Cannabis industry causing problems for Caribbean finance - ECCB

The emergence of the medicinal cannabis industry has “worrying implications” for the eastern Caribbean financial sector, the region’s central bank (ECCB) says in a report.

The report examines the “predicament” of banks interested in supporting the development of the industry in the region while seeking to preserve correspondent banking relationships with foreign banks.

Several member states have legalised the production and distribution of medical cannabis in last two years.

The perceived risks associated with the medicinal cannabis industry – due to its association with illicit drugs – could lead to further “de-risking” efforts by foreign banks, the central bank warns.

De-risking is when banks terminate or restrict business relationships with certain clients to avoid, rather than manage, risk. Over the last five year, banks in Canada, the eurozone, the UK and the US have reduced their correspondent relationships in the eastern Caribbean as part of their de-risking efforts.

Banks must develop effective risk management frameworks that include the “ring-fencing” of funds obtained from medicinal cannabis customers, the ECCB says. This will ensure that funds are not transferred through correspondent banks from jurisdictions where cannabis is illegal, in addition to avoiding the use of US dollars in transactions.

“Equally of importance is the need to operate within transparent rules and regulations,” it says. “As such, efforts to circumvent the established regulatory framework should be met with strict sanctions to dissuade potential offenders.”