The Caribbean has some of the most resilient and talented people in the world. People who overcame slavery and colonialism. Over the past five decades they have faced corrupt politicians draining their economies, perennial climate disasters and economic discrimination from the West. Now, these small island developing states, still reeling from the Covid pandemic, face further financial challenges brought on by banks from the US, UK and EU and Australia. Academics and journalists have been writing about financial “de-risking” in the Caribbean region for at least a decade, and how it’s been getting worse over that time. Simply put, de-risking is when foreign banks perceive that the risks of doing business in a region outweigh the rewards. Mottley has been highlighting the issue this year, telling the US Congress that de-risking is the dumbest thing the region has seen in public policy and will lead to the money laundering and terrorist financing that the US and Caribbean governments they want to avoid. But little has improved: banks continue to leave the Caribbean. This makes international trade increasingly difficult, not only for local companies but also for foreign companies and individuals who want to do business in the region or simply extend financial support to their families. Sustaining trade was increasingly difficult for SMEs. The effects of de-risking are significant – the stagnation of economic growth in nations already suffering from Covid and the hurricanes and floods exacerbated by the climate crisis. It discouraged foreign direct investment. International financial centers and development finance institutions, the conduits for investment and aid, face increasing challenges in attracting investors. The removal of risks has made it harder for the diaspora to support their families with remittances, affected tourism – the lifeblood of many island economies – and contributed to some airlines and cruise ships no longer visiting the region. Caribbean islands are now becoming uncompetitive and losing momentum in their development goals. The impoverishment of developing countries by the West is nothing new. The likely root cause of bank flight is the blacklisting of these small island developing states by the Financial Action Task Force, the Organization for Economic Co-operation and Development (OECD) and more recently the EU Commission. Sometimes countries at the top of the rankings are simply better at corruption than those at the bottom The blacklist comes from the global reform movement to combat money laundering and terrorist financing. Over the past two decades, these US and European actors have held the Caribbean and African-Pacific countries to strict standards that are not reflected in their own institutions. This results in the perception that developing countries are involved in rampant corruption and do not enforce anti-money laundering regulations or combat the financing of terrorism, while enabling tax evasion and other financial crimes. This is reinforced by Transparency International’s Corruption Perceptions Index, but sometimes it can simply mean that countries at the top of the rankings are better at corruption than those at the bottom. However, the reality is different. The continued inclusion of countries such as Jamaica, Trinidad and Tobago, Barbados, and even Haiti and Vanuatu in these lists is largely due to the changing criteria for evaluating and defining the money supply. The standard explanation is that these countries did not make commitments to transparency and information sharing. Once again moving the points to vulnerable nations – while the real money launderers in London, New York, Luxembourg and Switzerland have been exposed as facilitating Russian oligarchs with parking spaces for their ill-gotten gains. A closer look at compliance challenges in the islands shows a proactive commitment, even with limited resources, to adhere to the rules of know-your-customer procedures, such as enhanced due diligence, verification of sources of funds and beneficial ownership of companies . Implementing these policies takes time and costs money, making setting up a bank account – whether for a business or an individual – lengthy and difficult. Such perceptions are leading a growing number of banks to de-risk the region. They have decided that the risk versus the reward is too great, that the economies of these countries are too small, and compliance is too costly. Over a third have left the area. This reduced the Caribbean’s access to the global financial system dependent on correspondent banking relationships. Ironically, the system sometimes exposes the very institutions that wield the big regulatory stick and whose methodology is rarely questioned. The World Bank’s Ease of Doing Business Index was once the main guideline for the investment community, even though it often had a negative impact on developing countries. The index was discontinued in September 2021 after an independent report found “data irregularities” and “ethical concerns” with several officials, including the current managing director of the IMF, accused of inflating the data to boost China’s ranking. The IMF board later found that there was no conclusive proof of wrongdoing. While blacklisted and graylisted countries are subject to such double standards, bias and suspect data, they face the added blow of being increasingly excluded from financial systems. The same regulations designed to mitigate money laundering and terrorist financing will result in individuals and businesses seeking alternatives outside of the conventional banking system, creating underground networks. Alternatives to the Swift system are becoming available, although not yet in the Caribbean. Russia’s SPFS and China’s Cips are two examples, as well as cryptocurrencies such as bitcoin. This should be a warning to those concerned about countries such as Guyana and Trinidad and Tobago, which supply oil and gas to Europe and the US, now assessing the one-sided relationship and unequal trade with their Western allies. .
