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Introduction
In an August 2015 public forum hosted by the Belize Chamber of Commerce, representatives from the Belize Bankers Association and Central Bank of Belize confirmed reports in the local and foreign press of Belize banks losing correspondent banking relationships with US institutions. The correspondent banking crisis had started a few months earlier in February and was becoming systemic, creating major disruptions in bank flows and attracting public attention. Information influencing correspondent banks (CBs) to withdraw from Belize was sketchy and speculative, but regardless of the reasons, the situation highlighted a changing banking landscape and a vulnerable Belize banking sector as part of the complex global system.
It is very clear that CBs are necessary for respondents to conduct international transactions and facilitate payments for customers’ imports and exports, which impact the development and stability of a country’s financial system and economy. The small, openness of Belize’s economy underscores the critical importance of maintaining correspondent banking relationships. In 2016, Belize’s gross domestic product (GDP) was approximately $1.7bn and international trade accounted for about 58.7 percent estimated on total exports and imports (Central Bank of Belize, 2017). Furthermore, the Chamber’s August 2015 business mixer revealed threats to approximately 90 percent of Belize banks that could isolate the country from the global financial system.
Almost three years later, the correspondent banking situation remains in a fragile state. Regional and international organizations including the Caribbean Association of Banks, Inter-American Development Bank, International Monetary Fund and World Bank have evaluated and reported periodically on the loss of CBs in the wider Latin America and Caribbean (LAC) region. This paper hones in on Belize to present firsthand accounts of the profound effects of CBs’ withdrawal on small banks, and the prospect of re-solidifying participation in the global system, which is paramount to the small banks. First, correspondent banking is contextualized within money laundering, tax evasion and offshore risks to increase insights into the problem.
Money laundering
The increasing costs of anti-money laundering (AML) compliance influenced large banks to sever correspondent banking relationships with small banks, which profits were not commensurate with the risks to satisfy the appetite of big banks (Creary, 2016; The World Bank, 2015). The literature reflects extensive discussions on money laundering and the repercussions on the global...