BANKS IN CRISIS:CBI AND DERISKING

BankSince the CBI Scandal, it’s been one crisis after another. Back in February former National Bank Of Dominica employee and Entrepreneur Michel Williams sat with DR. Thomson Fontaine to discuss how the crisis could affect the relationship of Correspondence Banks in Dominica, the Region and Internationally. This not only generated considerable interest but Dr.Fontaine was practically ambushed outside the Local Radio Station as he existed the building following the broadcast of the program. He was taken into custody by Special Unit of the Prime Minister security detail. The Prime Minister had conducted a series of illegal raids on the Homes of the opposition and seem to target anyone who criticized the way the CBI program was being run.

The people were clearly outraged by the Prime Minister’s refusal to demit office in light of the negative connotation attached to the CBI program. Despite overwhelming evidence, presented and reported by Steve Croft CBS 60minuets and the  subsequent arrest of  individuals with a criminal past in possession of  Dominica Diplomatic passports even after the  program was aired January 1st 2017; the Prime Minister and his propaganda machine continued to deny any wrong doing. Protest ensued and the Skerrit Regime cracked down on the protesters. As the country’s disapproval of the Prime minister soared, so did Skerrit hostility towards certain members of the opposition. So we saw more members  detained Illegally with trumped up charges brought up against them, then  released without being charged. As was in the case of Dr. Fontaine. As the situation worsen, more protest were organized and the  call for the Prime Minister to step down along with his entire cabinet became more apparent.. Still, he refused and conducted  business as unusual with no attempt at averting a crisis. One Bank had closed the Government’s Account to which no explanation was forthcoming. Skerrit refused to provide answers to  queries: but instead, sought to  impose draconian laws to further repress the people.

Meanwhile, The United Kingdom  having recognized  what this highly sought after  Economist in his area of expertise as  former International Monetary Fund (IMF) could offer other regions of the world; Dr.Fontaine was tapped for a top ranking post.  Following a three -staged interview he was selected as the preferred candidate among other hopefuls .He was appointed as Chief Economic  and International Advisor to the Government  of South Sudan. Once news broke, it was met with mixed reaction: with his critics on one side unfairly targeting him; and on the flip side many were congratulating him and wishing him well. It’s on this high note He departed for South Sudan. The Contract is such he work two months at a time with a month break. Having worked through the months of May and June, he was back on Dominica soil July 1st.

July 2nd Dr. Fontaine joined forces with Mr. Michel Williams on his Live Broadcast Life Line to discuss the CBI and de-risking of the Banks. Since part one was aired, things have gotten much worse. The Royal Bank of Canada had reportedly sent out letters to 400 of its foreign customers just days prior, informing them of the bank’s decision to close their accounts and that they were required to repay outstanding balance plus interest on their loan Accounts. All this was required by the 3rd of July. Very little notice as the letter was dated July 1st.

This provided the perfect segueway  into the discussion as Dr. Fontaine asked Mr. Williams to explain what that means for not only these foreign customers but what were the implications for ordinary Dominicans. He first defined what is meant by a Bank:  it’s a Private Corporation licensed  to receive deposits and make loans. In most countries regulated by the Government or central bank.This involves, having the U.S  policing Banks as outlined in the Dodd-Frank legislation: intended to decrease various risks in the U.S financial system; in response to the financial crisis of 2008. Part of which, is termed ‘KYC ‘Know your customer: with an interface to the  Bank. By this it means, not just the demographics  but who that individual is associated with. For banks,  it is cheaper to avoid risks than managing risks. This phenomena is referred to as de-risking.

