International banks shun Cuba under U.S. scrutiny

HAVANA Heightened scrutiny of banking transactions by the United States since the September 11 attacks has led European and Canadian banks to curtail dealings with Cuba, bankers and businesses say.

Cuba ceased exporting armed revolution to Latin America two decades ago, but Washington still lists Communist Cuba as a "rogue" state that sponsors terrorism, along with Iran, Syria, Sudan and North Korea.

The USA Patriot Act allows U.S. authorities to confiscate assets and penalize institutions that fail to report money laundering and terrorist financing.

The result -- perhaps intended -- is that Western businessmen in Havana are having nightmares moving funds in dollars to and from Cuba because banks are increasingly refusing their business.

HSBC, Barclays, Credit Suisse, Royal Bank of Canada and the Bank of Nova Scotia, also known as Scotiabank, have closed accounts of Cuban companies or reduced business tied to Cuba since last year to comply with U.S. regulations.

The moves were confirmed either by the banks themselves, by Cuban officials, or by people doing business in Cuba.

"Canadian banks have told clients to close their accounts and their credit cards because they have a business address in Cuba," said Canadian Mario Simonato, who imports vehicles and heavy equipment into Cuba.

The Havana-based owner of King City Equipment Inc. of King City, Ontario imports vehicles and equipment from Canada, but is turning to China for business due to increased hurdles placed by Canadian authorities who, he says, are bending to pressure from the United States.

ING Groep NV, the first big Western bank to set up business in Communist Cuba, doing so in 1994, said two weeks ago that it will close its Havana office.

ING said it was purely a business decision, but it followed the blacklisting last year by the United States of its banking joint venture with Cuba.

"The banks don't want to risk a fine by the Federal Reserve. Banks like ING and HSBC have much bigger fish to fry than Cuba," said Simonato.

Scotiabank last year ended dollar transactions by the Cuban embassy in Jamaica and was criticized for bowing to U.S. rules.

"It is a risk mitigation measure, a straight issue of our ability to settle transactions on U.S. dollar accounts," said Scotiabank spokesman Frank Switzer. "It applies to anyone on a U.S. sanctions list."

$100 MILLION FINE

The move to comply with U.S. regulations came in the wake of the heaviest penalty in banking history.

In 2004, Switzerland's largest bank, UBS AG, was fined an unprecedented $100 million by the U.S. Federal Reserve for helping Cuba, Iran, Libya and the former Yugoslavia swap old dollar banknotes for new currency.

UBS said it had "substantially completed" its exit from dealings with Cuba, Iran, North Korea, Myanmar, Sudan and Syria by the end of last year.

"UBS took this decision in 2005 after its own, careful evaluation of the costs and benefits of doing business with counterparties in these countries," said Doug Morris, UBS spokesman in New York.

In its annual report filed with the U.S. Securities and Exchange Commission in March, Credit Suisse said it will end all dealings with corporate clients and most private banking clients in the five countries under U.S. sanctions.

Shunned by Swiss banks, Cuba has had trouble funding its U.N mission in Geneva, a European diplomat in Havana said.

Last month, Cuba complained that UBS and Panama-based Banistmo, owned by HSBC, had refused to process the payment of its annual membership fee in the Latin American parliament.

The U.S. Treasury denied it was actively pressuring foreign banks to cut off business with Cuba, but said it has stepped up pressure on banks to cut ties with Iran in recent months.

Such efforts may be causing international banks to rethink their overall policies toward customer relationship risk.

"Financial institutions and companies have to make their own decisions regarding what business they want to take on, and evaluating the risks posed by certain customers is certainly a key factor," said a Treasury official.

The U.S. Securities and Exchange Commission last month posted a list of companies whose annual reports contain any references to Iran, Sudan, Syria, North Korea and Cuba.

The online tool is meant to allow investors to search for businesses with ties to state sponsors of terrorism. Companies on the list were outraged because it did not make clear what were their exact ties with the five countries.

The bank squeeze is obstructing Cuba's financial operations more than the U.S. trade embargo enforced since 1962, which was amended in 2000 to allow U.S. companies to sell food to Cuba.

"It doesn't make life impossible, but it has become harder to find a bank that is willing to open an account," said a European businessman in Havana who asked not to be named.

Nine out of 10 international banks refuse to open accounts for Cuban nationals or companies operating in Cuba, he said.

"The Patriot Act gave U.S. authorities a tool to do what they could not do before: chase foreign banks to comply with U.S. sanctions," he said.