Finally, “Work to Do”[i]

Having spent a good deal of my career dealing with legislation, regulations, guidance and assorted policy statements, it never ceases to amaze me how long some things take from start to finish. Of course, I have seen money laundering related legislation virtually every two years from 1986-96 and the three weeks it took to pass the USA PATRIOT Act in 2001, but other issues are not done so swiftly.

I also recognize that you will never get all that you think is needed to solve, or improve a noted problem; so take your “victories” when you can.

This brings me to the November 19th Interagency Statement (or “fact sheet”) on clarifying BSA due diligence expectations for charities and non-profit customers.

History of So-called “De-risking”

Suffice it to say that there have been a number of categories of “high-risk” customers that have struggled to get access to financial services for a number of years. We can debate why that is, but it is clear that part of the reason financial institutions exit relationships or fail to onboard customers is regulatory expectations that are, at times, confusing and frankly inconsistent. One of the main impacted groups has been humanitarian organizations which have been unjustly labeled as high risk, no matter the type or service being provided. Members of the AML community in 2016 collaborated with representatives of various charities, governments and others through a project co-led by the World Bank and ACAMS, and created a report and a separate advocacy piece in 2017 and in 2019.

In 2017, the group (renamed the “Consortium for Financial Access”) first submitted recommended changes to the FFIEC AML Examination Manual including our view that “[P]rovided that banks have a reasonable process for understanding the level of risk and commensurate due diligence, decisions to maintain NPO accounts are not considered unduly risky or to be second-guessed, and the program/controls should be viewed as sufficient.”

In 2019, the Consortium released “Banking Nonprofit Organizations - The Way Forward:”

“To assist both NPOs and FIs in establishing and maintaining banking relationships, we are providing NPOs with guidance on the types of information and documentation that FIs require from NPOs to establish banking relationships. Similarly, we are providing guidance to FIs with regard to the NPO community and the operation of NPOs. In addition, to better assist both NPOs and FIs, we have included recommendations for governments and financial regulators that are intended to address the difficulty NPOs have in establishing and maintaining banking relationships.”

We are pleased that some of our recommendations are included in the recent “Fact Sheet” but more importantly, that the communication (which we know will be read by examiners) stresses that “the US government does not view the charitable sector as a whole as presenting a uniform or unacceptably high risk of being used or exploited for money laundering, terrorist financing (ML/TF), or sanctions violations.”

The Joint Fact Sheet

While some are unclear how to navigate a “fact sheet” as opposed to guidance and may be disappointed that the agencies take no responsibility for why lack of access occurs, the communication is very strong and certainly provides extensive information for both NPO’s and financial institutions to better understand one another - a key Consortium goal. By emphasizing the community-wide supported “risk-based approach” and giving recommendations on various risk factors such as charities only serving domestic recipients or while cautioning relationships with entities in conflict zones, but offering a list of factors that would allow clear risk mitigation (e.g. knowing the purpose and nature of the NPO, general information about the donor base, affiliations with other governments), the communication (and assorted footnoted reports) should improve confusion and hopefully establish some clarity.

The Fact Sheet concludes with “[c]haritable organizations and other NPO communities, relieve suffering, provide life-saving assistance, and help developing nations.”

 

As we were developing a response to this challenging access environment, I had the opportunity to address the ACAMS European Conference in June of 2017. In my keynote, I told the audience:

“Resolution needs a comprehensive strategy. Charities and all other impacted groups need to be transparent on their due diligence, source of funds and other controls. Banks must remain diligent regarding detection and monitoring and they must offer solutions to affected accountholders. Law enforcement must be more vocal in their investigative needs. Finally, regulators must fully understand the need for balance and why financial crime laws exist in order to get data and intelligence to those best equipped to utilize that information.”

This Fact Sheet is more than a start, but we still have work to do….

 

[I] “Work to Do” by the Isley Brothers was released in 1972, and was covered in 1974 by the Average White Band in their #1 Billboard album…