Senate Hearings Stress Value of International Aid, Highlight Nonprofit Banking Woes

May 10, 2017

Two Senate committee hearings in early May highlighted the importance of philanthropy and international aid, as well as the challenges faced by nonprofits in accessing banking services to finance that aid. 

On May 3, the Senate Foreign Relations Subcommittee on Multilateral, International Development, Multilateral Institutions, and International Economic, Energy and Environmental Policy held a hearing on "Global Philanthropy and Remittances and International Development." Speakers included InterAction CEO Sam Worthington and leaders in global philanthropy. Worthington described ways the U.S. government could improve partnerships with nongovernmental organizations (NGOs), including recognizing NGOs as donors, and leveraging private actors to give NGOs a diplomatic space in which to operate. He noted that 70 percent of international development response in Nigeria, Yemen, Somalia and South Sudan is performed by NGOs. 

Why Ask Treasury to Fix the De-Risking Problem When They May Have Caused It?

October 22, 2015
Andrea Hall

Is it any wonder that the U.S. Treasury Department refuses to come to the aid of “de-risked” charities? It appears that they were driving this train all along.

A December 2014 report by the U.S. House of Representatives Committee on Oversight and Government Reform indicates that DOJ and Treasury in fact had a hand in the current de-risking crisis that’s shutting humanitarian aid groups out of the financial system. 

De-Risking Creates Unintended Consequences for Global Poor

November 23, 2015

Efforts to curb money laundering and illicit terrorist financing have had unintended negative consequences internationally, in particular for people and organizations in poor countries via remittances, correspondent banking and humanitarian aid. More transparency, greater data and a stronger risk-based approach (RBA) are needed, according to a new report from The Center for Global Development, Unintended Consequences of Anti-Money Laundering Policies for Poor Countries.

Anti-money laundering and combating of the financing of terror policies (AML/CFT) have created pressure for institutions to be uniformly risk-averse. As a result of mixed messages and imprecise guidelines from the Financial Action Task Force (FATF), along with a chilling effect from enforcement actions and fines on large financial institutions, banks are engaging in “de-risking” by ceasing to engage in any activity with organizations or individuals that a seen to be higher risk. 

Nonprofits in Search of Financial Access: Real Problems, Potential Solutions

Event Date: 
May 11, 2017

Nonprofits around the world are having difficulty accessing banking services. U.S. and other countries’ financial regulations, rooted in a comprehensive counter-terror finance regime, and the ever-shifting political landscape set the stage for financial institutions around the globe to continually re-evaluate their risk profiles. As a result, accounts are closed or never opened, wire transfers are delayed and correspondent banking relationships are severed. This, in turn, impacts vital humanitarian aid, development, peacebuilding, human rights, and other programming. 

Two recent reports examine the scope and impacts of this problem. Financial Access for U.S. Nonprofits, by the Charity & Security Network, provides the first empirical data on the issue and sets out a series of recommendations. Tightening the Purse Strings, by the Women Peacemakers Program and Duke Law International Human Rights Clinic, looks at the effects of counter-terrorism finance measures on gender equality and security. 

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Report: Impact of Banking Restrictions on UK NGOs

August 24, 2017

Like their American counterparts, British NGOs working in or near areas where non-state armed groups are active increasingly face restrictions on their access to the financial system, according to a 2017 report from Chatham House, Humanitarian Action and Non-state Armed Groups: The Impact of Banking Restrictions on UK NGOs. This may include delayed transfers, the freezing of funds, and closure of bank accounts. 

The report, like many before it, tie the perception of NGOs as high-risk to the Financial Action Task Force's Recommendation 8. In addition, the global financial crisis has made banks subject to tougher regulatory and enforcement regimes, decreasing their appetite for risk. It notes, "Humanitarian NGOs generally accept the need for regulation and due diligence, but the current weight of compliance demands by their banking partners is often seen as disproportionate, resulting in a need to spend donor money on additional staff and due diligence tools, increased administration costs, aid delivery and financial transfer delays, and in some circumstances the closure of programmes to which funding cannot be delivered." 

Report Examines FATF Recommendations as Vehicle for Closing Civil Society Space in Nigeria

August 24, 2017

Prior to its revision in 2016, the Financial Action Task Force's Recommendation 8 referred to nonprofit organizations as "particularly vulnerable" to terrorist abuse. As a result, many countries implemented laws and policies designed to curb this perceived risk. As a result, NPOs have faced increased scrutiny and legal constraints, shrinking the space for charitable work. 

