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derisking

De-risking impedes access to finance for non-profit organizations

Emile van der Does de Willebois's picture



If you’ve opened a bank account in the last few years, you likely had to answer a bunch of more or less intrusive questions about yourself, your background and why you wanted to open the account. Annoying, but part and parcel of Anti-Money Laundering/Combating the Financing of Terrorism (“AML/CFT”) rules that all banks, in all parts of the world, are subject to.

The ostensible purpose is to enable banks to prevent bad actors using the financial system to launder their funds and, where bad actors are not identified at entry, to detect any suspicious financial activity and provide appropriate background to competent authorities. (Whether they are successful in this endeavour is another question.)

More recently large international banks have been upping the ante and have started to disengage altogether from clients from certain geographical regions or certain sectors because they consider the AML/CFT risks too great- a development known as “de-risking”. Often the business lines or countries exited are those that aren’t particularly profitable; the argument being that only a substantial profit margin justifies taking a larger than average risk. The amount of due diligence to be conducted on a customer cuts into that profit margin and the higher the perceived risk of that customer, the more the due diligence, the lower the profit.

One of the sectors particularly affected are non-profit organizations (NPOs). This is an unfortunate consequence of the mistaken and remarkably persistent idea that all NPOs pose a high AML/CFT risk. According to a report published earlier this month by the Charity and Security Network, two-thirds of U.S.-based NPOs working abroad are facing problems accessing financial services. Apart from account closures and account refusals, these also include delays in wire transfers and increased fees. 

As a result of these delays, they are sometimes forced to move money through less transparent, traceable, and safe channels. The prevalence and types of problems vary by program area, with NPOs working in peace operations/peacebuilding, public health, development/ poverty reduction, human rights/ democracy building, and humanitarian relief reporting the greatest difficulties. One NPO was prevented from sending immediate relief to the persecuted Rohingya minority in Myanmar in the midst of a dire humanitarian crisis. Timely transmittal of those funds might have saved lives, the charity’s director explained.
 

Remittances and integrity: how to exist in harmony

Emily Rose Adeleke's picture

Page also available: French, Spanish



How do countries ensure that remittance service providers – who are often serving the world’s poorest people – mitigate their risk for abuse by money launderers and terrorist organizations?
 
This important question is addressed by new Guidance from the Financial Action Task Force (FATF), the international standard-setting body for anti-money laundering and combating the financing of terrorism (AML/CFT).
 
The United Nations estimates that developing countries received over US$400 billion in remittances from migrants living abroad in 2014. These funds are often the first financial service that migrants and their families use, so it is important that people can send and receive funds with relative ease and at reasonable cost. However, remittance service providers and the governments that supervise them, must ensure that they are not abused by parties undertaking illegitimate activities such as money laundering or terrorist financing.  

World Bank launches survey to assess the impact of de-risking on remittances

Massimo Cirasino's picture

An increasing number of anecdotal reports about banks’ de-risking remittances service providers and the negative impact these actions have had on the industry have been circulating within the international financial community over the last few years.

Different sources have for instance reported that banks are supposedly cutting off access to banking services to money transfer operators (MTOs) because generated revenue isn’t sufficient to offset the cost of complying with AML/CFT and other requirements.

MTOs are crucial to the international remittances industry and provide relevant services for many migrants and their families. They also help extend reach and access to remittances and other financial services since they operate in many remote locations where banks aren’t present.