By NEIL HARTNELL
Tribune Business Editor
A BAHAMIAN bank is suing its correspondent to recover $2.343 million amid fears the situation will create "difficulties" with the Central Bank and Securities Commission.
Capital Union Bank, which is based at the Lyford Financial Centre, is alleging that Puerto Rican-based Bancredito International Bank Corporation has failed to return the funds despite 10 written requests made over the last month-and-a-half.
The Bahamian institution says the funds are urgently required for its "operations with other counterparties", and their absence threatens to trigger a $2.4 million hit to its capital base and extra scrutiny from local regulators.
Capital Union Bank also warns that the case has implications for other Bahamian bank and trust company licensees, given that Bancredito also provides correspondent banking services to them.
Its November 3, 2017, lawsuit, filed in the Puerto Rico federal court, recalls how the dispute originated from a July 25, 2017, correspondent banking agreement that saw Capital Union Bank open an account with Bancredito. The Bahamian firm transferred $5.693 million to the account on August 22, with the Puerto Rican institution opening its own account with Capital Union Bank. The problems, though, began just three weeks later when Capital Union Bank decided to close its Bancredito account. "Capital Bank, at that time and in subsequent communications, explained that this closure was necessary as the funds were required for operations with other counterparties," the Bahamian institution alleged.
"Bancredito was slow to respond, and seemed to be dragging its feet in relation to closing the account and returning to Capital Bank its funds. This prompted Capital Bank to make three subsequent requests - on September 18, 25 and 26 - for return of the funds.
"As a result of this prodding (which should not have been necessary), Bancredito finally returned to Capital Bank some - but not all - of the requested funds. Specifically, on October 3, 2017, Bancredito wired to Capital Bank $2.300 million of its over $5 million on deposit."
Capital Union Bank's request for the funds' recovery came just as Puerto Rico was devastated by a combination of Hurricanes Irma and Maria. To speed up the process, the Bahamian institution suggested that it close Bancredito's account and apply the $1.042 million to the sum it was owed.
Rolf Schuermann and Ludovic Checin-Laurans, Capital Union Bank executives, wrote in an October 6 letter: "In order to rapidly formalise this decision, we hereby authorise you to debit our account with you for the exact total balance in your current account with [us], which as of today amounts to $1.042 million.
"Please note that we will be debiting this very same amount to your account and proceed to close it."
The lawsuit alleged: "In short, Capital Bank advised Bancrédito that instead of owing Capital Bank $3.385 million, it now owes it $2.343 million.
"Even with this action, Bancrédito still has wrongfully retained over $2 million of Capital Bank's money. As such, Capital Bank - throughout the month of October 2017 - has made over 10 written requests for return of the funds as well as numerous verbal requests."
Capital Union Bank executives conceded that its Puerto Rican correspondent faced "extraordinary circumstances" as a result of Hurricane Maria, but argued that Bancrédito "should now reasonably be in position to return our funds".
The Bahamian institution alleged that Bancrédito had acknowledged it owed the monies, and would return them, but said it needed to complete its due diligence and account closing procedures.
"Bancrédito, however, has simply not followed through with its promises," Capital Union Bank alleged. "Bancrédito is again dragging its feet and otherwise stalling. Bancrédito has advised Capital Bank that it cannot transfer the remainder of the funds until it conducts the necessary due diligence - without explaining what due diligence it intends to conduct, or why any due diligence is necessary simply to return to a customer their own money - and their Board of Directors meet to approve the action.
"Bancrédito, disturbingly, will not even commit to a date by which such alleged review and meeting will be completed or occur.... This delay in the return of a client's funds is wholly abnormal within the banking industry. It typically takes hours or perhaps a day to close accounts and transfer funds - not a month-and-a-half (the length of time between Capital Bank's first request and the filing of this complaint)."
Capital Union Bank alleged that the delay was damaging it beyond absence of the monies, explaining: "Bancrédito's actions are also likely to result in Capital Bank encountering difficulties with its own bank regulators - a potential of which Capital Bank has specifically advised Bancrédito."
Mr Checin-Laurans, in an October 25, 2017, e-mail to Bancrédito blasted: "I am sure that you understand that without any certainty on any date, the inability to recover our funds would have to be disclosed to our regulator in the context of our financial reporting, as we may have to record a provision for a potential loss of $2.4 million, which would be immediately deducted from our eligible regulatory capital.
"Such reporting, due at the end of October, would trigger an immediate reaction from our regulator, the Central Bank of the Bahamas, which would most likely immediately contact yours, especially since you are providing correspondent banking services not only to us but also to several other licensees in the Commonwealth of the Bahamas."
Capital Union Bank is thus suing for breach of its correspondent banking contract, and recovery of its monies and legal fees, as a result of Bancrédito's "reckless" conduct.
The Bahamian institution was created in 2013 by its chairman, Lawrence Howell, co-founder of Switzerland-based EFG International, and founding partner Clement Ducasse.
It offers a wide range of services, including custody and execution; money market; foreign exchange; over-the-counter (OTC) and derivatives instruments; precious metals trading; securities and fiduciary lending.