By Ashleigh Subramanian-Montgomery
On Dec. 16, 2021, the U.S. Government Accountability Office (GAO) released a ‘Report to Congressional Committees’ entitled the Bank Secrecy Act: Views on Proposals to Improve Banking Access for Entities Transferring Funds to High-Risk Countries. The aim of the report is to address the challenges nonprofits, and nonbank financial institutions, referred to as “money transmitters,” face in transferring money to countries deemed high risk for terrorist financing and money laundering, and to identify proposals to address these challenges. These difficulties often serve as impediments to nonprofit organizations (NPOs) in delivering life-saving humanitarian aid, supporting civilians in conflict, and supporting low-income countries.
The main findings of the report conclude that both nonprofits and money transmitters experience challenges with banking access due to banks’ apprehensions surrounding sanctions and Bank Secrecy Act (BSA)/anti-money laundering (AML) regulations compliance. Banks cite the following as reasons they restrict and sometimes even deny funds transfers to nonprofits and money transmitters:
- Sanctions compliance;
- BSA/AML compliance costs and profitability;
- Reputational risk;
- Decrease in relationships with correspondent banks;
- Enhanced regulatory uncertainty and scrutiny.
While operating in high-risk countries to deliver humanitarian aid, nonprofits “have reported experiencing banking access challenges, including delays or denials of fund transfers, fee increases, refusal to open new accounts, and accounts closures” while money transmitters have “reported several challenges in accessing banking services, including banks closing their accounts, difficulties obtaining new accounts, and high costs in maintaining accounts.”
The GAO report highlighted findings from the Charity & Security Network’s (C&SN) Financial Access for U.S. Nonprofits (2017) report showing that of the more than 300 U.S. profits surveyed, two-thirds reported the same nonprofit banking access challenges. Nonprofits and money transmitters are often forced to find other means of getting funds into high-risk countries, such as armored vehicles or couriers, carrying cash on their person, and direct cash transfers. C&SN, among other actors, are “concerned that without additional actions, money transmitters and nonprofits will continue to face challenges accessing banking services.”
In response to these challenges, the report noted banking regulators and the Treasury Department’s work to minimize nonprofits’ and money transmitters’ banking access challenges. These past efforts include convening roundtable meetings and providing resources and guidance for nonprofits; and, due to derisking concerns, providing banks guidance on their expectations for delivering banking services to money services business (MSB) and money transmitters. Current efforts to support nonprofits and MSBs in “minimiz[ing] their terrorist finance risk” include:
- Convening stakeholder dialogues and meetings with nonprofits;
- Releasing an updated National Terrorist Financing Risk Assessment every few years;
- Conducting sanctions review resulting in issuing general licenses to provide “authorizations for COVID-19-related transactions and activities”, and subsequent frequently asked questions documents;
- Providing a regulatory helpline;
- Participating in a working group with federal bank regulators and the Financial Crimes Enforcement Network (FinCEN) “to identify ways to improve the efficiency and effectiveness of BSA/AML regulations, supervision, and examinations” and “improv[ing] the transparency of the risk-focused approach to bank examinations” through releasing several joint interagency statements;
- Issuing and engaging on fact sheets released for the benefit of federal banking regulators and nonprofits.
It is clear this report shows GAO’s effort and initiative to be a collaborative partner in addressing the bank access challenges faced by nonprofits and money transmitters. Given that the findings expose the depths of these problems, bank regulators should consider changing the stringent and arduous regulations required of nonprofits and money transmitters. The proposals suggested throughout the report, though necessary to take immediate steps forward, are not sufficient to address the root causes of the bank access challenges and derisking. C&SN urges federal authorities to continue providing open communication channels with nonprofits, financial institutions, and money transmitters, to co-create lasting solutions that enable humanitarian actors to fulfill their important mandate(s).
C&SN extends gratitude and commends GAO for the timeliness of the report’s release, and appreciates the opportunity to contribute via interviews ahead of publication.