Paper by S. Nicole Liverpool Jordan, Deputy General Counsel, Caribbean Development Bank, delivered at the 16th Annual Caribbean Commercial Law Workshop: Hemispheric Change & Caribbean Commercial Law hosted by the Faculty of Law, University of the West Indies, Cave Hill Campus from July 23-25, 2017 in Miami, Florida.

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Considerations for Legal Practitioners on De-Risking in the Caribbean
S. Nicole Liverpool Jordan
Deputy General Counsel
Caribbean Development Bank
Background
There has been a recent trend for large international correspondent banks to restrict or terminate their
correspondent banking relationships (CBRs) with certain regional respondent banks1
, to “avoid, rather than
manage, risk in line with the risk-based approach”2
. This is known as “de-risking”. As a result, stricter
conditions have been required by regional commercial banks for basic banking services, such as opening
and maintaining accounts, payment services and collections. This has affected local companies and
individuals as well as companies in the international business and financial services sector, leaving them
unable to honour their financial obligations or to obtain financial benefits.
The effect of de-risking on the Caribbean region has been severe, with 89% of countries in the Caribbean
reporting significant declines in CBRs.3
Among the members of the Caribbean Association of Banks, 55%
have lost at least one CBR.4
Correspondent banks view the Region as a risky place to do business,
susceptible to money laundering, tax evasion and the proceeds of crime from illegal drug trafficking. In
addition, conducting business with respondent banks located in Caribbean countries is seen as unprofitable
due to their small populations and economies, when compared to the severe penalties which have been
imposed on the correspondent banks and the high due diligence costs.
Concurrent with the de-risking trend there has been an increasing number of studies and other fora where
views on de-risking have been examined by stakeholders in the financial sector. Several potential solutions
have emerged from those discussions to address the withdrawal of CBRs. These solutions may once again
offer individuals and businesses in the Region greater access to financial services and set the Caribbean on
the path to achieving the United Nations’ Sustainable Development Goals through financial inclusion. This
Paper will review, analyse and comment on the most viable and feasible solutions to address the de-risking
challenge from a legal perspective.
1
Recent banking research from Accuity (May 2017) - between 2009 and 2016 CBRs have reduced globally by 25%.
2
Financial Action Task Force (FATF).
3
World Bank (November 2015), Withdrawal from Correspondent Banking: Where, Why, and What to do about it.
4
Caribbean Association of Banks (October 2016), Summary of Findings: Correspondent Banking Survey.

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What are CBRs?
CBRs in the Caribbean region facilitate the secure movement of money between countries where regional
banks lack the capability to transfer funds across international borders. Correspondent banks facilitate wire
transfers, conduct business transactions, accept deposits and gather documents on behalf of domestic
respondent banks that do not have a physical presence in a foreign country. CBRs are therefore critical to
Caribbean economies and their commercial trading relationships. Many of the Caribbean’s poor and
vulnerable citizens are also dependent on CBRs for private remittances from both within and outside of the
Region.
Why now?
As a result of the 2008 financial crisis, regulators have imposed requirements for greater transparency,
introduced higher liquidity thresholds and increased enforcement actions for anti-money laundering (AML)
breaches.5
Recently, large fines have been levied by regulatory bodies for violations of AML and
combating the financing of terrorism (CFT) rules, which have had dire consequences for the non-compliant
correspondent banks.6
Other factors responsible for CBRs being terminated or restricted are the perceived risks of reputational
loss based on the jurisdiction in which the respondent bank is located; the type of services or industry which
the respondent bank’s end-customer takes part in (for example, casino gambling and e-gaming); and lack
of information about the respondent bank’s end-customer. CBRs may also be terminated for economic
reasons, where the services provided to the respondent bank simply do not meet the correspondent bank’s
cost-benefit tests given the realities of AML/CFT and increased compliance costs.7
The negative perception of the Region which has led to de-risking is unfortunate, since none of the
Caribbean countries appears on the FATF and OECD8
lists for being non-cooperative in the fight against
5
Boston Consulting Group, Global Risk 2017: Staying the Course in Banking (March 2017) - the number of individual
regulatory changes that banks must track on a global scale has more than tripled since 2011.
6
Accuity (May 2017) - in 2014 AML penalties peaked at United States dollar (USD) 10 billion. In 2012, HSBC paid a record
USD 1.9 billion fine to settle money laundering accusations related to its Mexico operations; and Standard Chartered agreed to
pay USD667 million to settle accusations of violating US sanctions against Iran and conducting money laundering activities for
residents of Iran.
7
HSBC is reported to have spent USD290 million on improving its systems to try to avoid repeating the activity. Deutsche Bank
recently unveiled a drive to add 400 people to its AML unit in 2017, which would boost the staff level by about 50%.
8
Organisation for Economic Cooperation and Development.