Dr. Fontaine offers a scenario illustrating the banking relation effect- where an account with over $2million in the bank  in Trinidad and reportedly  the proceeds of drugs, had the authority wanting  control of that. Now, the U.S government is telling the banks that have what you call the correspondent banking relationships, that in everything the local bank there wants to do, that involves some foreign money, must go through these banks.  So we have the banks in Dominica, whether it is National Bank having a relationship with the bank of America or Barclays or..Mr. Williams interjects at this point to explain… the confusion is with the relationship. That is why a bank in Dominica would need a bank in the U.S. Our currency is EC dollars. Lets say  you want to purchase something from Amazon, say directly from the U.S; That individual must go with EC dollars to his bank bearing in mind, the customer in the U.S does not want EC dollars instead he wants U.S dollars. So what happens, you give your bank EC dollars, your bank in turn, uses your EC dollars to buy US dollars to do your transaction through a US bank, which is the institution of the  company  you wish to pay. That’s how money flows. He tries to breakdown the complex process of money transfer so the average person could understand. Western Union or Money Gram location  service centers are not banks. Therefore, they must interface with a Banking Institution. To which Dr. Fontaine ask Mr. William to clarify, “when you say interface meaning what/ means they have an account there.” Mr. Williams continues, “this information is then sent  Electronically to Dominica.” “They have a Bank account in Dominica so that’s why they can give him EC dollars.” “Where the problem arise, is when these individuals that conduct this transaction turn out to be shady characters.” “A fact that the banks and other service facilities are unaware of!” “For the simple reason, they are not policing these individuals.” In the course of this illicit dealings the individual gets arrested; then apprehended by (FIU) Fraud Investigation Unit.Once they ascertained he has committed a crime, then every dollar he uses is a proceed of these crimes.  “So all the Financial systems involve  in this one transaction, are considered to have  participated in the proceeds of this crime and they all get fined as a result!” “That’s why this is dangerous!” “So the question is, what does the bank have to do here?” “Right,” says Thomson, “and that’s how we come to the question of de-risking!” “How do you remove the risk?” “You try to remove that risk by de-escalating in an attempt to remove that fine.” Using this example, Mr.Williams  outlines the different measures undertaken by the banks to combat wire fraud, and money laundering. Then identify the need for sufficient Legislation:

More stringent oversight by FSU over the Dominican Western Union Branch

FIU needs to be involve which should be properly staffed and funded

Carry out the necessary investigation

The Agent  WhitChurch for example-must have certain procedures in place to maintain the account at the bank must produce proof. If they can’t present these to the Bank, it’s likely to say though you’ve been there for a hundred years , we understand that, but if you are not able to service all of your customers, and frankly we don’t expect you to, but we simply don’t need that headache.

Not needing the headache is not the scary part: it’s gotten to where banks are basically afraid of their own customers! Dr. Fontaine concurred with him and gave another example of how Western Union would  sometimes react to customers if they don’t understand what it is the client is doing. They simply will not feel comfortable.

Dr. Fontaine explained, “that is what the banks are concerned about: these individuals they know nothing about, but who are  newly minted  Dominican Citizens obviously, with lots of money  because they could  afford the $200,000 upfront to purchase a Dominican citizenship or $400.000  in the case of St. Kitts ; and the question is, where  this monies are going through and to whom they are being spent.”” So the question Michel then becomes; should we be concerned in Dominica ?”  “I would like you to help us  with all of your experience that have been delve in, with the same issues of compliance or the rest of it, should we be concerned today in Dominica, that we could lose, if we haven’t already done so, that we could lose that all critical corresponding bank institution?”

To this Michel pointed out the fact, that he’s been saying this for the last 2-3years; that this is the greatest threat to National development in the Caribbean. He reiterated the fact, that it is not all about “passport”, It’s about KYC-know your customer. Every bank, has an obligation, to know who their customers are; a customer is define not necessarily with you holding an account, but with an interface to the bank. Therefore, if you want to tie in, the concern with the CBI issue, that’s why I am advocating for more transparency; is that, you have a citizen that is not a natural born citizen: obtain it through a program. Every country has that, the U.S have it , Canada has it not a problem. But the financial system now, needs to know who that person is. They need to be satisfied that you know who that person is. Since you are the one granting it. It’s not just a U.S long out process where you apply for a Green Card, where the only thing they don’t make you walk with is “blood” (interestingly they do actually! it’s part of the physical one must undergo) he chuckled. He added, “it’s not like when you apply for  Canadian citizen where they ask you for chest x-ray and all that stuff!” (well Mr. Michel it is exactly like that) The point he was making, these countries need to know who these individuals are. Where exactly are you from? What is your profession? Even from a medical perspective:

These countries have a vigorous program that justifies that they know who the individual is; So other stakeholders, can feel comfortable, that the process by which that individual have the same privilege as a natural born citizen, is one where all criteria  have been met to determine just who that individual is. Our system now is very difficult to ascertain…well certainly citizens don’t really know who our fellow citizens by any means – We can always go to the Registry to find out who our natural born citizens are.

