Analysis: NGOs and anti-terror laws – how to keep your bank manager happy

The British government must do more to prevent charities working in high-risk countries from having their finances cut off by banks concerned their operations may fall foul of anti-terror laws, leading charities and bankers have warned.

In recent months a growing number of British NGOs working in the Middle East and other dangerous regions have faced account closures, crippling their much-needed humanitarian work. Others have had payments delayed for many months. In most cases no specific allegations of wrongdoing were put forward by the banks.

A report published today calls for better coordination between the banks, NGOs and the British government to reduce such cases. It also urges the government to take the lead in designing a clearer framework for what banks and NGOs are allowed to do legally.

Report author Tom Keatinge, Director of the Centre for Financial Crime & Security Studies at the RUSI think tank and a former banker, said at times there had not been enough guidance from the government on how to avoid being tripped up by anti-terrorism legislation.

“Too often the government has claimed to be powerless in the face of US sanctions, or it has hidden behind the banks’ ‘commercial decisions’,” he said. “They need to provide greater clarity to both banks and NGOs to allow this important work to continue.”

Justine Walker, Director of the Financial Crime department at the British Bankers’ Association (BBA), echoed his call. She said the banking community and large NGOs had improved coordination in the past year, but they needed greater clarity from the government on what was permitted.

“The banks and charities have come to the table and we are trying to find solutions, but in essence we are responding to the concerns raised by government and regulators so they also need to be at the table to agree this,” she said.

Keatinge said, however, that there was a “growing understanding” from the government of the scale of the problem.

De-risking

Since the 9/11 attacks a vast range of anti-terrorism legislation has been introduced across the globe, often having hugely different impacts in different countries.

Meanwhile, banks have faced a squeeze on their profits since the financial crash. This, combined with a huge increase in fines for those found guilty of being complicit in money-laundering, has made many risk averse.

Risk and compliance departments have grown exponentially - with the research arm of KPMG estimating that global annual expenditure on risk and compliance is likely to exceed US$10 billion within the next two years.

This has led to so-called “de-risking” - where banks have sought to close down high-risk accounts, especially those with low profit margins. Following the controversial decision to close the bank account of a Somali remittance company, an internal Barclays review found that “it would not be commercially viable for Barclays to continue to provide services to any customer representing less than £100,000 in annual revenue.”

 

 

Keatinge said that in many cases banks were looking at NGOs working in the Middle East and concluding that both the costs of compliance and the risks of money being diverted were too high, while the profits are too low.

Among those who have fallen victim is the Ummah Welfare Trust (UWT). In July the charity, which has an annual turnover of around £25 million ($39 million) and works in a variety of Middle East and Asian countries including Syria and Gaza, received a letter from their bank (HSBC) announcing their account would be closed. HSBC itself had been fined nearly $2 billion in late 2012 in a money-laundering case.

Muhammad Ahmed, a trustee at UWT, said no specific reason was given for HSBC’s decision. “It just said you fall out of our risk category and they didn’t want to elaborate on that.” There was no appeals process - the decision was final.

While most of those organizations that have received similar letters have sought to deal with the issue behind closed doors, UWT went on the attack, organizing a boycott campaign. “We had a huge response from our supporters and donors who in their thousands said they would close their bank accounts if [HSBC] continued,” Ahmed said.

They are still, Ahmed said, pursuing both legal options and carrying their boycott campaign to the Middle East and Asia. “The lesson needs to be that any financial institution which decides to take a charity’s account so lightly - affecting hundreds of thousands of suffering people - will not go unpunished.” An HSBC spokesman said they did not comment on individual cases.

Abdulrahman Sharif, executive director at the Muslim Charities Forum, said such bank closures are still relatively rare, but cases are increasing. He said the effect has been that many organizations have stopped working in parts of the Middle East, where some of the world’s largest humanitarian crises are.

