Publication date: 
Aug 2018

Balancing risk and benefit: bank de-risking and the work of NGOs

Dr Teresa Dumasy
Director of Policy and Learning
In the years following 9/11, counter-terrorism laws, regulations, sanctions and policies have proliferated, many with the aim of curtailing non-state armed groups’ access to financial support. Several studies have shown how these measures impact the work of NGOs and civil society organisations providing humanitarian assistance or supporting peace efforts in these volatile contexts. One such impact is bank ‘de-risking’.
Area of work
Policy
Issue
De-risking

Banks are often wary of providing services to NGOs working in high-risk areas. De-risking can manifest itself in delayed or blocked payment transfers, difficulties in transferring goods to conflict areas, and even the closure or denial of bank accounts. The difficulties can in turn increase the risk of aid diversion as NGOs try other, informal routes to transfer funds to reach those in need. It is a growing and global phenomenon. 

De-risking is in part an effort by banks to reduce their exposure to the risk of terrorism financing and money laundering, and to potential prosecution or fines. In addition, the due diligence required to comply with complex regulations for providing financial services in high-risk contexts demands a significant investment of resources in people and systems. 

The risk of de-risking

The impact of de-risking is felt acutely by humanitarian NGOs who often need to respond quickly and at scale to the impact of violence and displacement. But it also affects third parties involved in efforts to prevent conflict and build peace, including where this involves contact with armed groups. It can also have a disproportionate and detrimental effect on specific groups within society. 

In 2017 a study by the Duke Law International Human Rights Clinic and the Women Peacemakers Program found that women’s rights organisations working on long-lasting social change, peace and human rights are one group particularly affected. The organisations experience the negative effects and significant demands of the complex legal and regulatory environment due to their reliance on short-term project funding, relatively small size and grassroots level work, and the fact they are often newly established and already face some degree of financial exclusion. Yet, their plight is somewhat at odds with stated commitments by many donor governments to support women’s empowerment and participation in peace and security efforts.

De-risking is a systemic and global problem. No single measure taken by a single institution would resolve it. Answers may lie in clarifying legislation and regulations and their intended impact, clarity in the level of acceptable risk and liability, strengthened NGO capacity and standards in due diligence, as well as proportionate risk management approaches by banks. Arriving at any solution requires a multi-stakeholder and cooperative approach. 

Time to talk: challenges and solutions

Conciliation Resources has been playing a leading role since 2012, under the auspices of the NGO network, Bond, in coordinating efforts of UK based international NGOs experiencing difficulties as a result of sanctions and counter-terrorism legislation. Together with colleagues from Bond, Charity Finance Group and other NGOs we have pressed for the establishment of a structured dialogue mechanism with government. This culminated in the convening of the first meeting of a multi-stakeholder Working Group on INGO Operations in High-Risk Jurisdictions in November 2017.*

The Working Group brings together representatives from across the UK Government, the NGO sector, regulators and banking institutions to enhance dialogue between these different sectors on the challenges and operating risks facing INGOs in high-risk contexts, such as Syria and Somalia, and to find solutions. Analysis, ideas and options are discussed and developed in sub-groups. 

Efforts in the UK are mirrored in other international policy fora –  similar multi-stakeholder dialogue initiatives have been set up in the US and the Netherlands. The Global Non-Profit Organisation Coalition has established positive engagement with the hitherto rather impenetrable Financial Action Task Force. Individuals involved are often linked up, ensuring some degree of coherence and lesson sharing between these respective initiatives. 

Finding solutions to de-risking necessarily involves individuals with strong technical understanding of the mechanisms and processes of due diligence, risk management, regulatory and legal frameworks and sanctions in highly complex environments and across multiple jurisdictions.

But this effort also requires a sense of perspective. Most development support is and will continue to be needed in the areas which are high risk due to the levels of conflict and instability. The need for that support is greater and more urgent as the number of conflicts and levels of humanitarian need have soared. And an active civil society plays an essential role in preventing conflict, grounding peace processes and dealing with the legacy of violence. There is therefore a balance to be struck in managing rather than eliminating risk in the interests of finding effective ways to relieve humanitarian suffering and to prevent and transform violent conflict. 

 

* Dialogue on this issue was recommended back in 2013 by the then Independent Reviewer of Terrorism Legislation. See page 72 of this report for further details. 

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