As it relates to CBI, Mr. Michel posed some pertinent questions: where is the Registry for that? What exactly is the process? What exactly is the Due Diligence these individuals go through? When the citizens are not privy to that information, he doubt very much if the financial system would know! Basically, the devil is in the details! He thinks it is critical; it is a Bona fide way that a country  can raise its own revenue, he pointed out Dominica is not the only country doing it, but the officials need to lay out what is done exactly. Dominica being small, it certainly has to be more open. The U.S having its own challenges, with even its own Naturalized  citizens, originating from all across the globe, and becoming radicalized whilst in the U.S and we are talking second generation. With the recent acts of terror many  are questioning whether these individuals are “American” or not. Not withstanding, America is a country of immigrants! Dominica on the other hand, is not a country of immigrants. We were born here. Now this program was introduced whereby,  other nationals can become citizens of Dominica. So the concern is, who these people are; though its no requirement of him per se, but it is not unreasonable to have an expectation and feel comfortable that the sovereign that makes a decision on this crucial aspect of offering citizenship goes through a process that is not going to make these citizens affect him and the rest of Dominica. He believes that’s where the conversation should be on a ‘granular level.’ Not as to whether the program is a good program or not- and added, he thinks, “it’s  a good program!” He repeats, “the Devil is in the details” Dr. Fontaine says umm,hmm to that. So he continues, one has to put oneself in the place of the financial institution, and if the public conversation is  totally off center from what they need to understand for their own comfort, nobody is talking about that on a ‘granular level.’ The whole issue is being brushed aside and it has become a’ politics thing’. The difficulty with that, being a spectator to the current conversation; Firstly, nobody is talking about what really matters:

Secondly:Everyone is fighting for a bigger slice of a ‘shrinking pie,’ but no one is paying attention to its ingredients! Guess what! That’s exactly what the financial system main focus is! They don’t really care who is in Government or not: they don’t necessarily care who is the ‘agent’ or the price for which it is being sold for! What the Bank is  concern about; is who this “slice of pie” is being sold to! where did these people get their money from and what are these individuals going to use what you have given them in the global financial system for, that ultimately will tie back to Roseau Dominica, since it’s the Government in the financial center that’s getting the money!  As he takes a pause, Dr. Fontaine interjects, he reminds the listening public who his guest is on the program  and the topics of discussion, “the critical issue of de risking, the threat that it poses to Dominica, the CBI program”…  he states that he would like to explore this just a little further but wants to take a different approach: “I introduced the concept earlier of the ‘rational choice'” he says, “always interested in;” “it’s something we did in negotiating, you try to understand when somebody makes a move.” “Its’ like a chess player.” He goes on to explains, “somebody makes a move, they move their chip in a particular direction, you as the other player, must figure out what that means, what they have in mind. what is their next move, you want to read what’s their next move down the line.”

“Let’s assume, the situation is as it was reported; that several overseas bank accounts have ben closed, and that the bank is in fact is getting rid of its foreign clientele, what does it mean for the bank itself?” “for instance, in a shrinking economy like Dominica, obviously, the Dominican clientele cannot sustain the bank.” He made a valid point, as he makes the argument for the simple reason the regular customers does not have the level of savings or investments, say, as the foreign person who closed its account and simply can’t replace those locally. “What are the implication for the banking system?” “Can we, for example see the closure or the sale of another foreign bank in Dominica?” Mr. Williams responds to these concerns raised: “It’s quite possible.” he says. Then further explains, “can understand the significant financial space – the EC has what, 35 financial institution servicing over a hundred thousand people… less than a million people for sure.” He seem stun by his own estimation and remarked, “that’s a lot of banks!” he exhales audible, “yeah?” “I think”,  he says, for all indigenous banks is a different conversation so to speak.” “Okay” Dr. Fontaine interrupts and says, before he answer this question, he was going to allow the person trying to get in on the conversation, an opportunity to weigh in on the discussion.( I imagine this is quite a lot of information for the average  listener to  absorb) the caller on the other end, identify him- self as Kenneth Rijock: He is no stranger to the world of finance and has written several articles in his Financial Crime Blog. The perfect person to weigh in on the subject! He’s been following the development from the inception. “KYC” he chimed in, after the pleasantries were exchanged.

In this instance,  Mr. Rijock brings it to another dimension. The solutions according to Mr. Rijock to corresponding banking laws, is not  ‘KYC’, It’s  ‘KYCC’-‘Know your customers customer!’ By that he means, if he is one of the compliance officer of the bank of America or  anyone  of the  other big six, if that officer is confident that  the customers in a bank in Dominica, are clean and legitimate, and pardon the expression ‘Kosher’ then, he would keep that correspondence relationship, and may even build on it and expand. So the solution is ‘KYCC’. ‘Know your customers customer’. There is new technology according to Mr. Rijock out there now; which frankly was created by a company in the Cayman Islands for this problem. That technology allows a connection between the banks in the United States and the banks in the Eastern Caribbean, which actually gives the U.S banks, a window into the activity, of the customers in Dominica, and should  a problem arise, does an automatic report; it takes all of these issues and problems away from the bank officer, and it puts it into the hands of a very experienced computer program, which will vet, all of the clients of the Dominican bank and in the future should a transaction deem problematic, six months down the road, as Mr. William had remarked previous to his call; it would notify both banks so they can frankly remove that customer from the problems. To his knowledge, this new technology hasn’t really gone further than Antigua, but it is a solution and he directs the listener to go to his blog and read the articles he wrote about it. He insists he is not there as a commercial for the product, but rather making a meaningful contribution talking about a solution which is now resulting in fixing a problem  where 75% of the world’s banks overseas, are worried about losing their correspondence bank in New York.

