Starting today, Tuesday November 26, the Law for the Protection of Nicaraguans Against Sanctions and External Aggressions requires banks to violate international regulations and standards that prohibit establishing ties with individuals and entities subjected to civil death due to sanctions imposed for human rights violations or crimes against humanity. Experts recommend waiting for the decision from the Office of Foreign Assets Control (OFAC) and foreign banks, which will likely depend on the cost-benefit analysis of maintaining correspondent banking relationships.
LA PRENSA reached out to OFAC and some of the foreign banks with the largest presence in Nicaragua through correspondent relationships to inquire about the implementation of this law. However, by the time this article was posted, they had not responded to the inquiries.
While local experts warn of the severe consequences this law could have on the connectivity of Nicaragua’s banking system with the international financial market—where several banks even have branches—and emphasize that consumers will bear the brunt of the impact, the regime has urged banks to resort to any “acrobatics or maneuvers” in their contracts with correspondent banks to comply with the provisions of the new law.
That the Siboif review the contracts
Nearly twenty foreign banks, more than half of them based in the United States, serve as correspondents for local banks. These institutions act as intermediaries to facilitate a range of transactions, from money transfers to more complex operations involving foreign trade and external financing.
“National banks have something many of you have heard of, called correspondent banking relationships… Correspondent relationships are private agreements between a foreign bank and a national bank, allowing the national bank to offer goods or services on behalf of a private foreign financial institution. Obviously, these private correspondent agreements cannot override the Constitution, nor can they supersede all the legal provisions of the country,” stated ruling party lawmaker Wálmaro Gutiérrez.
Aware that commercial banks operating in Nicaragua must adhere to the terms established in their correspondent banking agreements, ruling party lawmaker Wálmaro Gutiérrez suggested making the necessary adjustments to comply with local legislation during the approval of the new law.
“The Superintendency of Banks and Other Financial Institutions (Siboif) is obligated to review all correspondent banking agreements and require those financial institutions to make the necessary amendments so that these agreements do not contradict the Constitution, do not violate the law, and, above all, do not harm the rights of financial service consumers in Nicaragua,” stated Gutiérrez.
Deputy advises banks to make “tricks”
The lawmaker advised banks that “if there is any contract that opposes the Constitution, then to ensure that the Constitution is upheld, I will look for ways to modify it or resort to any acrobatics or maneuvers necessary to ensure that the Constitution and the country’s laws are respected.”
A financial analyst, who prefers to remain anonymous for fear of reprisals, believes that the banks will have the final say and will respond cautiously to avoid instability and endangering the U.S. financial system. “But here”You cannot downplay, let alone politicize, the issue of such a vital commercial relationship as correspondent banking. We need to consider the consequences, which, as I said, will depend largely on the attitude that the Office of Foreign Assets Control (OFAC) will take regarding this law and the cost-benefit position of the correspondent banks.”, the bull has been taunted so much that we could be unexpectedly hit by something that could harm the country. So far, there has been no strong reaction, and the government has been fortunate in that regard. But the risks and vulnerabilities are clear,” he warns.
For his part, economist and exiled former political prisoner Juan Sebastián Chamorro believes that this law will have very serious consequences, as the private contracts that the ruling party claims cannot override local laws are precisely what guarantee the relationship between the National Financial System (SFN) and the international financial market, where even Nicaraguan banks have branches.
Bank customers will be the most affected
“You cannot downplay, let alone politicize, the issue of such a vital commercial relationship as correspondent banking. We need to consider the consequences, which, as I said, will depend largely on the attitude that the Office of Foreign Assets Control (OFAC) will take regarding this law and the cost-benefit position of the correspondent banks.”
In other words, it depends on the decision that banks will make when analyzing whether the benefit they gain from the relationship with Nicaragua justifies the risk of maintaining that relationship and complying with this law, a decision that could lead to fines imposed by the authorities in their own country.
“There are precedents for situations like this, and in that sense, it will ultimately be the correspondent banks that decide whether to continue the relationship or not. It’s also possible that different banks will have different reactions. But certainly, this is a law with serious implications. I don’t want to sound fatalistic, because surely the lawyers and legal departments of the banks are analyzing what can be done, but it is certainly a law that will hinder the work of the financial sector in Nicaragua,” explains Chamorro.
He believes that, as is always the case when such relationships are disrupted, consumers will be the most affected, particularly the clients of the National Financial System, who, as a result of this law, will receive less efficient services, with higher fees and rates.