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AML/CFT and the majority of countries in the Region have signed inter-governmental agreements with the
United States of America (US) to give effect to FATCA.9
The Caribbean region no doubt has suffered
based on its proximity to neighbouring countries in South and Central America, which have received failing
grades for prevention of money laundering. However, since 2015 there has been renewed regulatory focus
on the Region when thousands of offshore companies registered in at least 18 Caribbean jurisdictions10
were named in the leak of the Panama Papers.11
In 2016 the US State Department listed several Caribbean
countries12
as jurisdictions of “primary concern” for money laundering.13
De-risking has not only affected
the traditional “offshore” jurisdictions in the Caribbean, but other countries in the Region have clearly been
significantly impacted, with 89% of Caribbean countries reporting significant declines in CBRs, as
previously stated.
Impact of de-risking on Caribbean economies
Caribbean economies are small and vulnerable and operating in a turbulent global economic arena has
weakened their already limited economic growth capacity. The stripping away of trade protections has
severely affected domestic enterprises operating in traditional industries. Therefore, to address these
challenges, the Caribbean, as a bloc, has been looking to enter into new reciprocal trade arrangements and
to diversify away from agriculture and manufacturing.
De-risking, brought on by concerns of regulatory pressure, “reputational risks” and profitability, has
presented new challenges to the Region’s ability to successfully carry out cross-border transactions. Many
of the new industries earmarked to generate growth in the economies of the Region have had to operate in
an increasingly uncertain business environment. In Belize, for example, it has been reported that businesses
have had to set aside weeks to make routine payments to suppliers abroad that previously used to take
moments.14
In Barbados, international business companies (IBCs) have been experiencing delayed
transactions, bank accounts being withdrawn and some existing and new IBCs have been unable to open
bank accounts.
9
US Foreign Account Tax Compliance Act.
10
Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Dominica, Grenada,
Guyana, Haiti, Jamaica, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines, Suriname, Trinidad and Tobago and Turks
and Caicos Islands.
11
The International Consortium of Investigative Journalists.
12
Antigua and Barbuda, The Bahamas, Belize, British Virgin Islands, Cayman Islands and Haiti.
13
2016 International Narcotics Control Strategy Report (INCSR), Vol II.
14
Y. Torbati, Caribbean countries caught in crossfire of U.S. crackdown on illicit money flow (Reuters, July 2016).

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Banks in the Caribbean which have international affiliations, are largely unaffected by the recent de-risking
trend, as they can use those affiliations to clear US dollar transactions. However, indigenous Caribbean
banks and money transfer operators depend on CBRs.15
Without CBRs, the Region would find it difficult,
at best, to engage in international trade, effectively being cut off from the global financial system, and to
receive remittances from abroad, putting the Caribbean’s economic and social development at risk since its
citizens depend on remittances for food, housing, health care, school fees and other basic necessities. In
Jamaica the total amount of remittances in 2015 was USD2.23bn, the equivalent of a ratio of remittances
to GDP of 16%.
With no clarity about why their CBRs were being severed, some indigenous respondent banks began their
own de-risking campaign – closing accounts for remittance services catering to people with little access to
traditional banks. To get around the de-risking problem, an increasing number of legitimate financial
transactions have been carried out at higher costs in riskier environments outside the regulated financial
system, while illicit activity has been pushed even further underground. Belizean business persons have
had to routinely fly to neighbouring countries to withdraw US dollar cash in order to repay loans in Belize
because they could no longer send a wire.16
Ironically, this prevents financial intelligence units from
receiving and analysing information on the very transactions they wish to regulate.
The President of the Caribbean Development Bank (CDB), Dr Warren Smith, speaking to reporters at the
end of the recently concluded 47th annual meeting of the Bank's board of governors, said that from CDB’s
perspective de-risking “is one of the biggest dangers to our growth and development that we have faced in
recent times.”
Addressing Regulatory Concerns
Regional governments and respondent banks are making efforts to manage AML/CFT risks and raise their
AML/CFT frameworks to international standards. The Eastern Caribbean Currency Union countries have
decided to consolidate their national AML/CFT work into one regional operation under the responsibility
of the Eastern Caribbean Central Bank. This should lead to more effective implementation and enforcement
of regulations.
15
In Belize only two banks, each of which have international affiliations, maintain CBRs with US banks.
16
Y. Torbati, (Reuters, July 2016).

