ILLICIT CASH Act Introduced in Senate

After circulating a discussion draft for several months, the Senate introduced its version of a Bank Secrecy Act bill with the ILLICIT CASH Act (S. 2563) on September 26, 2019.

Congressional efforts to update the Bank Secrecy Act could help nonprofit organizations (NPOs) that face increasingly urgent problems with transferring funds across borders. The Senate version contains preambulatory language addressing the need to enable money flows overseas for humanitarian aid. It cites data from our 2017 study of Financial Access of U.S. Nonprofits and emphasizes the risk-based approach to regulation that Charity & Security Network and its allies have recommended.

Section 2 of the bill states:
Findings and purposes
(a) Findings
Congress finds the following:
(1) The practice known as bank de-risking, whereby financial institutions avoid rather than manage anti-money-laundering and countering-the-financing-of-terrorism sanctions compliance risk, has negatively impacted the ability of nonprofit organizations to conduct lifesaving activities around the globe.
(2) Two-thirds of nonprofit organizations based in the United States with international activities face difficulties with financial access, most commonly the inability to send funds internationally through transparent, regulated financial channels.
(3) Without access to timely and predictable banking services, nonprofit organizations cannot carry out essential humanitarian activities that literally can mean life or death to affected communities.
(4) De-risking ultimately drives money into less transparent channels through carrying of cash or use of unlicensed or unregistered money service remitters, thus reducing transparency and traceability, which are critical for financial integrity, and increases the risk of money falling into the wrong hands.
(5) Federal agencies must work to address de-risking through establishment of guidance enabling financial institutions to bank nonprofit organizations and promoting focused and proportionate measures consistent with a risk-based approach.
(6) The Federal Government should work cooperatively with other donor states to promote a multi-stakeholder approach to risk-sharing among governments, financial institutions, and nonprofit organizations.

Section 4 states:
Sense of Congress
It is the sense of Congress that providing vital humanitarian and development assistance and protecting the integrity of the international financial system are complementary goals. As such, Congress supports the following:
(1) Effective measures to stop the flow of illicit funds and that promote the goals of anti-money laundering and countering the financing of terrorism and sanctions regimes.
(2) Anti-money laundering and countering the financing of terrorism and sanctions policies that do not hinder or delay the efforts of legitimate humanitarian organizations in providing assistance to—
(A) meet the needs of civilians facing humanitarian crisis, including access to food, health and medical care, shelter, and clean drinking water; and
(B) prevent or alleviate human suffering, in keeping with requirements of international humanitarian law.
(3) Policies that ensure that incidental, inadvertent benefits that may indirectly benefit a designated group in the course of delivering life-saving aid to civilian populations, are not the focus of the Federal Government enforcement efforts.
(4) All laws, regulations, policies, guidance and other measures that ensure the integrity of the financial system through a risk-based approach.

A July 11 letter from the Charity & Security Network to Senators Tom Cotton (R-AR), Doug Jones (D-AL), Mike Rounds (R-SD) and Mark Warner (D-VA) expresses support for provisions on derisking and makes recommendations to strengthen them. In particular, the letter urges the bill to require federal banking regulators to update and revise the Bank Examination Manual chapter on NPOs to bring it into line with the Financial Action Task Force’s 2016 update of its standard on anti-terrorist financing regulations for NPOs. The Bank Examination Manual does not incorporate the new standard’s risk-based, proportionate approach that is intended to prevent terrorist financing while not disrupting the activities of legitimate NPOs. (A related bill has passed the House of Representatives.)

Additional recommendations include:

  • Clarify that derisking can occur when banks close or limit services on single accounts, and does not just apply to entire categories of customers;

  • Expand the scope of the report on derisking in Sections 203 and 309 to address the drivers of derisking as well as the impacts. It notes that “While the effects of derisking are now established and well documented, the drivers of this trend have not been adequately studied.”

  • Require training on derisking for bank examiners (a provision already included in the House bill);

  • Include enabling language on bank customer due diligence that would allow financial institutions to rely on a centralized repository of information on NPOs.

The letter concludes by stating, “In updating the BSA, we encourage the Senators to take a comprehensive approach that establishes a framework based on a proportionate, risk-based approach that facilitates use of transparent and regulated financial channels while minimizing the risk of derisking.”

2019-12-05T11:01:35-05:00December 5th, 2019|