on trade financing, remittances, investment flows, debt servicing, transfers of profits and royalties, and so on. It could also serve to reduce the business done by US banks based in New York.

The current status of the issue is that the US and the Caribbean governments have met several times at various levels to discuss this issue and to see if we can find a path which would minimise damage to the Caribbean. More recently, the Leader of Opposition in Trinidad wrote to the then President-elect Donald Trump, reminding him that in his campaign platform there was a statement indicating his willingness to repeal FATCA. That letter from Trump elicited an editorial in the Wall Street Journal raising the issue and its importance.

So, clearly, this is an issue of considerable importance, and it’s highly relevant.

Dr Richard Bernal is Pro Vice-Chancellor Global Affairs, University of the West Indies. He raised these concerns last week during a forum in New York. It was hosted by the State University of New York-University of the West Indies Centre For Leadership And Sustainable Development.

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