This was quite a revelation to both Dr. Fontaine and Mr. Williams. Dr. Fontaine thought this idea amazing and engaged Mr. Rijock further: asking “how does this technology actually vet that particular customer.” Mr. Rijock explains, “when the customer opens an account, his account information, which is on file with the bank is entered in the computer by the customer himself on a protected basis and that information then is automatically checked  with enhanced due diligence to ensure the banks on both ends, that he is a legitimate and a valuable customer that needs to be retained-in the event a problem should arise in the future, both banks are immediately warned by  a device in which any hour day or night, there is suspicious transactions, they then have the ability on a real time basis to address the problem.” “For many years banks in the united states,  have as Mr. Williams has correctly said, an increasing number of  onerous restrictions because of anti- money laundering compliance, in countering the spread of terrorist finances.” “Well, as it gets worst for The U.S banks, unfortunately, they lean on their correspondence  overseas, and  this is finally  a way in which  the correspondence can respond by saying, look you can see all our clients, you  know they are all legitimate, you have a window in all their business if you need to look at it; and we  are clean.”

To this Mr. Williams responds in the affirmative adding that he’s always advocated, the solution for this, especially for the Eastern Caribbean banks, it had to be technology driven. He goes on to say, the Caribbean is just too small and too far away for anyone in the U.S to pay the kind of attention we need them to pay to the region. So he agrees the solution must be technology based. He points out how pleased he was that something such as Mr, Rijock describes actually exist! However, he reiterate that everybody, stake holders, governments, customers even the banks themselves, the association of banks in the Caribbean, must advocate for that solution. He admits, One of the challenges he faces is the fact that the conversation is becoming more real . In the sense that, individual customers are actually starting to be affected. For some time now the banks have been under pressure from the correspondence banks but has managed to avoid dealing with the problem. They sort of not  had to make the difficult  decisions that they  having to make now. The pressure is not going to move, there has to be a solution and this has to be across the board. He thinks there is a need for more conversations between the legislative branch, the regulatory branch, the customers and of course the banks. He’s  advised  the banks to participate in the conversation so the customers will be made aware of what’s going on. In his opinion the banks have been a rather  secretive industry. They deal with other  people’s money, and their information so they are limited somehow as to what they can say how much they can divulge. But was  quick to point out that the way the system is set up, banks are not  going to survive if customers don’t understand what role they play in complying with certain rules and regulation as these measures are put in place.

Dr. Fontaine interjects, and inquire whether Mr. Rijocks was still on the line. After a slight pause he responded. So he asked him, “as  a financial expert and based on the conversation so far, “does he believe the banking relationship is in danger as it is here, in Dominica?” To which Mr. Rijock replies, ” I think Dominica is in danger and throughout all the English speaking countries in the East Caribbean; as in every Island, there is horror stories of somebody losing their Correspondence relationship and having to go to the UK to find a replacement and as a consequence the cost to the client  is tripled moving money in  and  out of the United States. Unfortunately, its something which have been staring Dominica in the face! It now requires an urgent solution (Mlk “Urgency of now”) Let somebody find they are dealing without correspondence one day with short notice. Then have clients leave the bank for one that does have  correspondence!

On that note: he graciously exits the discussion to allow time to talk about the other issue of CBI and encourage the listeners to check his blog to find out exactly what the technological solution is: adding, he did not want anyone to think this was a commercial for the product and would put his e-mail up on his blog should anyone have questions regarding this technological solution. Before he hung up, Dr. Fontaine expressed his gratitude for his contribution to the program. Mr. Rijock in turn commended Mr. William saying what a great job he did making this story known to the people of Dominica. He firmly believes it’s information every Dominican should know. As he thinks there will come a time when the client will go to the back and ask the bank; “what have you done lately to ensure that you going have a correspondence relationship for the foreseeable future?”

