A new report takes a deep dive into the processes surrounding the challenges facing nonprofit organizations (NPOs) trying to move funds abroad for programs in Syria. Invisible Sanctions: How over-compliance limits humanitarian work on Syria, follows the phases of payment mechanisms and financial operations utilized by NPOs, from opening the bank account, passing through transfer operations, including correspondent banks, and to the consequences of the problems along the way. It also examines the obstacles created by sanctions regimes, particularly those imposed by the U.S.
In addition, countries adjacent to Syria, including Turkey, Lebanon and Jordan, “have challenging regulatory arrangements and financial systems, while state authorities have increasingly begun to limit the activities of NGOs, or simply close them,” the report notes. “At the same time, they have substantially extended bureaucratic processes to which humanitarian organisations are subject,” it explains.
Funds transfers to Syria or neighboring countries via the global correspondent bank network have also been hampered. “The payment of local staff and suppliers has reportedly become more difficult, as well as the management and running of programmes, while increasing significantly their costs because of the additional regulations,” the report notes. In a 2018 study by the London School of Economics, it was estimated that almost a third of all funds destined for Syria were held in a “nearly continuous state of limbo because of obstructions in the correspondent banking system.”
The financial access difficulties of NPOs working in and around Syria have only gotten worse over the past several years, and in some cases have caused the cancellation of projects. These problems have disproportionately affected smaller NPOs. The report finds that the problems NPOs face are rooted in the structural issues inherent in operating in conflict zones, the financial system and the international sanctions framework.
The Impact of Sanctions
The risk of being cut off from the international financial system as a result of the extraterritorial reach of U.S. sanctions is a risk that very few banks want to take, the report explains. This leads banks to over-comply with sanctions, by imposing more and more conditions on clients (whether individuals or organizations) in an effort to prevent any risks for the institution.
Over a series of sanctions measures in the past three decades, dealings with many individuals and entities in Syria have been prohibited by U.S. laws. In addition, sectoral sanctions target various economic sectors in Syria such as oil, electricity, information technology, and banking. The most significant Syrian banks (all of the public banks) are sanctioned by many nations, including the U.S. and the EU. There are prohibitions on the provision of certain financial services, including currency services for the Syrian Government and the direct or indirect sale, purchase or brokering of gold, precious metals and diamonds.
A number of countries impose sanctions on Syria. However, only the U.S. imposes secondary sanctions, which target foreign financial institutions. These have led to a number of enforcement actions against European banks, which were snared by U.S. law when they processed U.S. dollar transactions. This has led to a chilling effect in which many banks now refuse to process transactions related to work in Syria.
Add to this the newly enacted Caesar Syria Civilian Protection Act, which allows the U.S. president to punish any government or private entity seen to help the Syrian Government and groups and entities linked to it, or to contribute to the reconstruction of Syria. The U.S. can also sanction any international company or individual that invests in Syria’s energy, aviation, construction or engineering sectors, as well as anyone who lends funds to the Government of Syria.
While in theory all of these sanctions regimes allow for the provision of humanitarian aid, in practice the exemptions and licencing frameworks “can be complicated, unclear and confusing, and costs associated with ensuring compliance can be prohibitively high,” the report states.
The report’s authors recommend that states and the EU, among other things, provide clarity around what types of humanitarian activities are permitted in Syria and create exemptions in existing law to facilitate them; help create more transparency around hawalas; establish a financial channel for NPOs operating in conflict zones; and shift the sanctions framework to lessen some of the pressure on NPOs and banks. For banks, the report recommends urgently protecting the correspondent banking channels working with Syria to ensure that humanitarian assistance can continue; working with NPOs to provide a uniform and standard due diligence and compliance system on the types of information required to facilitate funds transfers; and investing more in fintech solutions and AI to improve and simplify compliance processes. It also recommends that neighboring states (Turkey, Lebanon, Iraq) help NPOs better comply with local laws without fear of being prosecuted.
The report also recommends that all stakeholders engage in dialogue to seek ways of mitigating challenges and better share risk; coordinate and share best practices; and to generate advice on navigating multiple sanctions regimes. Finally, it notes that research and training should be devoted to analyzing the unintended humanitarian consequences of various sanctions regimes, and on “international legal aspects of modern comprehensive sanctions, including IHL and Human Rights, which can be jeopardised through the need for humanitarian actors to avoid providing assistance to certain groups in breach of the Humanitarian Principle.”