In recent years, access to financial services has become increasingly difficult for civil society organizations that must conduct international financial transactions in order to operate overseas where their work is needed most. Financial institutions may delay, or refuse to make, transfers between organizations. Sometimes, nonprofit organizations (NPOs) are turned away as customers or have their accounts closed.
Monday, May 7, 2018 10:00 am - 11:30 am
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. Global financial institutions are increasingly terminating or restricting relationships with U.S. nonprofit organizations (NPOs), financial intermediaries, and local organizations in various regions of the world, a trend called “de-risking.” This practice, combined with a complex terror environment, poses enormous challenges to organizations working to deliver aid in areas that need it most, as well as to government policies centered around financial institutions. As work progresses towards finding solutions for NPOs' financial access difficulties, it is integral to ensure that these solutions have a global reach. At the same time, efforts are being made to document the consequences of de-risking of foreign NPOs and their beneficiaries. During this event, expert panelists will discuss the findings of the country case studies, with a focus on Syria, Yemen, Somalia, and Palestine.
* Stuart Gordon
Assistant Professor in Managing Humanitarianism and Program Director, International Development and Humanitarian Emergencies, London School of Economics
* Tracey Durner
Senior Analyst, Global Center on Cooperative Security
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)
As bank "derisking" persists, areas of dire humanitarian need around the globe are hardest hit. In the case of Yemen, individuals, nonprofit organizations (NPOs) and businesses alike have been adversely affected by this global trend.
A new study from the Humanitarian Policy Group at the Overseas Development Institute (ODI), Counterterrorism, de-risking and the humanitarian response in Yemen: a call for action, examines the impact of derisking on humanitarian organizations in Yemen, and the degree of financial access afforded these groups.In Yemen, bank derisking has prevented Yemeni non-governmental organizations (NGOs) from receiving much-needed funds for humanitarian assistance, especially following the onset of war in March 2015, the study found. Derisking is contributing to the war economy and corruption in the country.
Given the fact that Yemen represents on of the world's largest humanitarian crises, the study highlights the urgent need to address the adverse effects of derisking in the country.
The study makes four recommendations to alleviate this problem, including facilitating the flow of funds through a proportional approach to counter-terrorist financing (CFT), lifting the economic sanctions on Yemen, revitalizing Yemen's central bank, and revisiting American and European CFT policies.
The U.S. Treasury Department is soliciting input on continuing its suspicious activity (SARS) and currency transaction reporting (CTR) requirements without change for another three years.
In two Federal Register notices (83 FR 5829 and 83 FR 5828) February 9, the Financial Crimes Enforcement Network (FinCEN) published notices and requests for comment on these two regulatory programs under the Bank Secrecy Act (BSA).
The BSA authorizes the U.S. Treasury to require financial institutions to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax, and regulatory matters, or in the conduct of intelligence or counter-intelligence activities to protect against international terrorism, and to implement counter-money laundering programs and compliance procedures. This authority is delegated to FinCEN. The information collected under these regulations assist federal, state and local law enforcement, as well as regulatory authorities, in the identification, investigation and prosecution of money laundering and other matters.
FinCEN plans to renew the existing regulations without change. However, organizations and individuals have the opportunity to comment on this plan by April 10, 2018. Instructions for submitting comments can be found at www.regulations.gov. For the SARS notice, refer to Docket Number FINCEN-2017-0011 and OMB Control Numbers 1506-0001 and 1506-0029. For the CTR notice, refer to Docket Number FINCEN-2017-0012 and OMB Control Number 1506-0004.
A new documentary on the impacts of derisking on nonprofit organizations (NPOs) features an interview with Charity & Security Network's Kay Guinane. Produced by Women Peacemakers Program, the 45-minute video, Hold Your Peace, also includes interviews with grassroots women's organizations in Lebanon, Tunisia, Jordan, as well as Transnational Institute's Ben Hayes and Duke University Law School's Jayne Huckerby.
The film outlines the history of the derisking problem from the nonprofit perspective, details the impact of the trend on NPOs, and gives a special focus to grassroots women's organizations.
On October 2, 2017, Charity & Security Network joined more than 60 members of civil society, government, intergovernmental organizations, academics and the financial sector in The Hague to discuss the impact of countering terrorism financing regulations on shrinking civil society space and to develop policy recommendations.
The meetings, cosponsored by C&SN, the Women Peacemakers Program, Duke Law International Human Rights Clinic, Human Security Collective and Transnational Institute, resulted in a new conference report, Financial Inclusion for Freedom and Security. The report identifies five core areas of impact, including reduced space for women's rights organizing; impacts on programs, partners and beneficiaries; financial exclusion; prohibitive costs of due diligence and other administrative burdens; and adaptive measures affecting the safety and security of women's rights organizing. The report also summarizes C&SN's February 2017 financial access report and the meeting's discussion around it.
The conference report sets out a series of recommendations, including, but not limited to creating long-term dialogue with the financial and government sectors, reasonable risk sharing, and donor investment in direct funding mechanisms.