Both Mr. Williams and Dr. Fontaine thanked Mr. Rijock for his contribution to the conversation.

Dr. Fontaine addresses Mr. Williams, expressing his concern: though he understands the issue with the big  six  of the United States he was particularly interested in Royal Bank, Bank of Nova Scotia, Barclays and whether they could function independently or if they still have to use the U.S correspondence banks. Mr.William assured him they did. “Though most of the banks in Dominica are Canadian Banks, they still have to use a US correspondence bank :Example RBC is JPMorgan. He explained US currency is the most widely used currency,” ( “don’t think anyone is under pressure to lose  their Canadian correspondence bank. They still have  their KYC, The sterling is still pretty good, if you recall, 6 years ago maybe 7-8 years ago, Lloyds  has pretty much trampled out of the market, out of  the Caribbean. has pretty much been the Sterling  main correspondence for decades, from colonial times.” “I mean they have crown agent and  a few other sterling correspondence with which one can deal with.”)  “Our challenge is the US! The predominant currency is US when we do online shopping its where our people go! “he chuckles. Reminding Dr. Fontaine, “Dominica is only a stone’s throw away from the US some 3000miles to be exact.” “So the US correspondence have immense power over the region.” he reminded Dr. Fontaine and the listeners that our own EC dollar is pegged to the US dollar. Thus the reason US correspondence is king! Driving home the point why this relationship is so critical. “Must understand  for our banks, for them to be able to trade, must hold US deposit in the US!” “That is the float by which our currency, maintains its value.” “There is a lot of ‘knock -on effects’ for that, when you think of the individual who can’t get his Western Union money, however the gravity of this institution is that the value of the money we have in our pocket right now, is tied to the US dollars and the ability of those banks in the Caribbean, to hold US deposits in the US.” At this juncture, the lines were open for the listeners to weigh in. Another significant figure Athie Martin joined the discussion. Welcoming Dr.Fontaine home. Which he graciously accepts.

Athie Martin delve straight into it. : “Dominica” he says, “is in a pickle”. “The current shrinking economy does not provide comfort – relying on one program that’s running everything. There is a disconnect between what the bank says and what the government thinks.” Take for example:

Proposal Carbon Resilience Climate Economy slated 2012-2020

Grant for $143million – to be spread out for various projects for the development of the country. Government took it all and is yet to account for it’s use.

There are alternatives to the CBI program and that’s just one of them.

Drawn done rates of resources for European 30%

COTONOU AGREEMENT: signed by 15 Caribbean nations in 2000 Dominica included. Funds made available for the development of the country but to date This current Regime has not taken advantage of this .Due to end 2030

Has offered no account of Petro Caribe-mismanagement of proceeds

We’ve seen the result from the Mono-crop Banana Industry

Moved to that of Tourism even more fickle than Banana industry. Another, mono- crop industry, creating an Economy that’s so predictable-its like building a house on the sand!

Mr.Martin goes on to explain, “when you know  the path you  are on is not  a good path. The person who first turns around is the person that’s successful.”  “Yet we see this Government keep heading in the direction that they know is going to end badly.” “” A place that is potentially bad not only for those heading there but for the Country.”

Simply can’t run a country on one economy!” Mr. Martin says, he has to disagree with Mr. Williams when he says, “the  CBI program is a “good’ program” “Here is why:”

“The program cannot be a ‘good’ program when it encourages mismanagement – No  Tendering.”

It ignores other segments- such as  Agriculture, Tourism, etc..

He pointed out that the Foreign Minister was heard during the recent OAS summit-requesting help to chaperone our financial investment.

The panel countered that liking the CBI program is not a philosophical  argument, It’s about Ethics and Morals. (Such as in medicine:  you must determine whether the benefits outweighs the risk. when deciding  course of treatment )

The CBI program is only benefitting a few and the wider public is not receiving any of the proceeds. In terms of investments, , jobs, infrastructure rebuilding, and other institution improvement and development.

To that Mr. William added, “CBI has become Dominica ACE card and it could lose the whole pot- can’t avoid the knock out effect.” “How can you bridge the gap?” he asks,

He believes it’s with more intelligent bi-partisan conversation. Outside the rhetoric, we have to have everybody on board. legislation and Government  that have the obligation to save the program, However, this Government is a year and a half too late in terms of providing comfort.

The Banks in turn police those smaller Banks such as the Caribbean . Banks have an obligation to ensure an individual transaction does not pose an inherent risk to the Bank. In conclusion,the action of one individual poses a threat to the average Dominican finances!

 

 

 

 

 

 

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