A report from Spaces for Change in Nigeria, Closing Spaces for Civil Society and Democratic Engagement in Nigeria,  examines the impact of Recommendation 8 on civil society in that country. The first part, Beyond FATF: Trends, Risks and Restrictive Regulation of Non-profit Organisations in Nigeria, is the product of systematic review of that country's legal framework for combating money laundering and the financing of terrorism to understand the connection between Nigeria's implementation of Recommendation 8 and shrinking space for civil society there. The second part, Closing Spaces for Civic Engagement and Civil Society in Nigeria, assesses the effectiveness of these policies and created a database of closed spaces, highlighting 100 incidents of overbroad application of these laws. 

World Humanitarian Day 2017

August 19 is World Humanitarian Day, another reminder of the need to alleviate suffering. This year, more than ever, we look to four countries on the brink of famine - Nigeria, Somalia, Sudan and Yemen. Unfortunately, for a significant number of U.S. humanitarian aid and development organizations working abroad, the closure of their U.S. bank accounts and the inability to send wire transfers in a timely manner have a significant impact on their ability to fund critical programs in these and other countries in need. 

As described in our February 2017 report on Financial Access for U.S. Nonprofits, "the human costs of NPOs' financial access difficulties and continued inaction must be recognized. When programs are delayed or cancelled because of the inability to transfer funds, peace is not brokered, children are not schooled, staff is not paid, hospitals lose power, the needs of refugees are not met and in the worst cases, people die." 
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Sanctions Bill Includes Counter-Terrorism Financing, Financial Access Language

August 10, 2017

An international sanctions bill primarily focused on Russia contains language devoted to countering the financing of terrorism (CFT) and supporting remittances to Somalia as well as wire transfers by legitimate entities. 

Countering America's Adversaries Through Sanctions Act (HR 3364), signed into law by President Trump on August 2, incorporates two bills that passed in the U.S. House of Representatives in late December, in the final hours of the 114th Congress, HR 5594 (National Strategy for Combating Terrorist, Underground, and Other Illicit Financing Act) and HR 5607 (Enhancing Treasury's Anti-Terror Tools Act), with some modifications, in Subtitle C of the bill.

De-risking and Nonprofits: What's Responsible?

The architects of the AML/CFT framework deny that de-risking problems are caused by their regulations, "asserting instead that the banks are misinterpreting and/or misapplying the requirements, all the while lamenting the disappearance of clean money into 'shadow banking' channels," write Ben Hayes, Lia Van Broekhoven and Vanja Skoric an Open Democracy article calling on the G20 to take decisive action. 

The article, De-risking and non-profits, how do you solve a problem that no-one wants to take responsibility for?describes several "elephants in the room" around the de-risking of nonprofits. These include the wider problems facing non-profit organizations and a "global system for countering terrorist financing that was quickly drawn-up by US officials in the wake of 9/11 and railroaded through the intergovernmental decision-making system in just six weeks." They also ponder questions "as to the ultimate effectiveness of a system whose 'negative externalities' are piling up, but whose impact in terms of actually stopping the flow of funds to terrorist groups and their supporters is at best disputed and at worst rejected outright." 

The article states that non-profits are forced to find workarounds rather than solutions, which further embeds financial institution's practices and argues that time should be taken to find real solutions that benefit all parties. 

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House Subcommittee Examines Remittances

July 20, 2017

The Terrorism and Illicit Finance subcommittee of the U.S. House of Representatives Committee on Financial Services held a hearing July 18 to examine the regulations surrounding money service businesses (MSBs), or remittances, and the important role they play in impoverished communities overseas, to learn about informal remittance systems and potential terror finance exploitation of remittance networks. 

Among those testifying at the hearing, "Managing Terrorism Financing Risk in Remittances and Money Transfers," was Scott Paul, senior humanitarian policy advisor at Oxfam America, who emphasized the important role that remittances play in sustaining at-risk communities. "Remittances give people agency over their own lives," Paul noted. Matthew Oppenheimer, president and CEO of Remitly, testified that a recent survey of their customers revealed that "nearly all are using our service to send money intended to pay for the basic needs of their family members - housing, food, water, electricity, medical care, and education - basic things we take for granted in the United States but can be unattainable for millions living abroad." 

The hearing also touched on the issue of de-risking, and whether it forces charities and remitters into less transparent, unregulated money transfer channels, thus making the anti-terror finance regime ineffective. The subcommittee will seek to find ways to streamline remittance regulations in a way that will keep legitimate funds in legitimate channels, subcommittee members said. 

In his written testimony, Paul said, "[A] strategy that aims to maximize remittances, keep them within the formal financial system, and curb illicit financial flows will achieve the twin aims of poverty alleviation and combating the financing of terrorism. To do this, remittance services must be accessible, affordable, and accountable - both to law enforcement authorities and to the families sending and receiving money."