Too much US$ cash

Jamaica's correspondent banking issues far from over

BY DURRANT PATE
Observer business reporter

Wednesday, September 04, 2019

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It is apparent that Jamaica's correspondent banking conundrum regarding the repatriation of cash in United States dollars from local banks is far from over, as renewed concerns are being raised about the high volumes of hard currency coming into the banking sector.

Jamaica's correspondent banking partners save and except for the Bank of Jamaica (BOJ) are still uncomfortable with the levels of cash in US dollars being generated by local banks for repatriation.

It has been reported that Jamaica's correspondent banking partners are concerned that these funds cannot be justified, meaning the source of funds have not passed their transparency test.

Correspondent banks, which are big overseas conglomerates with the exception of Bank of America have been refusing to repatriate cash in US dollars from Jamaica and managing these funds overseas on behalf of their local counterparts, citing de-risking concerns.

Despite the best efforts at convincing correspondent banks that these large volumes of hard currency being shipped from Jamaica upwards of US$50 million monthly comes from legitimate sources, The Jamaica Observer sources say the correspondent banks are adamant that such volumes have not been adequately justified based on economic activities.

In the meantime, the BOJ is turning the spotlight on banks and consumers, regarding expanding the use of digital transactions, as one way in which to overcome the correspondent banking issues by bringing greater transparency to the sector.

EXPANDING DIGITAL TRANSACTIONS

In arguing the case for expanding digital transactions, BOJ Deputy Governor Maureen Simms admitted that “the level of cash generated by Jamaica is high; Jamaica's propensity to use cash to transact business is too high but digital payments are a more transparent means of payment than cash, which is anonymous”.

She also admitted, “the level of US dollars in cash in Jamaica is one where we want to see a reduction to levels that are more manageable and consistent with the activities that produce that level of cash.”

Deputy Governor Simms declared that the world is going to reduced cash, pointing out that there are more digital methods of dealing with business transactions, adding that a number of companies have gone digital, offering digital services.

She emphasised that “the BOJ has authorised non-bank institutions to offer these kinds of services, and I know some institutions are currently doing that and you see the ads, they are there; you can have payment cards. “

“Cash is anonymous and so with high level of cash, it is hard to manage risks and so banks are becoming more risk -averse because of the cost of penalties for not knowing their customers' source of funds, which is one of the requirements that they need to have in relation to understanding the risk of the customers, Deputy Governor Simms told the Business Observer.

A staggering US$26 billion in fines was imposed on banks around the globe for Know Your Customer (KYC) breaches and non-compliance with Anti-Money Laundering (AML) sanctions. The US accounts for nearly 44% of all global regulatory AML/KYC fines, yet almost 91% of the total value of fines ($23.52 billion).

As for consumers, Simms made the point that they too have to start to transact more business using digital means, thereby bringing greater legitimacy to their operations and in return satisfying the concerns by correspondent banks regarding the US dollar cash generated by local banks.

She cited moves by the government some years ago to restrict the amount of cash purchases outside of the banking system to J$1 million, in pushing for more transparency and legitimacy in the Jamaican marketplace.


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