Why it matters
A Florida bank has connected with a Cuban bank to allow direct transactions between the financial institutions—the first time such transfers will be possible in 50 years. Stonegate Bank, based in Pompano Beach, Florida, signed a deal with Banco Internacional de Comercio SA establishing a correspondent banking relationship in the wake of new regulations issued earlier this year by the federal government. As a step toward normalizing diplomatic relations with the island, the Department of Commerce and the U.S. Department of the Treasury amended the Cuba sanctions to permit U.S. financial institutions to process credit and debit card transactions for travel, enroll merchants, and open accounts with Cuban banks to ease transaction processing. The agreement between the banks "is another step in terms of normalizing commercial relations between the U.S. and Cuba," Stonegate president and CEO David Seleski said in a statement. "The ability to move money easily between the two countries will only increase trade and benefit American companies wishing to do business in Cuba." As the scope of diplomatic relations and ties increase, we expect more financial institutions to look at Cuba and industries connected with Cuba for growth opportunities.
In 1960, President Dwight D. Eisenhower imposed the first trade embargo on Cuba, with diplomatic relations between the countries ending in January 1961. More than 50 years later, a Florida bank looks to make history as the first financial institution to engage in direct transactions with a bank on the island.
Stonegate Bank signed a deal with Havana-based Banco Internacional de Comercio SA (BICSA), establishing a correspondent banking relationship between the entities that will allow individuals and businesses to transfer money between the two countries.
The Florida-based Stonegate is the first to make a move after the federal government passed regulations to encourage diplomatic relations between the countries. Last December, President Barack Obama and Cuban leader Raul Castro announced the countries had resumed diplomatic ties. The "outdated" sanctions policy in place since the Cold War had failed, the President said, lifting restrictions on activities like travel, trade, telecommunications, interstate money exchange, and third-country financial transactions.
In January, the Department of Commerce and Department of the Treasury followed suit with new regulations that allowed U.S. banks to open correspondent accounts in Cuban banks and permitted American travelers to use credit and debit cards on the island.
However, with the U.S. trade embargo still intact (requiring Congressional approval to lift it) banks have been cautious about starting a relationship with a Cuban financial institution, particularly as the country remained on the list of state sponsors of terrorism until May 29, when it was officially removed.
Stonegate was the first U.S. bank to make a move, initiating the relationship with BICSA by agreeing to handle an account for the Cuban embassy to help with visas and other diplomatic matters. The bank then decided to take the leap into a formal correspondent relationship, recognizing an opportunity. Without an existing direct link between the two countries' financial institutions, businesses were forced to rely upon letters of credit using third-country banks.
The relationship between Stonegate—which has 21 banking offices in Florida with $2.27 billion in assets and $1.93 billion deposits as of June 30—and BICSA (established in 1993, with more than 600 correspondent relationships already in place) eliminates that hurdle and could encourage other banks to take a closer look at Cuba.
To read a press release from Stonegate Bank about the new relationship, click here.
For more on the Treasury and Commerce regulatory amendments to the Cuba sanctions, click here.