“If you are a person with good will and you decide you want to set up a charity in Somalia or Yemen or Syria, opening a bank account for that is really near to impossible,” he said.

“Banks are more and more seeing non-profit [organizations] as non-profitable and as a risky client to maintain. So they prefer just to close the account and not maintain that client.”

Two tiers

Keatinge said combative strategies, such as that taken by UWT, could lead to charities ostracizing themselves - making it harder for them to find alternative banking services. Instead, he said, they should seek to engage directly with the banks earlier.

“NGOs need to inflict an out of body experience on themselves… Look at your trustees - is there any sense that they could be linked to Hamas or another banned group?” he said. “Just be completely honest about the way you would appear to an outsider. When banks do due diligence they will unearth this information, so don’t put your head in the sand.”

He added that NGOs should be in constant contact with their bank managers to explain their actions.

Yet for those smaller organizations such costly and time-consuming mechanisms are logistically difficult. This has raised fears of almost a two-tiered system, where larger charities will negotiate specific exemptions for humanitarian work with the government and banks but smaller ones will struggle.

“[With] the bigger charities over the next year or two we are likely to move a long way on agreed shared principles but for the smaller charities it is still going to remain really quite challenging,” the BBA’s Walker said. “The challenge we then face is how we deal with some of the smaller charities which don’t have the same infrastructure and the same compliance controls in place. How do banks get the comfort they need from those charities?”

Government’s role

To assuage these doubts, the British government could help provide more clarity on what is or is not allowed. Currently the different and overlapping counterterrorism legislation makes it hard for banks to know exactly if and when a charity’s activities step outside the line.

A recent US policy paper provides an exemption to counter-terrorism laws for humanitarian actors working in war zones. While the policy is not without its detractors, no such equivalent exists in the UK.

Walker said the BBA had produced a recent paper for the Financial Action Task Force (FATF), the global standard setter for anti-money-laundering and counter terrorism finance. In it they recommended the government, charities and banks together draw up an agreement on processing humanitarian payments to fragile conflict areas.

“This would enable banks to remain at the table in supporting these payments,” she said. “At the moment there isn’t a lot out there. You see a lot of statements about charities being higher risk but you see very little around ‘this is what we expect banks to do.’ They are told to be vigilant, to treat these payments as high risk, but there is very little around ‘if you do x, y and z that will keep the regulators happy.’”

A Treasury spokesperson said they were aware of the issue around de-risking and were seeking to support any NGO having difficulties finding banking services. He added that they, too, wanted to improve dialogue between NGOs, banks and government and were pushing their partners to review their own markets and feedback on regulation.

The Treasury, which has previously been primarily responsible for tackling terrorism financing, is handing over some of its authority to the Home Office. Part of the Home Office’s remit is the Charity Commission (CC), but the organization has found its neutrality the subject of scrutiny from some charities.

A report released by the Claystone think tank last month found Muslim charities were disproportionately the subject of investigations by CC, while it also highlighted the perceived bias of CC chairman Sir William Shawcross. In 2012, before taking over at the CC, Shawcross claimed: “Europe and Islam is one of the greatest, most terrifying problems of our future.”

Sharif from the Muslim Charities Forum said the CC had continually stressed in meetings that their decisions were not based upon any prejudice, but he admitted that within parts of the Muslim charitable sector there was a “perception of bias”.

A CC spokesperson said: “The Commission is in no way biased or prejudiced against any type of charity, religious or otherwise.”

Beyond the UK

While new government leadership on this matter would be welcome, ultimately, Walker said, a better global framework was also needed. “We need to see something at an international level. Sometimes we see payments leaving the UK but then being held up elsewhere in the payment chain as that dialogue isn’t necessarily international.”

She said the BBA has proposed an international project to agree risk management principles for higher-risk humanitarian payments. “It is never going to be perfect. Some of these monies will ultimately end up where they shouldn’t be but that is sadly the reality of conflict and violence… What we are pushing for is a shared understanding of the risk.”

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