Three reasons why U.S. banks aren’t entering Cuba – yet

Three reasons why U.S. banks aren't entering Cuba – yet
Mar 13, 2015, 12:54pm EDT
Nina Lincoff Reporter - South Florida Business Journal

It's easy to get excited about the opening-up of trade relations with
Cuba, and while many banks in South Florida and the U.S. are interested,
unknowns are keeping financial institutions from being completely
bullish on the island. There are three main reasons why banks aren't
entering Cuba quite yet: the cost of compliance for processing
transactions, Cuba's status as a country on the list of nations
sponsoring terrorism and the vagueness of doing business in the region.

Cost of compliance
The U.S. Department of the Treasury's Office of Foreign Assets Control
announced changes to Cuba sanctions in January, following President
Barack Obama's Dec. 17 announcement of changes in trade relations with
the island nation. The sanctions cover travel, importation of goods,
financial services and more.
According to the OFAC changes, U.S. banks will eventually be permitted
to open and maintain correspondent accounts at financial institutions
that are in Cuba, and conduct authorized transactions and process credit
and debit card transactions for authorized parties.
But at the moment, the cost of compliance for banks processing those
transactions is simply too high, said Andres Fernandez, a partner at
Holland & Knight who discussed the obstacles to U.S. banks doing
business on Cuba at the Florida International Bankers Association's
Anti-Money Laundering Compliance Conference last week in Miami.
"The issue is two things for processing credit and debit card
transactions: You need a person to be in Cuba and you need the person to
be there for an authorized reason," Fernandez said in an interview with
the Business Journal."The issue becomes magnified when banks may be
required to do due diligence to make sure that person is authorized. The
regulations appear to permit banks to rely on the traveler for
compliance with this authorization, but this 'safe harbor' is not absolute."
If the expectation will be checking the underlying information – that an
individual is authorized to be in Cuba – it simply won't be
cost-effective for a bank.
"Anytime you're talking about a bank's money laundering policies … any
time those need to be tweaked, updated and expanded, it becomes
expensive," Fernandez said. "It becomes tedious, time-consuming and
requires extra funds."
For it to be worth it for banks, a large proportion of the institutions'
customer base would need to travel or begin exporting to Cuba, Fernandez
said. If customers involved in the exporting of construction,
agriculture and telecommunications began to need services in Cuba, banks
may see the value of entering the island.

State sponsors of terrorism
One of the biggest barriers to banks engagement with the Cuba is that
the nation is on the U.S. Department of State's "State Sponsors of
Terrorism" list. There are only four nations on the list: Cuba, Iran,
Sudan and Syria. Cuba has been on the list since March 1, 1982.
"Before a financial institution would likely take that next step, Cuba
has to be removed form the State Sponsors of Terrorism list," Fernandez
said.

Unknowns
The fact remains that there are simply too many unknowns when it comes
to U.S. banks in Cuba.
"There are a lot of uncertainties. The financial services industry wants
to clearly understand what the expectations of the regulators are and of
the internal and external auditors," Fernandez said. "Once those
uncertainties are flushed out, we will probably be seeing more
institutions considering entering the Cuba market."
A likely institution to enter Cuba is one with a strong culture of
compliance and the resources to support the requisite Bank Secrecy Act,
anti-money laundering, OFAC and tech personnel.
"Right now, it's not an option for a bank to open up a branch in
Havana," Fernandez said. "It's also not contemplated for a bank to do
most financing there today."
Nina Lincoff covers banking, finance, and insurance. Get the latest
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Source: Cuba: Three reasons why U.S. banks aren't entering Cuba – yet -
South Florida Business Journal -
http://www.bizjournals.com/southflorida/news/2015/03/13/three-reasons-why-u-s-banks-aren-t-entering-cuba.html?page=all