By Javan Flowers
"The challenge I can see that local banks may encounter is restrictions from their correspondent banks to do business with people who are in the cannabis industry," former Central Bank Governor Glen Ysaguirre told The Reporter this week.
Following Cabinet's approval to introduce the Cannabis Control and Licensing Bill 2022, The Reporter sought the opinion of figures in the banking sector.
Ysaguirre explained that even though dispensaries in the United States that supply recreational or medical marijuana may be licensed and operating under the confines of state law, federal law still classifies marijuana as a Schedule 1 drug and considers “marijuana businesses” illegal; therefore, the banking system is bound by federal law not to conduct any business with any entity associated with the trade.
Ysaguirre explained that even if the banks do choose to participate, they risk incurring charges of aiding and abetting a federal crime or money laundering.
It is within this context that Ysaguirre made clear that "I'm not sure what type of assurances [if any] the ministry would be able to give the correspondent banks as the Government of Belize cannot indemnify any correspondent bank of federal violation in their jurisdiction." Furthermore, Ysaguirre pointed out that "if the Federal Reserve or federal regulators haven't given permission to bank people in the cannabis industry [within the US], I don't see them making an exemption for Belize."
Domestic banks need correspondent banking relationships (CBRs) to conduct business transactions and being "de-risked" due to undertaking any marijuana-related venture would spell disaster for the banking sector.
In a recent interview with The Reporter, Managing Director of Heritage Bank Steven Duncan also highlighted that during 2015 – 2016 local banks lost numerous CBRs, all of which came without any direct justification. Since then, the sector has been "chasing ghosts" to ensure that whatever it is that they did wrong is corrected.
A report issued by United Nations Economic Commission for Latin America and the Caribbean (ECLAC) explained that this withdrawal of correspondent banking services caused, among other things, an increased cost of using banking services and adverse effects on initiatives aimed at alleviation of poverty and inequality.
Asked as to why Belize cannot utilize non-USA banks, Duncan explained, "Two of the three private-sector banks in Belize use the same bank as correspondent bank out of the United Kingdom. Because the US is our country’s largest trading partner, that bank in the UK must have relations with an American clearing bank to complete transactions. They cannot complete it on their own."
Along with the risk domestic banks won't take to avoid being "de-risked," dispensary proprietors will now operate a cash-only business and lose crucial access to banking services such as lending opportunities, payroll, checking, and credit accounts, among other benefits.
Similarly, restaurant proprietors who wish to apply for the "restaurant lounge license" could potentially lose their established banking relationship with whichever local bank they have been doing business with.
Duncan explained that in this scenario, it would be easier for the bank to end the relationship given that it would be difficult for the bank, and the proprietor, to distinguish which funds were generated from food-related items and which were generated from cannabis-infused items. "It's easier for me not to have the client than to have the client and run afoul of the international community ... who will then decide not to do business with you any longer."
Coupled with losing the services that financial institutions provide, operating a cash-only business is likely to motivate an increase in the number of robberies.