This question was explored at a hybrid event in London organised by Conciliation Resources, the Muslim Charities Forum and the international NGO umbrella organisation, Bond, on 14 June 2022. More than 50 representatives from civil society, the UK government and banking sector explored the challenges of financial access facing charities, in particular Muslim and smaller charities, and the potential solutions.
Opening the event, Teresa Dumasy, Director of the Research, Advisory and Policy Department at Conciliation Resources, said that financial access challenges are a deepening impediment to the work of charities in areas affected by or vulnerable to insecurity.
Often charities experience ‘de-risking’, the phenomenon whereby financial institutions terminate or restrict business relationships to avoid, rather than manage risk. Financial transfers can be delayed or suspended, while financial institutions may block or refuse to open charities’ bank accounts. This practice can mean simply that money doesn’t get to where it is needed in time to provide life-saving aid, development assistance or peacebuilding support. Charities can go to great lengths and cost to try satisfy extensive due diligence requirements of both donors and banks to no avail.
Smaller charities are known to be disproportionately affected by bank de-risking, being commercially unattractive and still high risk for banks, and often without access to specialist client managers. As was conveyed by participants at the event, Muslim charities are facing particular difficulties: their experience and evidence should be informing solutions.
Managing risk vs risk avoidance
De-risking is driven by regulatory obligations on banks to comply with counter-terrorism financing and anti-laundering laws and sanctions – ultimately the same laws that govern NGO operations. Banks can face financial and legal penalties as well as reputational damage for breaches.
Dumasy who has led work on this area for the past 10 years, noted that “charities need to be working in areas that are ‘high risk’ in the eyes of banks, as this where the need for humanitarian, peacebuilding and development support is greatest and growing”.
“The financial hurdles are getting deeper like a cancer,” said Fadi Itani, CEO of the Muslim Charities Forum. “We need a framework to effectively manage risk rather than sweeping avoidance. Screening databases deployed by banks are particularly damaging.” He said banks need to provide clarity on their due diligence requirements, while the government can also have a positive impact on clarifying the regulatory framework.
Participants shared the challenges when formal banking routes are blocked or prohibitively difficult: they may resort to informal and potentially risky payment routes, such as volatile cryptocurrencies or carrying large amounts of cash. This only increases the risk of legal breaches, and to staff safety, while donors may also pull out. A banking representative highlighted that the risk appetite was shrinking across their sector as financial liabilities for breaches grow.
Sue Eckert, Senior Associate at the Center for Strategic and International Studies, shared experiences of the collaborative, multi-stakeholder approach to this challenge in the United States. She said that charities and banks have much in common as they both have to comply with government regulations and legislation in this area. The problem is that governments do not share the risk burden.
The advantages of a multi-stakeholder dialogue approach was the focus of the event’s last session: this event was particularly timely as it was held ahead of the annual meeting of the Tri-Sector Group, which brings together representatives of UK NGOs, financial institutions and government to develop understanding of, and explore solutions to the legal, regulatory or operational risks and issues facing NGOs in the delivery of humanitarian, peacebuilding and development assistance.
Sharon Harvey, Counter Terrorist Finance Adviser at the UK’s Foreign, Commonwealth and Development Office and Co-chair of the Tri-Sector Group, said among the Group’s achievements has been the development of a shared understanding – collectively across all three sectors – of the risks and the management of those risks. She said that the Group’s work had brought better awareness within government and the sectors, and spurred more action to address the challenges faced.
Participants acknowledged that some governments and financial institutions are getting more comfortable with risk and the NGO sector, however the conversation needs to move to concrete and accelerated action.
As Eckert warned, “delays in getting aid to humanitarian crises costs lives.”
To learn more about the impact of financial de-risking on international NGOs, its disproportionate impact on the Muslim charity sector, and ways forward, read this article by Teresa Dumasy in the Muslim Charities Forum’s journal “The Forum” (pp. 20-21).