This Week in AML

Nonprofits Experience Significant Difficulties Transferring Funds for Humanitarian Activities

The Center for Strategic and International Studies has released a report on Mitigating Financial Access Challenges. The report focuses on ways to overcome the difficulty faced by NGOs trying to transfer humanitarian funding to areas subject to sanctions or active counterterrorism measures. John and Elliot discuss the continued impact of de-risking, some of the prior work done on the problem, and examine some of the proposals to improve financial access laid out in the report.



Nonprofits Experience Significant Difficulties Transferring Funds for Humanitarian Activities TRANSCRIPT


Elliot Berman: Hi John, how are you today?

John Byrne: Hi, Elliot. I'm doing good. I was happy to see the podcast I did with Jeff Pearlman that we posted today. Jeff has been pushing his biography of Bo Jackson, and he's been on everything I pay attention to. He was on Dan Patrick. I saw him on Morning Joe this morning.

So a really good guy. So I'm happy we were able to give him a little plug in our world. So it was nice to see that. And I got the book yesterday. I haven't started reading yet, so I'm interested in that. But hey, we were gonna talk about the FATF plenary that just ended. Several things and major interest to our community, which we will talk about in future conversations.

But something came across through email today that I know I shared with you. And that's the Center for Strategic and International Studies, better known as CSIS, has been working on what they call a multi-stakeholder working group, the concept of financial access, and Rick Small and some of us have been involved tangentially.

We haven't been at all the meetings, but these stakeholder dialogues were to continue dealing with the ongoing. Of access and de-risking, and they came out with their final report today. Which includes proposals on financial access. So I thought it would make sense to run through those.

We'll certainly make it available on our site and linked to this conversation. But a number of these are recommendations for the government, private sector, and for policymakers. And I know it's only been a couple of hours, but have you had a chance to see any of those proposals?

Elliot Berman: I did. I admittedly took a quick read through the docent cuz it came out today, as you mentioned. And just as you also mentioned, but just to set the stage for those folks who are our listeners who haven't necessarily followed this issue the way you and I have.

The focus here is heavily on non-governmental organizations and organizations who are struggling to provide humanitarian aid through funds transfers into areas that are either sanctioned or have heavy counter-terrorism financing regimes in place and things like that. And so that's the particular focus of de-risking that you and I have talked about de-risking in the past.

And as you mentioned, you and Rick Small have been active in this space for a long time. Trying to balance the whole issue of a risk-based program and the lack of clarity from the various governmental agencies. Whether it be the regulators of institutions who are being, you know, concerned versus the policymakers from the Department of State and other places who, you know, may not have a different view but have a different emphasis.

John Byrne: Right. And, you know, much work has been done prior to this report, and they do footnote a number of those efforts, including the effort that we were involved in with ACAMS in the World Bank several years ago with the report that we filed, which I'm gonna come back to in a minute. But there's, as we say, a number of proposals.

There is some recognition of some successes. Not enough from my perspective, though. Not that it's wrong or inaccurate, but I do think one of the things that they talk about in terms of recommendations is that the US government should take proactive steps to safeguard NPOs' access to financial services by providing regulatory clarity, guidance and reforming licensing procedures.

Well, they've done a lot of that. Frankly, They've updated the exam manual as we both know. They've made statements, The regulated community, about how all charities are not the same. And there's certainly been some addressing of licensing. So not that more can't be done, so it should always be the case that more is pursued, but that's already there.

And then, when they ask what US financial institutions should do, they say that they should enhance their understanding of communication with a commitment to work with NPOs on financial access challenges and provide upfront guidance on necessary documentation risk requirements for NPO customers as part of the risk based approach already happened.

Already happened in that document that I referenced that we put together several years ago with the World Bank in ACAMS. So I'm not saying it solved the problem because it did not, of course, but we are footnoted. The report is footnoted. It mentioned I believe, twice. I think it's important to recognize that there already are checklists, so I think those checklists certainly can be amplified, and certainly, more can be done, but I think there needs to be a recognition out there, and we need to build off of that.

So perhaps that's what they mentioned. But again, going back to the report released in June of 2019, the Consortium for Financial Access was how to bank non-profit organizations the way forward. So again, I'm not disputing that there aren't still major hurdles, but I think it's important that we recognize that a lot of work has already occurred.

Elliot Berman: Absolutely. You know, another one of the US government recommendations for the US government, which I thought was interesting. I don't know how likely it is. It feels unlikely in this environment. But, that was to implement humanitarian exemptions from sanctions and counter-terrorism measures under the International Emergency Economic Powers Act, where many of the sanction programs really are authorized. And proposed such exemptions at the United Nations because, as I think everyone who's listening knows, in addition to the US government and other governments issuing sanctions, the UN actually does issue sanctions as well. I thought that that was interesting because it really is a systemic solution, at least as it relates to a certain aspect of the problem.

Because of various sanction programs and either the groups or the countries or the regions that are directly impacted or where the sanctions programs would directly impact work in those areas. 

John Byrne: Yeah, that makes sense.  

Elliot Berman: Yeah, but how, I mean, how do you get that through Congress today? I mean, I haven't got a clue. 

John Byrne: Right. Going back to some of the other recommendations to the government that I embrace. Establishing a standing senior interagency committee on financial access, you know, which includes treasury state. That makes a ton of sense. Formalize the multi-stakeholder process—no problem with ongoing dialogue.