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CDB has contributed USD 250,000 towards a project aimed at increasing financial transparency and helping
limit the loss of CBRs in the Region. The project addresses 3 components: (1) Strengthening the
implementation of, and compliance with, international financial integrity standards by governments in the
Region, including updating laws and regulations, as required; (2) Increasing the technical capacity of banks
and credit unions in the Region to conduct customer due diligence and adopt AML best practices, including
training for staff at respondent banks; and (3) Improving public-private sector coordination with regulators
to more effectively address de-risking and develop a mechanism for ongoing dialogue between this group
and external regulators and foreign banks. The project will be implemented over 3 years in partnership
with the Multilateral Investment Fund, a member of the Inter-American Development Bank Group.
Coordination with regulators has started and is already reaping results. A high-level advocacy group led
by the Prime Minister of Antigua and Barbuda has been responsible for a robust campaign to represent the
interests of the Region, including approaching the United Nations (UN) and the World Trade Organisation
to create greater awareness of the issues facing Caribbean countries and to spell out the efforts being made
by regional governments and respondent banks. A few months ago this group announced that it would
employ the services of a lobbyist to help tackle the issue of de-risking.
Country groups and lobbyists have encouraged regulators to be clearer with US correspondent banks about
their expectations. This has successfully led to the US Treasury Department issuing guidelines explaining
that there is no expectation for correspondent banks to vet individual customers of foreign respondent banks
with whom they have correspondent banking relationships (Know Your Customer’s Customer); there is not
a zero tolerance expectation that mandates the strict imposition of formal enforcement action regardless of
the facts and circumstances of the situation; and many fines were applied in cases of deliberate
wrongdoing.17
US regulators have in turn encouraged correspondent banks to conduct full due diligence checks on
respondent banks instead of avoiding the responsibility by refusing to grant CBR services. In light of this,
US regulators should create a safe harbour that protects correspondent banks from punishment if they
conduct due diligence on customers and follow certain rules for preventing AML breaches, for example,
checking all wire-transfer information against relevant governmental and UN watch lists of criminals and
suspected terrorists. Adopting this or a similar type of safe harbour would give US correspondent banks
confidence that they can do business with the specific respondent banks in “high-risk” regions that
genuinely try to identify criminal actors.
17
U.S. Department of the Treasury and Federal Banking Agencies Joint Fact Sheet on Foreign Correspondent Banking:
Approach to BSA/AML and OFAC Sanctions Supervision and Enforcement (August 2016).

