Allocution du Gouverneur Jean Baden Dubois le 5 octobre 2016 au forum de l'organisation ''Caribbean Central American Action''(CCAA) à Washington DC autour du thème: Future of Banking in the Caribbean Basin''
Just as many Caribbean countries, Haiti is facing new challenges with the phenomenon of “De-risking”. International financial institutions have been exiting relationships and closing accounts of clients perceived to be “high risk”.
International banks that have pulled out have referred to recommendations of The Financial Action Task Force (FATF) as the main reason for taking de-risking decisions. By doing so they have effectively denied and/or restricted entire classes of customers from financial services without conducting a comprehensive assessment of the actual level of risk and without considering adopting risk mitigation measures to keep these customers.
Financial institutions in Haiti like many in the Caribbean have made continuous efforts to identify, assess and understand the risks of money laundering and terrorism financing to which they are exposed and take measures to commensurate to those risks in order to mitigate them effectively. The banks have worked towards compliance to the Know Your Customer (KYC) policy and to ensure that all clients fill when appropriate the declaration of source of funds.
At the Central Bank and at the Government level, we have focused mostly on how to decrease “country risk” by accelerating implementation of GAFIC recommendations. However as many other countries have learnt now, it is not sufficient to avoid the disengagement of correspondent banks. Nonetheless we continue to strengthen our regulations. This past month we had parliament approved legislation on AML/CFT and on our financial intelligence unit, UCREF. The Government has gone as far as cancelling the creation of an offshore banking center to avoid additional compliance concerns for the financial sector.
The scope of the impact of de-risking is very large and its damaging impact is wide spread including negative effects on growth and on financial inclusion.
Haitian financial system and its current correspondent banking relationships
Haiti’s financial sector has several institutions involved directly or indirectly in a correspondent-banking relationships. They include: 7 domestic banks, 4 money transfer operators (two domestic and two international) and, more than 100 credit unions institutions
Over the past three years, many domestic financial institutions have lost ties with three US correspondent-banks. From those that still maintain relationships with domestic Haitian banks, one has put restriction on letters of credit and check clearing transactions. Today, only two Haitian domestic banks are able to offer to their clients these services. Two US banks have ended their relationships with one domestic Money transfer Operator.
However the financial system is still able to do international financial transactions, but, the de-risking phenomenon affected relationships especially with correspondent banks in the US. This is most worrisome because the USA is the country with which Haiti does the majority of its trade and most remittances come from there. Remittances in Haiti yearly represent about 20% of GDP and plays a crucial role in poverty reduction.
In Haiti’s we do have some relationships with correspondent banks in Canada, France and the United Kingdom. However, Haiti mainly relies on US correspondent banks for international transactions. The situation is fragile since only three US banks constitute the core of correspondent banking relationships for the Haitian financial system and among those only one is offering international financial transactions to four out of the seven Haitian domestic banks.
De-risking and Remittances
In Haiti, these transfers from migrant workers have been very stable and have even registered upward trend in recent years. Since 2000, these flows have become greater than exports earnings and international aid. They compensate largely the goods and services deficit to represent 20% of our GDP in 2015.
They finance mostly basic consumption needs such as food, school and health expenditures. Incoming transfers in Haiti amounted 2.2 billions of dollars in 2015 and 75% of these remittances are from the USA.
The loss of correspondent banking relations will have a major impact on the Haitian economy and will be very damaging for the poorer and most vulnerable families since remittances are sometimes the only source of income for many of them.
In addition that de-risking will affect remittances in many other ways:
We may observe an Increase in the cost of sending remittances if some international operators withdraw from the circuit).
We may not be able to avoid an expansion of the informal sector. The withdrawal of legally registered players could encourage the use of pocket transfers. Hence, rather than reducing risk in the financial sector, de-risking in fact may cause an increase in vulnerability by pushing high-risk clients to smaller financial institutions that don’t have enough AML/CFT capacity. Hence, instead of de-risking there could be a situation of re-risking because of lack of controls.
We may also observe an increase of financial exclusion which may roll back progress achieved thus far towards financial inclusion goals.
De-risking and trade finance
Banks play an important role in trade finance and correspondent banking relationships are very allow international trade to take place by facilitating cross border payments. In Haiti, banks are pivotal for international trade, especially for imports. And any decision that may affect the service offered by these intermediaries can only have negative consequences for consumers. Total trade of goods accounted for 53.7 % of GDP in 2015 and 74.3% for goods and services for the same year. In 2015, 93% of Haiti’s total export were destined to the USA and 60% of all Haiti’s foreign exchange outflows for international trades and other individual needs were destined to the USA.
Some other effects of De-risking
1. Increase in the informal sector (no longer use regular channels (banking), importers must use less safe channels to supply the market).
2. Possibility of increase in smuggling, financial transactions underground (reduction in custom and fiscal revenue)
3.-Loss of credit card settlement services
De-risking is also very threatening to foreign direct investments in the particular case of Haiti where it may result in the delocalization of existing foreign investments and render it impossible to attract new investments.
I am very pleased to witness that intense attention is being given to the issue of de-risking. We are hoping that this dialogue, the workshops, conferences and meetings will lead to tangible and concerted solutions. The violent hurricane Mathew that just shook the country, left many homeless and several tens of thousands of others without a source of income or means of livelihood. Remittances I am sure will play a critical role. Imagine one minute if money transfers could not be made to Haiti.