Why banks like HSBC won’t transmit money to charities in conflict zones
May 15 2016 07:53 PM
A woman walks past damaged buildings in the rebel-controlled area of Maaret al-Numan town in Idlib province, Syria on Friday. Laws meant to stop banks from providing services to terrorists, criminals and firms that do business in sanctioned states are having an unanticipated impact on relief efforts, according to more than a dozen interviews with aid directors, senior bankers, lawmakers and industry experts. More than half of the 170 local and regional banks surveyed by the World Bank last year reported losing their relationships with global partner banks. Banks also have closed accounts for hundreds of money-transfer firms that provide lifelines to migrants and their families in the $582bn remittance business.

By Gavin Finch and /Edward Robinson/Bloomberg/London

Frances Guy was close to rolling out a programme to feed hundreds of displaced people in war-torn Syria last year. Guy, the Middle East head of Christian Aid, had secured funds and found partners. But there was one obstacle she couldn’t overcome: The charity’s bank, Standard Chartered, refused to transfer $50,000 to put the project in motion.
Christian Aid, which is sponsored by 41 churches in Britain and Ireland, isn’t the only organisation to face such restrictions. Since US authorities levied billions of dollars in fines against Standard Chartered, HSBC Holdings and BNP Paribas for violating sanctions on pariah nations in recent years, banks have been unwilling to send money to some countries and have even shut accounts. Charity Finance Group, a London-based trade association with 1,350 members, says 200 to 300 organisations have had their accounts cancelled or endured long delays and rejections of money transfers.
In 2014, HSBC stripped Islamic Relief, the UK’s largest Muslim charity, of its accounts. Some US banks have refused to transfer cash for Oxfam, the global anti-poverty organisation that began in 1942 to relieve famine in Greece. Such obstacles are taking a toll in places where aid is needed most. This winter, Christian Aid made arrangements to deliver blankets to displaced people in Iraq, but by the time the money came through it was almost spring. The three charities are seeing donations from supporters held up by banks and online payments-processing companies.
“The unintended consequence here is that aid is being denied to people in desperate need of assistance,” said Guy, a former UK ambassador to Yemen and Lebanon. “If this continues, it is possible to see a situation where those people who are often in most need of humanitarian aid are least able to access it.”
Laws meant to stop banks from providing services to terrorists, criminals and firms that do business in sanctioned states are having an unanticipated impact on relief efforts, according to more than a dozen interviews with aid directors, senior bankers, lawmakers and industry experts. More than half of the 170 local and regional banks surveyed by the World Bank last year reported losing their relationships with global partner banks.
Banks also have closed accounts for hundreds of money-transfer firms that provide lifelines to migrants and their families in the $582bn remittance business. Mark Carney, governor of the Bank of England and chairman of the Financial Stability Board, has warned about the “financial abandonment” of entire countries.
“If the current trend continues, people and organisations in the more volatile areas of the world could be completely cut off from access to regulated financial services,” said Emile van der Does de Willebois, a World Bank lawyer specializing in financial-market integrity.
What started as a response to September 11 has morphed into a dilemma with implications for governments, banks and hundreds of million of people struggling to survive in nations with little financial infrastructure. Law enforcement authorities have made tracking the global flow of money a key tool in their fight against Al Qaeda and Islamic State, as well as organised crime and drug traffickers.
The US has shut charities for funding terrorism in the past decade. In 2009, five leaders of the Holy Land Foundation for Relief and Development, once the largest Muslim charity in the US, were imprisoned for funnelling millions of dollars to Hamas, a Palestinian group designated a terrorist organisation by the US State Department. In a pending case in New York, about 200 victims of attacks in Israel are suing NatWest, a unit of Royal Bank of Scotland Group, for providing banking services to a Palestinian charity linked to Hamas by the US Treasury Department.
The Obama administration and other G-7 leaders are increasingly employing sanctions to punish nations such as Russia and Iran. That’s led to an explosion of new standards and regulations on both sides of the Atlantic dictating what banks can and can’t do when serving clients. Uncertain which rules hold ultimate sway, banks are electing to take the safest course and simply shut accounts for customers with a scintilla of risk.
“What we are seeing is a rational reaction to increased regulation,” said Lanier Saperstein, a New York-based partner at Dorsey & Whitney, a law firm that represents major lending institutions. “There comes a point where the benefits of onboarding such clients aren’t worth the cost.”
But such de-risking threatens to undermine the West’s push to stem the flow of migrants heading toward Europe from the embattled Middle East, according to Christian Aid’s Guy. Earlier this year, British Prime Minister David Cameron pledged £2.3bn ($3.3bn) to ease the suffering of Syrian refugees and improve the lives of those still in the country. Much of that money won’t reach its destination if charities, one of the conduits for delivering government aid, can’t transfer cash.
Guy said the group’s field-kitchen project would have done more than just supply food and water to refugees; it would have stimulated demand for suppliers, drivers and other workers. That’s vital to showing there’s a future inside Syria, she said.
The de-risking intensified after the US Justice Department filed a criminal charge in 2012 against Standard Chartered for moving millions of dollars through the financial system on behalf of sanctioned Iranian, Sudanese and Libyan entities. The bank has paid almost $1bn to settle actions brought by the federal government and New York state. That same year HSBC took a $1.9bn hit after being charged with allowing Mexican drug traffickers to launder hundreds of millions of dollars and violating sanctions laws.
The chiefs of both banks apologised for the lapses and pledged to improve compliance systems. The British firms are operating under deferred-prosecution agreements, which means they could lose their US banking licences if they repeat their offences or fail to adequately upgrade internal controls.
Spokesmen for HSBC, Standard Chartered, RBS and BNP Paribas declined to comment.