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The Second Payment Services Directive of the European Union (EU)18
imposes a requirement on EU
member states to ensure that payment institutions have access to credit institutions’ payment accounts
services, i.e. CBRs, on an “objective, non-discriminatory and proportionate basis” and to provide the
reasons for rejection of any access to the regulator.19
The UK Treasury’s interpretation of the Directive20
is that correspondent banks will need to put criteria in place for assessing applications for CBRs by
respondent banks. Then, if the correspondent bank rejects an application or withdraws a service, it will be
required to give notice to the regulator with reasons, to enable the regulator to monitor compliance with the
Directive. Lobbyists on behalf of the Region’s respondent banks should, when in discussions with US
regulators, suggest a legislated response similar to that of the EU.
Pooling of Resources
There have been suggestions that information sharing and increased collaboration among the correspondent
and respondent banks will make due diligence easier and reduce the costs of compliance. Banks have been
signing up in large numbers21
for an information-sharing service established in December 2014 by SWIFT22
that reduces the cost of researching potential customers. SWIFT’s registry allows banks to contribute data
verified by the organisation and then shared with selected other banks in the network, instead of one bank
obtaining data from another every time that bank provides CBR services for the other bank. However, the
sharing of information among banks may fall afoul of local privacy laws. For the SWIFT registry, the
banks are responsible for ensuring that they can contribute the data in compliance with their local applicable
law. Where required, this includes ensuring that their local applicable law provides a legal basis to process
such data for customer onboarding and regulatory compliance purposes.
Faced with US banks terminating their CBRs with Mexican banks of various sizes, in 2015 Mexico made
changes in its bank-secrecy laws allowing its banks to share information about clients’ risk profiles.
Seemingly, the Cayman Islands has learned from the Mexican experience. In 2015, Cayman was the only
Caribbean country listed among the top 10 countries that most actively promote secrecy in global finance23
.
However, it has since done two things to improve its ‘secrecy score’. Cayman was one of only 14 ‘first
mover’ jurisdictions to ratify the multilateral agreement for the OECD’s Common Reporting Standards and
18
EU Directive rules become effective in January 2018.
19
Article 36 of the Directive.
20
Minutes of the meeting of the Payment Services Stakeholder Liaison Group (October 2016).
21
Over 3,000 banks in over 175 countries are already using it to exchange their KYC data, SWIFT.com/KYC Registry.
22
Society for Worldwide Interbank Financial Telecommunication.
23
Tax Justice Network (November 2015) – Financial Secrecy Index

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agree to start exchanging information by 2018 with select jurisdictions. After a number of years of
consultation, in July 2016, Cayman enacted the Confidential Information Disclosure Law (CIDL) to dispel
the idea that the Cayman Islands is a secrecy jurisdiction. The CIDL repealed the Confidential
Relationships (Preservation) Law which had been in force since 1976 and which attached criminal sanctions
not just for revealing confidential information, but merely for asking for it. All other jurisdictions would
have to consider how they might allow for exchange of information without breaching data protection and
privacy laws.
There has been some discussion of Caribbean countries coming together to establish a commercial bank in
the US to provide CBR services to banks in the Region. Transactions of the regional respondent banks
would then be consolidated and channelled through this bank. However, the consolidated traffic may still
be regarded as high-risk and the US-based bank would still be subject to the same regulatory rules as any
other US-based bank providing CBR services. Another suggestion has been to set up a bank in the
Caribbean as a hub for the consolidated transactions and this bank could nest transactions with those of an
intermediary bank that continues to have CBRs. However, again, the consolidated traffic may still be
regarded as high-risk leading to increased scrutiny of the intermediary bank’s relationship with the
correspondent bank. These solutions do not appear to bring any cost or time savings to the customers.
Bolstering Data
It has become equally important, as a solution to the de-risking trend, that the tools used for due diligence
are strengthened. The use of data analytics to monitor for potential criminal behaviour has been proposed
to make correspondent banking less risky and more commercially viable, alleviating the cost benefit
analysis of correspondent banks.24
One option is for banks to make more widespread use of the Legal
Entity Identifier (LEI), a universal system or standard to identify corporate customers. The LEI is designed
specifically to help the authorities around the world clearly identify the entities that transact across markets,
products and regions, thus making it easier to recognise trends and risks and take appropriate corrective
action.
For individuals, the use of biometrics is suggested. Biometrics are specific measurements related to human
or biological characteristics that are used to identify individuals. For example, fingerprints and voice
recognition can be adopted for Know Your Customer (KYC) processes as a method to recognise customers
24
PwC (September 2015), Charting a future for US-dollar clearing and correspondent banking through analytics.

