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Financially Speaking | Cash has been dethroned

Published:Thursday | October 29, 2015 | 12:00 AMLavern Clarke

Fifteen years ago, the world's most powerful bankers got together and decided they were going

to formulate guidelines for themselves on how to deal with corruption and money laundering.

It was meant to create a force field against the flow of illicit money, a shield against the risk to the banks.

They became known as the Wolfsberg Group, named for the place where that first meeting occurred in 2000 - Chateau Wolfsberg in Switzerland.

Their summit, which had the participation of Transparency International, turned out to be prescient. A year later 9/11 happened and shortly after, the powerful countries of the world would begin to police illicit money and terrorism financing as a matter of religion.

Everyone around the globe was required to convert or be assigned to the axis. The anti-money laundering/counter-financing of terrorism church was born.

This month, banking executive and trained attorney Cheryl Bazard warned at a conference in Kingston that industries could falter unless monetary authorities and governments get up off their duffs and do something bold to stop it.

Bazard's warning is connected to outcomes of the 2000 Switzerland meeting. Regional banks have found themselves on the wrong side of the force field, and negotiating their way around it has meant cutting long-standing clients loose.

It links to the current and unyielding pressures on money-services business and correspondent banking activity. And it's a problem for which no one seems to have an answer right now.

The scenario playing itself out is that of a meek banking industry unable to push back at the big boys overseas.

But that's just what it looks like from outside - the realities might be different. Perhaps, they are just acquiescent to the realities of real power. It's clear the problem is complex and that intercessions are ongoing.

What the Caribbean countries lack is clout.

That absence of clout - financial or otherwise - is itself due to a lack of scale.

Take Jamaica's biggest bank, for example. Its asset base of half of a trillion dollars sounds impressive, and a bit intimidating for a client whose account might hold a few thousands around payday.

But that value is quoted in local currency. In hard currency terms, that half-trillion becomes US$4 billion. Still a lot of money. But weigh that against Bank of America - you know, the bank that decided it will no longer accept shipments of US banknotes from Jamaica, forcing cambios to find ways to surrender cash to the Bank of Jamaica via non-cash means - its asset base is around US$2.15 trillion.

To give those numbers a regional perspective, Bank of America is around 16 times larger than the 15-member Caricom bloc whose combined economies are valued at around US$130 billion. No contest, and no clout.

It's a message that Bank of Jamaica Governor Brian Wynter attempted to telegraph when he told bankers at the latest AML/CFT conference in Kingston, earlier this month, that they should freshen up their make-up and try to look pretty for American banks.

What Wynter really said was that they should improve on their AML/CFT compliance so that their correspondent banking partners would be less inclined to curtail business with them as a 'de-risking' strategy.

That's going to be tricky even if regional banks bring their A-game, because there is still a set of Wolfsberg guidelines out there that have placed 'indicative' ratings of moderate to high-risk on commercial banking and other financial activity, and high-risk for international correspondent banking. The latter includes wire transfers and banknotes.

Cash used to be king. Now it's just filthy lucre.

Central bankers rightly sought the help of multinational watchdogs in hopes of couching a message persuasive enough for the international banks to decelerate their 'de-risking' programmes.

The fallouts are already being felt in emerging currency black markets and cash routes as alternatives around the banks.

Let's assume the IMF is powerful enough. It does oversee a world system whose economic output is valued somewhere around US$77 trillion. Still, the Wolfsberg cabal of 13 is itself US$21-trillion strong by assets.

Wynter's message was essentially the same as Bazard's - that the foreign banks see de-risking as business strategy. But Bazard wants to see pushback by policymakers. Wolfsberg is, after all, a private-sector group, not government.

She has also tagged domestically imposed foreign laws, such as FATCA, as a breach that should be fought in the world court.

Since the publication of The Wolfsberg Anti-Money Laundering Principles for Private Banking in October 2000, the group has expanded its guidelines, most recently in 2012. Its newest risk assessment circular was uploaded in late summer.

Industries such as money services, digital currency providers, charities/non-profits and real estate agents are spotlighted.

Jamaica first began to feel the effects of the group back in 2011 when the former RBC Jamaica decided to cut ties with local money-services businesses citing pressure from its overseas correspondent banks. NCB followed in early 2014.

No one is going to weep for local banks because richer banks overseas are dictating the terms of their engagement, even if it is on a false premise of rising risk. Jamaicans would, however, be moved by the realisation that the problem can hurt their pocketbooks were remittances, for example, to be curtailed.

Barclays is also in retreat from 130 markets, putting a pinch on the flow of foreign pensions.

Yes, correspondent banking is wonky and boring, which is why no one is talking about the stand-off outside of the banks, boardrooms and conference halls. But the debate should be brought into the public square, if only to bring clarity to the information that is now flowing from misinformed line staff.