It’s not all about you, EU.
National Australia Bank’s decision to wind up its USD correspondence banking in Vanuatu has nothing to do with EU blacklists or its disdain for Vanuatu’s tax regime.
As you may have heard, National Bank of Vanuatu (NBV) is losing its USD correspondent banking relationship
with National Australia Bank (NAB). This is the last in a series of blows for correspondent banking in Vanuatu
and it will certainly further impair our USD clearing capabilities. It is certainly worrisome for the health of local banks like NBV and Wanfuteng, that are not part of larger, transnational financial institutions.
Before we can find a solution to this problem, we should start by agreeing on the cause. Unfortunately, this is where imaginations have been running wild. I’ve been hearing a lot of people question whether this decision by NAB was somehow related to our jurisdiction being blacklisted by the European Union, or to the activities of our International Finance Centre, or to NBV not being as professional and efficient as other banks in Vanuatu. In all cases, let me assure you that the answer is a resounding No!
This was a business decision and nothing else.
Let’s look at the facts. To be clear, not only did NAB pull out its USD correspondent banking from Vanuatu, it has terminated that line of business for the entire South Pacific, including in Fiji, Tonga, Samoa etc. It makes no difference if a country is blacklisted by the EU for their “non-cooperation” on tax policy (some are, but not all), or if they have an International Finance Centre (some do, but not all). NAB’s decision has everything to do with its bottom line and nothing else.
The numbers speak for themselves: it is simply not worth maintaining USD clearing operations in countries with fewer than 300,000 people, the majority of whom are unbanked anyway.
This is part of a “de-risking” trend worldwide where big banks reduce their services offerings to small and poor jurisdictions and to countries with a relatively small GDP. The same big banks are not pulling out any time soon from Indonesia (270M people), Nigeria (200M), or for an even better example, Pakistan (220M), which is graylisted by the FATF for AML/CTF deficiencies (which is obviously much worse than the EU tax blacklist).
At the end of the day, as with any business decision, it’s all about cost-effectiveness and return on investment.
The International Finance Centre is the solution, not the cause.
Now, why do some people automatically assume that our Finance Centre is to blame every time there is some bad financial news for Vanuatu? Is it just because it has “finance” in its name? Correspondent banking is running very smoothly in the Bahamas, the Cayman Islands, the British Virgin Islands, Bermuda, the Netherlands, Luxemburg, Switzerland, Hong Kong, Singapore and the United Arab Emirates to name a few. All are much bigger finance centres than Vanuatu by many orders of magnitude.
We are simply losing correspondent banking because of the small size of the business we offer foreign banks, and the only hope for a solution actually lies in our Finance Centre. The more business we bring to Vanuatu, the more it makes sense for an institution like NAB to maintain correspondent banking in our jurisdiction from a business standpoint (and, again, there is no other kind of standpoint in this matter). Revitalizing our Finance Centre and supporting its development is the sure way to bring back USD clearing to our local banks.
The European Union wishes it had something to do with it.
I’m sure certain people in Brussels are tempted to claim responsibility for a financial institution like NAB severing its ties with Vanuatu. After all, the European Union has been strongly dedicated for some time now to bullying us into adopting a tax regime that serves their interests instead of ours.
For three years now they’ve kept us on an AML/CTF list even though the FATF, the true world standard for such assessments, gave us the all-clear from its own graylist. This has been very detrimental to our reputation on the world stage and Brussels hasn’t been able to this day to offer a credible explanation as to why Vanuatu is still on that list.
Between you and me, one of the least well-kept secrets in Brussels is that the only way they’ll take us off that list is if we adopt a corporate income tax like theirs. But we’re not a European colony or overseas territory, and we need to devise policies that serve our people first. What our people need is a vibrant International Finance Centre that keeps on bringing new foreign investment to Vanuatu; this is the clearest path to securing better education and better career prospects for our youth. The alternative is being limited to our small agriculture and tourism sectors, hardly a recipe for rapid economic expansion.
It looks like European Commissioners can’t shake old colonialist ideas about our people; that we can’t be trusted to make policy decisions for ourselves, that we have a systemic predilection for crime, that we’re not worthy of trust no matter all the goodwill we display and responsible measures we implement in improving our regulatory compliance and transparency. They’re attached to that antiquated, racist idea that they know better than we do what’s good for us, and that entitles them to hold sway over our policy decisions.
The recent loss of USD correspondent banking by Vanuatu’s Own Bank helps perpetuate the myth that criticism of our fiscal policy by the EU has dire consequences and that we should do everything they want so that they will remove us from their blacklist and foreign banks will like us again. Sorry to burst their bubble but, again, the world’s financial institutions care less about European tantrums than our ability to attract foreign investors and generate business for them.
And that will come from a healthy, income tax-free Finance Centre.