According to a new report from the World Bank, the effect derisking varies widely from country to country and does not affect broad categories of clients. The report, The Decline in Access to Correspondent Banking Services in Emerging Markets: Trends, Impacts and Solutions, examined the impact of derisking and found the effect at the macro level to be limited. At the same time, impact at the micro level is often intense, with banks losing access to the international financial system. Read more
After circulating Capitol Hill for six months as a discussion draft, the Counterterrorism and Illicit Finance Act (HR 6068) was introduced June 12. The bill, which seeks to update the Bank Secrecy Act, has been viewed as a possible vehicle to address bank derisking legislatively.
Please join the CSIS Human Rights Initiative, Charity and Security Network, and The Humanitarian Forum for the launch of a series of country case studies on de-risking in conflict zones. During this event, expert panelists will discuss the findings of the country case studies, with a focus on Syria, Yemen, Somalia, and Palestine.
A new report from the Human Security Collective and the International Center for Not-for-Profit Law examines the drivers of the global trend known as "de-risking" as it relates to nonprofit organizations (NPOs).
Inordinate delays in cash transfers, onerous due diligence requirements, inability to open bank accounts and arbitrary closure of bank accounts are all components of de-risking. The report, At the Intersection of Security and Regulation: Understanding the Drivers of "De-risking" and the Impact on Civil Society Organizations, examines these practices an looks at how regulations on money laundering and terrorist financing "permeate policymaking, influencing institutions (perversely, at times) and negatively impacting humanitarian and development work." Read more
Two intergovernmental events during the last week of April 2018 demonstrated growing support to address the problems nonprofits organizations (NPOs) are having with access to financial services for international programs. At both the conference on combatting terrorist financing hosted by the French government and the Financial Action Task Force’s (FATF) annual meeting with NPOs and private sector stakeholders, outcome statements emphasized the importance of addressing the “derisking” problem and ensuring that efforts to stop terrorist financing do not unduly disrupt or discourage NPO activities.
A new study from the UK's Charity Finance Group found that 79% of charities face some kind of difficulty in accessing or using mainstream banking channels. The same number of respondents also said that banks had become "substantially or slightly more risk averse to them."
The report is based on results from the survey responses of 34 charities, ranging from medium and large organizations. Eighty-eight percent had income over £1 million, all worked overseas, 62% were secular organizations, 21% identified as Christian, and 12% as Islamic. The types of work conducted included humanitarian, sanitation, peacebuilding, medical assistance, research, human rights, education, welfare, children, grantmaking and environmental protection. Eighty-three percent worked in Africa, 74% in Asia and 62% in Europe. More than 50% worked in the MENA region.
The report, Impact of money laundering and counter-terrorism regulations on charities, found the following results:
41% had transfers delayed by a correspondent bank
32% had transfers delayed by their bank
27% had transfers denied by their bank
20% had transfers denied by a correspondent bank
15% had accounts closed
15% had delays in opening bank accounts
8% had donations blocked
8% had funds frozen
6% had accounts denied
For most respondents, banks did not provide any explanation for why the charities were being derisked. Read more
On February 15th, 2018, the Ministry of Finance of the Netherlands, the Human Security Collective and the World Bank hosted an international stakeholder meeting with on derisking of nonprofit organizations (NPOs) in The Hague. New research on the impact of derisking of NPOs was presented and 75 representatives from NPOs, governments, international organizations, financial institutions and academia shared their knowledge and insights during three roundtable sessions, which took place under Chatham House Rules. Discussions included the impact of financial access challenges for NPOs, banks' concerns about regulatory actions and costs of compliance, and policy implementation and coordination
In the realm of new research, a recent study by the London School of Economics found that in some cases aid organizations and other NPOs will “cease to provide assistance” because of refusal from banks to take on the risk. When sending international wire transfers, banks may demand extra information such as detailed lists of beneficiaries. This not only delays the transfers, but also endangers local contacts in conflict areas because of the degree of transparency it entails. While Significant Well-Established Entities (SWEEs), or larger NGOs, are better able to mitigate the requirements of an increased due diligence threshold, smaller NPOs often lack the resources and operational framework to do so. Raising mutual awareness among NPOs (via roundtable initiatives) is important to bolster engagement. Also, pooling resources within the broader NPO sector, coupled with a continuous exchange of information, could be beneficial. Read more
In the March 13 podcast segment of AML Now, a production of the Association of Certified Anti-Money Laundering Specialists (ACAMS) John Byrne,ACAMS advisory board member speaks with C&SN director Kay Guinane about the derisking challenges that nonprofit organizations are facing and how to best maintain a banking relationship in this risk environment.
While nonprofit organizations advocate for policy changes to address the global phenomenon of derisking, financial institutions are creating cutting-edge technologies to speed and improve their compliance with anti-money laundering regulations.
A new study from the Center for Global Development assesses six new technologies and their potential to solve the derisking problem. Fixing AML: Can Technology Help Address the De-Risking Dilemma? examines machine learning, biometrics, big data, know your customer (KYC) utilities, distributed ledger technology (DLT)/blockchain, and legal entity identifiers (LEI). Machine learning is a type of artificial intelligence that could cut down on false alerts and identify undetected illicit finance techniques. Biometrics are much more robust than passwords or tokens and generally easier to use. Big data refers to datasets that are high in volume, velocity and variety and their applications offer more scalable storage capacity and processing. They also allow different types of data to be stored in one place, so compliance staff spend less time gathering information from disparate sources. They can greatly expand the range and scope of information available for KYC and suspicious transaction investigations. (Read more)