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
Because funders are still requiring charities to ensure effective program delivery, regardless of difficulties with traditional banking channels, charities are forced to use other methods, including money service bureaus, cash couriers, Hawala banking channels and using staff bank accounts to transfer money. These methods are considered riskier than formal banking channels, and some survey respondents explained that they put additional due diligence mechanisms in place when using these methods.
The report details the extensive regulatory and reporting requirements for charities in the UK, dispelling the myth that charities are "unregulated" or "less regulated" than the private sector. Most charities with significant programing are registered in the UK. There are also a number of structural barriers within charities that make them "unattractive to those wishing to launder illicit funds or transfer funds to finance terrorism and these do not seem to feature in analysis of risk in the sector," the report explains. For example, charities must report on how their funds are used to further the charitable activities of the organization. When funds come from an institutional donor, there are detailed reporting requirements, donor visits and/or audits. Charities usually have more trustees than a typical company's directors, and trustees cannot be paid. Charities also must publish their accounts on the charities register annually, and those with an income of more than £25,000 per year must file an independent examination report or auditor's report. Any charity with income over £10,000 must file an annual return to the Charity Commission. For organizations receiving tax relief, there are requirements for detailed records of donations received.