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quickly and accurately. Proponents highlight the fact that biometrics are less vulnerable to fraud and
forgery, unlike paper-based documents such as passports and national identity cards. Biometrics along with
a paper-based process will lead to faster and more accurate verification of identities. Privacy issues also
surround data obtained during the use of biometrics. To what extent has the individual consented for his or
her biometric data to be used? Was consent given for the purposes of authenticating the individual only in
the context of banking and financial services? Can the data be used for authenticating the individual for
immigration purposes where the individual did not want to be identified? Can the data be used to disclose
medical conditions? For example, some fingerprint patterns are related to chromosomal diseases. These
questions need to be resolved before the widespread use of biometrics is implemented.
Other Alternatives to Traditional CBRs
Central banks in the Region may have to assume the role of counterparts to correspondent banks without
putting their assets at risk, by processing foreign exchange transactions for respondent banks that no longer
have CBRs. It has also been suggested that regional central banks can act as guarantors of regulatory
observance and information integrity on behalf of domestic respondent banks. However, it should be noted
that central banks are not immune from the loss of CBRs, as is the case in Belize where the central bank
lost 2 of its CBRs25
due to the overall withdrawal from the country of certain correspondent banks.
It has been suggested that there may be a trend to enter into non-USD CBRs.26
However, for the Caribbean,
since most of the Region’s trade is conducted in USD, the currency of choice is still the USD. This solution
therefore may not be feasible in all cases, but may be considered in situations in which business can be
conducted in other currencies.
In a recent report27
, the sub-regional headquarters of the Economic Commission for Latin America and the
Caribbean (ECLAC) has declared that blockchain technology could be a solution to de-risking, since it
stores and transmits data in a secure form, which would “enable the detection of illicit financial transfers
and thereby decrease risk and associated compliance costs”. In addition, a blockchain-based network would
allow Caribbean banks to “bypass correspondent banks altogether, thereby reducing transaction costs and
increasing efficiency”. However, ECLAC sees blockchain as more of a long-term solution, declaring it not
25
IMF (June 2016), The Withdrawal of Correspondent Banking Relationships: A Case for Policy Action.
26
Accuity (May 2017) - the number of Chinese Renminbi CBRs has increased by 8% since 2014.
27
ECLAC (April 2017), Prospects for blockchain-based settlement frameworks as a resolution to the threat of de-risking to
Caribbean financial systems

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yet ready to fully deliver. This is mainly due to the fact that ownership remains anonymous in an ‘open’
model blockchain system, which runs counter to a regulatory regime which insists on banks KYC.
Legal Considerations
For lawyers practising in the offshore banking and international business sectors, it is imperative to comply
with AML laws and to carry out thorough due diligence on all clients, even those introduced through
intermediaries such as banks, other law firms and accountants. This will go a long way in assisting
correspondent banks in knowing the origin of the funds that they are processing. Given the current
operating environment, offshore legal practitioners should also manage their clients’ expectations regarding
the ease of doing business in their respective jurisdictions with the delays in opening bank accounts and in
completing financial transactions.
Corporate lawyers would also have similar advice for their clients regarding ease of doing business. In
addition, when negotiating contracts with their client’s suppliers, lawyers should ensure that there is
adequate time built in for payment after presentation of an invoice and, be attentive to any ‘time is of the
essence’ clauses in the contracts.
For attorneys working in the legislative drafting units in solicitor or attorney general’s chambers, they will
no doubt be called upon to draft robust updated AML laws and regulations designed to prevent terrorists,
drug traffickers, tax evaders, and other criminals from misusing the financial system to commit their crimes.
Ideally, those laws should be harmonised with other jurisdictions in the Caribbean, as that would lead to
more efficient regulation of the banking industry. While there needs to be an effective partnership between
the banking sector, the regulators and law enforcement, as a precursor draftspersons should concentrate on
laws to bolster investigatory powers of law enforcement and intelligence agencies, so that banks can renew
their focus on commercial, rather than regulatory, activities.
We see from the Mexican and Cayman examples that bank secrecy and data privacy laws may also have to
be revisited by Caribbean governments to create a legal mechanism by which respondent banks could share
information about their customers and their transactions. In the interim, attorneys should be giving advice
to respondent banks and to their customers on the extent to which customers’ data can be legally shared
pursuant to any local freedom of information and data protection legislation. This advice would also extend
to future situations where respondent banks in the Region introduce biometrics to identify their customers.

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In-house counsel of respondent banks also have to consider negotiating new CBRs with, in some cases,
smaller correspondent banks as well as CBRs in new currencies. There are, of course, also opportunities
for lawyers who wish to move in-house to get specialist training and join the growing compliance
departments of respondent banks.
June 9, 2017