The global pandemic created by the rapid transmission of the novel coronavirus and the resulting outbreak of Covid-19 has affected every sector of the global economy, including nonprofit organizations (NPOs), which carry out the humanitarian response to the world’s most vulnerable communities. As these organizations shift resources and step up their operations to respond to the virus, they face serious challenges, including supply shortages, travel restrictions, overwhelmed governments and inadequate testing. They also need to rapidly move funds from the U.S. to hard-hit areas around the world. This presents an additional, often overlooked obstacle: a lack of access to the financial channels necessary to carry out their work, a problem commonly known as bank “derisking.”

Covid-19 will only amplify the urgent need for humanitarian aid around the world.  In places where conflict is the norm, natural disasters have dealt long-term blows, and food insecurity forces massive displacement, the coronavirus will exact a heavy toll. There are serious concerns about transmission rates of Covid-19 in over-crowded refugee camps. According to the international aid organization Mercy Corps, although the virus has not yet reached peak infection rate in many developing countries, early mitigation measures such as movement restrictions are already compounding pre-existing needs such as food insecurity. Without a robust response from governments, banks and the nonprofit sector, the devastating consequences of this disease will be even more catastrophic.

In 2017, Charity & Security Network published the first (and to date only) empirical data on the issue of Financial Access for U.S. Nonprofits. That study revealed that 2/3 of U.S.-based NPOs working abroad face financial access difficulty, with delays in international wire transfers the most common problem. These delays, often lasting weeks or months, have significantly impacted or cancelled time-sensitive aid programming. The problem appears to stem from a longstanding misconception that NPOs are uniformly high-risk, as well as fear of enforcement actions.

Since our report was published, the U.S. government has made clear that financial institutions should implement a risk-based approach to terrorist financing and that NPOs are not uniformly high-risk customers. In its 2020 National Strategy for Combating Terrorist and Other Illicit Financing, Treasury stated that “U.S.-based tax-exempt charitable organizations play an important role in delivering aid to communities worldwide and in countering terrorist propaganda and recruitment” and noted that “the vast majority of U.S.-based tax-exempt charitable organizations are not high risk for terrorist financing.”

NPOs are keenly aware of the risks inherent in delivering aid in proximity to terrorists, and no sector does more to ensure that goods and money do not fall into the wrong hands. NPOs carry out robust due diligence and risk mitigation/management, and participate in sector-wide self-governance programs. They are also regulated at both the state and national level, and file annual reports with the IRS.

It would be impossible to uncouple humanitarian need from conflict. Unfortunately, financial institutions’ failure to take a risk-based approach means that they continue to shed, rather than manage risk. This forces aid money out of the regulated system and into more opaque channels such as informal value transfer systems and cash carry, where the risk of terrorist financing is greater.

On April 1, the Financial Action Task Force (FATF), a global standard setting body on anti-money laundering (AML) and counter-terrorist financing (CFT) issued a statement on Covid-19. It explained, “The aim of the FATF Standards is not to prevent all financial transactions with jurisdictions where there may be high ML/TF risks, but rather to ensure these are done through legitimate and transparent channels and money reaches its legitimate intended recipient.”

For its part, the U.S. Agency for International Development (USAID) has indicated that it may provide some flexibility in existing grant agreements to address the pandemic. Now it is incumbent upon financial institutions to enable the flow of funds from legitimate charitable organizations to their intended beneficiaries. Because this virus knows no political or geographic borders, the failure to do so will harm not only populations already struggling to survive, but all of us.