Banks Exit From Embassy Business (Wall Street Journal):
Some of the nation’s largest banks are exiting or scaling back their dealings with foreign embassies and missions in the U.S. because of the burden of complying with money-laundering regulations.
The moves could strain U.S. foreign relations. The State Department said that about 40 countries have been affected, 16 of which are African nations. The department next week will host a briefing by banking regulators for the heads of embassies and missions affected. A spokesman said the department is fully engaged in the issue, seeking a solution to what it sees as a problem that could have implications for U.S. diplomacy and security.
“It’s a commercial decision, but clearly it has ramifications for diplomatic relations,” said Mark Toner, acting deputy spokesman for the State Department. “We want these foreign missions to be able to carry out their normal diplomatic functions here in the U.S.”
In at least 150 letters sent Sept. 30 addressed to ambassadors, J.P. Morgan Chase & Co. said the bank “has made the decision to close its division that serves diplomatic and foreign government entities.” The bank said the decision “does not reflect on your organization” and only affects business accounts, not personal accounts. The bank set a March 31, 2011, deadline for the closure of accounts, according to a copy of the letter.
Embassies are like small businesses for banks. They use services like cash management and payroll management, and take out loans.
Citigroup Inc. is contemplating severing ties with some embassies, while Bank of America Corp. and HSBC Holdings PLC’s HSBC Bank USA already have started doing so, according to people familiar with the matter. Bank of America informed the Angolan Embassy in Washington in late October that it would close its accounts, which it did Nov. 9, the State Department said.
Speaking on behalf of all Angolan diplomatic missions, Ambassador Ismael A. Gaspar Martins, head of the Angola mission to the United Nations, said the bank account closures strain its relations with the U.S.
“It creates a situation which we were never expecting, especially because diplomatic missions are supposed to be protected,” he said. “Without bank accounts, we find it very difficult to function.”
Citigroup said it doesn’t comment on its business relationships with specific embassies. HSBC said it conducts some embassy banking but wouldn’t comment on future business plans. A Bank of America representative said, “we cannot comment on specific client relationships” but “we are actively committed to providing banking services for diplomatic communities.”
Renewed emphasis from lawmakers and regulators to enforce money-laundering regulations has raised costs for banks, which historically enjoyed the prestige of dealing with foreign countries and dignitaries.
“It’s not worth it to them,” said Edwin M. Truman, a scholar with the Peterson Institute for International Economics who has studied money laundering. “Unless they’re in it for the wrong reasons, they don’t make a lot of money off these accounts,” he said.