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.
As the report notes, inaction is costly and would ultimately do most harm to those dependent on the lifesaving support that NPOs offer. First and foremost, the report recommends a multi-stakeholder dialogue to work towards solutions to NPO financial access problems, involving all those who have it in their power to improve the situation - the banks, their regulators, the NPOs and policy makers.
That is exactly what we, in cooperation with the Association of Certified AML Specialists, organized last month in Washington: a meeting of representatives of said bodies and organizations to discuss the financial access problems facing NPOs, and, more importantly, to work towards solutions.
In the months ahead, we will be working to devise ways to bring down the costs of due diligence of NPOs for financial institutions, standardize the way that information is gathered, and raise awareness among financial institutions of NPO operations and the financial controls they already have in place. For a more detailed read-out of the meeting see here.
After all, it is precisely the peacebuilding and humanitarian work that NPOs do, that helps those harmed by terrorist groups and undermines the terrorist narrative. It would be a cruel irony if, in seeking to combat terrorist financing, financial institutions were simultaneously harming those best placed to address the root causes of terrorism.
We cannot allow for such a confusion of ends and means to stand -- we must ensure NPOs maintain their access to financial services -- it is, quite literally, a matter of life and death.
Photo © Dominic Chavez/World Bank
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