That certainly makes sense. Makes sure it's international. I think that's important because most of the problems with access are because of international confusion, in my view, in terms of jurisdictional areas regarding risk. So I think that makes a lot of sense. You know you talked about, again, modernizing licensing.

I don't pretend to be an expert there, so I think that that's something that those folks could, hopefully, take a look at. Going back to regulatory clarity, what has to happen, in my view, is examiners have to be taught from day one that charities and humanitarian groups are not all the same and don't have all the same risks.

They've been told that in the manual. They've been told that by statements. So I think training becomes an important aspect here. It's not sexy to talk about training, but I think it's pretty important that they do that. Policy guidance for operational NPOs that don't receive government funding. I think that makes sense.

But I think training aga examiners, dealing with those sorts of things, and promoting safe payment channels for humanitarian transactions, is tougher, right? 

But perhaps one of their recommendations could start that off with a pilot program to deal with that. So, again, there are some really good things in here. They also talk about creating incentives for institutions to bank NPOs. You know, a number of institutions do that, that do bank NPOs. Maybe having those folks share their best practices would be a valued, proposition. So again, you don't need legislation for that.

You could have the trade associations working with their government partners. Doing things like that. So I think that's important. Some technology companies do a good job. We've interviewed a few for some of our podcasts. How is that working?

You know, so there are some references to that there that I think would make sense. One of the things that they say that I'd like to know more about, but they said adopt legislative changes to safeguard humanitarian activities by clarifying the scope and definition of material support prohibitions and that humanitarian actions should be excluded from the scope of CT criminal measures.

That sounds great, but that's probably pretty hard to put in place. So, you know, some of this, you gotta be a little more realistic, But I don't disagree with communication. I don't disagree with some of the things that have already been done. Training is essential in using technologies.

I'm not saying all these recommendations are logical or will work, but it definitely keeps the dialogue going and for that, they should be. 

Elliot Berman: Yes. And this entire effort and many of the recommendations for establishing, you know, an ongoing multi-stakeholder process and things like that. They fall squarely into another topic that you and I have spent a lot of time talking about and working on, and that's the whole concept of the value of public-private partnerships. Right? And you know, they called it multi-stakeholder, which is perfectly fine here. I don't think it was an effort to do anything other than, you know, find another name.

But I think. Working through these kinds of difficulties. Some of it is just no is, is vocabulary and understanding what's really going on as opposed to just lumping everybody into a single bucket and things like that. But public-private partnerships can be very valuable, and keeping this moving forward, even with some of the things that might have been presented differently, is still valuable. And again, as you mentioned, I don't think that the authors of this or the group, the people involved, put these recommendations or proposals together with the idea that they're all going to get adopted.

John Byrne: Right, Right. 

Elliot Berman: I think it's to continue the conversation going and different groups. Parts of the US government, parts of the industry, the NPOs, they're all gonna grab at different parts of this and come back together. Reconfigured in different ways to try to make progress, and while we need big progress, even small progress would be a good step forward. 

John Byrne: Yeah. One other thing I wanna mention, because it's always important, in my humble opinion, that facts don't get hidden somewhere. There's a reference within the document that talks about the stakeholder dialogue that we worked on with the World Bank at ACAMS that resulted in the report that I mentioned.

And it says this is the actual wording that struck me hard because it's actually not true. Although the process yielded early successes in enhancing understanding cooperation, especially among NPOs and banks. That's absolutely true. The initiative was eventually abandoned due to a lack of engagement by the US government.

Not only is it not true, but while the agencies didn't work as fast as we wanted them to, they did update the manual. They did do statements. They certainly did embrace a number of the concepts in our paper. So there were other reasons why the dialogue ended. It was not because of a lack of engagement by the agency.

So I think it's important to recognize that. You just mentioned it. The partnership's so important, so be partners; give your partners credit when they do the work. And our regulatory partners, you know, maybe didn't work as fast as we would've liked them to, but there's a lot of reasons for that.

But they did. And is it solved? No, but it's ongoing, so I think we just have to be careful with our use of words as we go forward. A very important issue, de-risking, is gonna continue to challenge us, but I think everybody wants to see success, so I think there will be a success at some point. Agreed.

Elliot Berman: So, John, what else do we have going? We've got a webinar teed up for November 17th. Do you want to talk about that for a little?

John Byrne: Well, it's funny when this is running. We'll have already done our webinar for October, so that's coming up as we prepare for this. The November 17th webinar is on terrorism.

Maybe you can amplify for me; on this one, we're using some folks from the government and the private sector. And this is an issue that continues to challenge our client base. So why don't you talk a little bit about it? 

Elliot Berman: Yeah. So the focus will be on identifying and interdicting financing areas and kind of taking it from the global level to the regional level, to the local level.

And yes, we'll have a representative from the counter-terrorism division at the FBI. And also someone from a large US bank with significant experience and background in this area. And Dennis Lormel, former head of TFOs. And now a consultant in this area will be moderating.

But the thing to note is because of Thanksgiving week. We're gonna do it a week early. So it'll be Thursday, the 17th, and when you hear this podcast, the registration will be live on our website

John Byrne: Yeah. And another podcast that we have in the hopper that will be, posted soon is one that I did with our advisory board member Nick Burbidge.

Nick is the former Deputy Director of OSPI in Canada. And Nick had some really interesting things to point out in the new OSFI annual report. So look for that in the next few weeks as well. 

Elliot Berman: Sounds good. All right, John. Have a great weekend. 

John Byrne: You too. Take care. 

Elliot Berman: Yep. Bye bye.