London Calling

I’m a child of the 80s, and The Clash is still a vital part of my playlist. Recently, I had the opportunity to travel to London to speak about financial access for nonprofits, an issue near and dear to us at Charity & Security Network. The added bonus was that as I prepared my talk, scheduled meetings around the conference and made travel plans, The Clash’s music became my earworm.

The World Humanitarian Action Forum was convened by UK-based Humanitarian Forum — a network of humanitarian and development organizations from Muslim donor and recipient countries, the West, and multilateral organizations – in collaboration with more than 30 organizations from around the world. I was part of the de-risking roundtable, one of three conference tracks, along with approximately 50 participants from the UK, Netherlands, Belgium, Turkey, Yemen and other countries, most of whom represented organizations impacted by de-risking.

I Fought the …. World Check

I was joined on the day’s first panel by Ravi Naik, a UK lawyer representing individuals erroneously listed on commercial risk-profiling services, such as WorldCheck, used by financial institutions and law enforcement and have been cited as contributing to de-risking.

The problem, Naik explained, is that dubious sources, such as Islamophobic websites, are used to list individuals and organizations in the goal to create the biggest database among these services. In doing so, these subscription services create 240,000 new profiles per year and “quality control goes out the window,” he noted. While nonprofits can talk to their banks about these problems, “you can only remedy the situation if you know you’re in the database,” he said. Naik has successfully sued WorldCheck for defamation, winning damage awards and apologies for his clients. However, getting your name taken off one database doesn’t get you out of the risk algorithm used by all the other services.

Naik suggests the creation of an independent ombudsman, similar to the role he convinced the UN to create around its listing processes, that could address this problem. Affected organizations need to have their negative credit scores remedied so that they can again access financial services, he explained.

FATF Engagement

Conversation then turned to the Financial Action Task Force and the recent revision of their Recommendation 8. Most roundtable participants felt that the revision will result in little real change. “The system is broken,” said Justine Walker of UK Finance, a bankers association, who chaired the day’s first panel. The R8 revision is just “one tiny aspect of a multi-faceted issue.”

While some participants touted the FATF mutual evaluation process as a vehicle for civil society engagement on the de-risking issue, others noted that FATF engages nonprofits in evaluations very selectively and that the process is opaque. In some countries, others explained, there is no civil society platform. “The opportunity for civil society is not automatic,” another added.

De-Risking Impact

Wherever there are organizations responding to dire humanitarian need, there are organizations impacted by de-risking. “Banks are making generalized decisions based on areas of work rather than specific risk-based decisions,” one participant noted. “De-risking is growing faster than the charitable sector can keep up,” another participant said.

De-risking also has a chilling impact. “Charities are choosing not to undertake programming that’s not within banks’ risk appetite,” said one participant. Another said that NGOs are unwilling to work in the most challenging areas because it could result in a WorldCheck listing.

At the same time, there is a huge set of disincentives to challenge a de-risking decision. Most notable is the fear that the organization could end up in the media, which in itself “could put you in a WorldCheck or similar database,” according to another participant.

It’s also squeezing out the smaller organizations. A huge percentage of smaller NGOs rely on historical partnerships with sub-contractors. When the humanitarian aid landscape, including the banking environment, is changing rapidly, they’re not identifying new partners. Instead, the traditional subcontractors are more acceptable to banks. This is “hardening the arteries of aid,” one participant asserted, and creating a two-tier system: bigger organizations can navigate their way around this, while smaller groups are “in an existential crisis.”

Less is more, but not in a good way

One large humanitarian organization described the impact of reduced financial access on their work, with an emphasis on increased workload. De-risking, for this organization, means more time spent, increased compliance costs, and increased transaction costs (2% to 5% extra). The problems they’ve faced include delays in wire transfers, requests for additional information, frozen funds, barriers to opening new accounts, account closures, and blocked donations.

This organization’s coping strategies include building banking capacity by having a good awareness of which banks have operational links in which countries for certain transactions. They meet regularly with their bank’s relationship manager and create a mechanism to deal with potential problems. They provide high-level details programming for every grant, and consider de-risking delays in the program design stage. All of this takes more capacity, something the smaller organizations cannot afford. Despite all these efforts, they have had 700 wire transfers delayed this year.

Small Signs of Hope

In the roundtable’s last session, Tom Keatinge of the UK’s Royal United Services Institute, demonstrated that there are some signs of hope in the de-risking environment. Banks are more willing to take on high-risk clients than they were one or two years ago, Keatinge asserted. The UK government downgraded the risk of charities in its most recent national risk assessment. The UK and EU seem to have realized that they overplayed the risk of charities. A new working group in the UK established to work towards solutions to the de-risking problem met in November for the first time. The FATF is listening.

The evolution of the financial situation for nonprofits has provided several lessons, according to Keatinge:

·         Get engaged with policy makers to build awareness

·         Tell researchers your problems so that you can share case studies with policy makers

·         Record everything that happens to build evidence

Keating also asserted that the World Bank needs to do more to support the movement of funds around the world. Lia van Broekhoven of the Human Security Collective, who joined Keatinge on the day’s last panel, agreed. The World Bank could be a safe payment channel to high-risk countries, she said, adding, “Someone needs to take on this risk.” However, as one participant noted, the more you rely on multinational organizations, the more you disempower local actors, and disempowerment of local actors has security implications.

Van Broekhoven described the de-risking phenomenon as a game of “hot potato,” a re-risking where each party tries to pass risk on to the next entity in the chain. At the end of the line are the beneficiaries, she said, who “are stuck” with the burden of de-risking. NGOs in every country should establish a platform on this issue so they can talk to government with a bigger voice, van Broekhoven said.

“Governments can get financial institutions to move in a certain direction, if they give the direction,” one participant noted. “It has to come from the highest level.”