In issuing its final rule on beneficial ownership, the Financial Crimes Enforcement Network (FinCEN) exempted charities and nonprofit entities from the ownership prong of the requirement, but not the control prong.
In a guidance document issued October 21, 2016, the Financial Action Task Force (FATF) advises financial institutions that may terminate or restrict business relationships with entire countries or classes of customer in order to avoid, rather than manage, risks in line with the FATF’s risk-based approach (RBA), a practice known as de-risking. Although the guidance is focused on correspondent banking and does not address the financial access plight of nonprofit organizations (NPOs), it does have implications for NPOs' ability to access banking services.
The financial access problems faced by nonprofit organizations (NPOs) are a significant part of the findings from a workshop hosted last summer by the World Bank and the Association of Certified Anti-Money Laundering Specialists (ACAMS). The report, Stakeholder Dialogue on De-risking: Findings and Recommendations, summarizes the main findings of the May 31-June 1 meeting as well as the recommendations made by participants. These recommendations are simply a reflection of the discussion rather than any endorsement by the World Bank or ACAMS.
The financial access problems faced by nonprofit organizations (NPOs) are a significant part of the findings from the workshop hosted last summer by the World Bank and the Association of Certified Anti-Money Laundering Specialists (ACAMS). The report, Stakeholder Dialogue on De-risking: Findings and Recommendations, summarizes the main findings of the May 31-June 1 meeting as well as the recommendations made by participants. These recommendations are simply a reflection of the discussion rather than any endorsement by the World Bank or ACAMS.
New guidance on correspondent banking from the U.S. Treasury's Office of the Comptroller of the Currency (OCC) advises all OCC-supervised banks, as part of their best practices, to consider "the extent to which account closures may have an adverse impact on access to financial services for an entire group of customers or potential customers, or an entire geographic location." It also encourages banks to ensure a clear audit trail of the reasons and method used for account closure.
The guidance, Risk Management Guidance on Periodic Risk Reevaluation of Foreign Correspondent Banking, advises banks to consider mitigating information provided by foreign financial institutions, and provide them "sufficient time to establish alternative banking relationships before terminating accounts, unless doing so would be contrary to law, or pose an additional risk to the bank or national security, or reveal law enforcement activity."
Under existing U.S. regulations, "there is no general requirement for U.S. depository institutions to conduct due diligence on a [foreign financial institution]'s customers," according to a August 30 fact sheet issued by the U.S.
A federal lawsuit alleging alleging bank "derisking" of charity accounts based on Arab ethnicity was unsuccessful, as the jury found in favor of the bank. Life for Relief and Development v. Bank of America, NA, was tried in August 2016 in federal district court in Detroit.
A new blog published by our colleagues at United Muslim Relief outlines the impact that bank de-risking is having on humanitarian aid delivery. In "Humanitarian Aid Threatened by Bank De-Risking," the authors explain that many banks avoid liability under federal counter-terrorism financing regulations by dropping any client doing work in areas deemed "high risk." This practice "hinders and endangers the work of disaster relief organizations and other NPOs," the article states.
Many organizations have struggled to maintain their work in conflict-ridden areas "because financial institutions have closed their accounts with little to no warning and, oftentimes, cancel transactions that are time-sensitive," the article explains. While banks undergo a risk-benefit calculation to determine whether to retain an account, the human lives at risk are not considered.
Read the full blog here.
A March 30 article in the Wall Street Journal has brought renewed attention to the problem of bank de-risking of charities. "Cautious Banks Hinder Charity Financing," by Rob Barry and Rachel Louise Ensign, is drawn from information provided by the Charity & Security Network and interviews with several C&SN members.
The crackdown on terrorism financing "has been a challenge for humanitarian agencies trying to deliver aid in conflict areas even though they are often exempt from sanctions," the article states. The problem is particularly frustrating because banks do not give an explanation for closing an account, and there is no opportunity to appeal the decision. Some charities have had multiple account closures over the past several years.
A companion article published the same day, "Losing Count: U.S. Terror Rules Drive Money Underground," focuses on the movement of funds to less-regulated channels as a result of de-risking.
A third article, "The Unintended Consequence of Closing High-Risk Accounts," was published April 2. The article mentions our February sign-on letter and our upcoming study on the scope of the de-risking problem.