If non-profit organisations want to keep their banking services, they have to beef up compliance and due diligence capabilities, said Tom Keatinge, director of the Centre for Financial Crime and Security Studies at the Royal United Services Institute in London.
“Charities need to acknowledge the concerns of the banks,” said Keatinge, a former managing director at JPMorgan Chase & Co. “They can’t expect the banks to underwrite their own compliance deficiencies.”
The US Treasury acknowledges that closing the accounts of clean organisations is a problem. It’s now advising lenders in Latin America and the Caribbean on how to comply with anti-money-laundering and sanctions rules. The department’s senior officials also are assuring US and foreign banks that they won’t be penalised for innocent mistakes. Meanwhile, the US Government Accountability Office is examining the effects of banks closing branches, accounts and services for remittance providers in high-risk markets.
“We know that financial institutions, like human beings in general, are not infallible,” Adam Szubin, Treasury’s acting undersecretary for terrorism and financial intelligence, said in a speech to the American Bankers Association in November.
But the ABA and the British Bankers’ Association want more than assurances. Robert Rowe, associate chief counsel for regulatory compliance at the ABA, said the industry is caught in a Catch-22. On the one hand, Treasury is communicating that it doesn’t expect perfection. On the other, banks can’t be certain which questionable transactions will trigger enforcement actions.
“There’s a gap, and as long as that gap of uncertainty exists we’re going to err on the side of caution and we’re going to exit lines of business,” Rowe said.
One idea floated by Saperstein and other industry lawyers: a safe harbour where banks would escape punishment if any money inadvertently ended up in the wrong hands, as long as prescribed due diligence measures were followed. Treasury says that’s a non-starter. Jennifer Fowler, assistant secretary for terrorist financing, said the government will not roll back money-laundering restrictions.
“We have these rules in place to protect our financial system,” Fowler said.
Charities and the people they serve are caught in the middle. On a March afternoon in London, two former UK government ministers delivered that message to Parliament’s International Development Committee.
Clare Short and Andrew Mitchell, both former secretaries of state for international development, make unlikely political bedfellows. In 27 years in Parliament, Short, an outspoken Labour Party member, championed the importance of overseas aid. Mitchell, a Cambridge University educated Conservative Party stalwart who served as Cameron’s chief whip, is also convinced that humanitarian assistance is a crucial foreign policy tool.
The pair described a recent fact-finding trip to Turkey’s border with Syria. They were impressed by the scale of the humanitarian effort - Islamic Relief alone has delivered £143mn of aid to 6.5mn Syrian refugees since the outbreak of war. But Short and Mitchell were outraged that charities including Islamic Relief, which has partnered with the UN and Western nations in providing aid to more than 30 countries over the past 32 years, endured repeated delays after UK banks refused to transfer funds to pay for supplies.
Still, HSBC closed the group’s bank account at the end of 2014 after a months-long review. The charity sought to reassure the bank that it was doing everything possible to ensure none of its partners in the Middle East violated money-laundering and terrorist-financing rules, even hiring people to improve compliance oversight. But with the charity sending aid into a country torn apart by five years of civil war, there was no way it could promise that none of its funds would end up in the wrong hands.
“You can’t get cast-iron guarantees in a war zone,” said Islamic Relief’s UK director, Imran Madden.
Christian Aid, set up to help European refugees after World War II, has longstanding relationships in the Middle East. Still, its banks now expect it to delve into the personal details of partners’ trustees, including their birth dates. The charity typically vets suppliers on projects costing more than $2,000.
Guy, a wiry, energetic 57-year-old who has gotten humanitarian aid into some of the most dangerous parts of the world, assured Standard Chartered that Christian Aid would track the money for the field-kitchen project. But the London-based bank couldn’t get comfortable with the charity sending money to Syria. Moreover, Christian Aid planned to rely on hawala, a centuries-old trust-based system of moving cash around the Muslim world that sits outside formal banking channels.
While banks have approved this method in the past, that’s no longer the case. Standard Chartered was concerned that it wouldn’t be able to trace the funds. Under hawala, a person in London who wants to pay money to a relative in Syria visits a local broker, hands over the cash and, in return, receives a code. The relative uses the code to collect the funds at the other end, and the two brokers settle at some later date.
Charities use hawala because it’s often the only way of getting cash into a country that doesn’t have a functioning banking system. But since September 11, some hawala networks have been targeted by US authorities for helping terrorists move money.
“They are not prepared to take any risk inside Syria,” said Guy, who had to ditch the project. “That’s their right. It’s just disappointing.”
Banks’ insistence that clients provide end-to-end transparency may be forcing some out of the mainstream financial system and driving the flow of cash underground. Perversely, that’s increasing money laundering and terrorist financing risks, said John Howell, who advises the UK and other governments on economic crime policies.
“It’s harder to get intelligence, investigate and prosecute economic crimes,” Howell said.
After Somali remittance companies in the US and UK started losing access to the banking system in 2014, migrants switched to carrying cash home in suitcases. Some money-transfer firms lie to banks and masquerade as import-export businesses in order to keep accounts open, said Dominic Thorncroft, chairman of the Association of UK Payment Institutions.
“We should call this re-risking instead of de-risking,” said Scott Paul, senior humanitarian policy adviser at Oxfam America, the group’s Washington-based unit.
As long as governments show little sign of flexibility, banks don’t dare take a chance running afoul of money-laundering and terrorist-financing restrictions. Guy said political and bank industry leaders need to take action. Western leaders must carve out a way to get aid into Syria without unreasonable repercussions for banks and charities that make a good-faith effort to act in a safe and responsible manner, she said.
“Ideally, as an organisation with humanitarian principles, we should be reaching those who are most in need,” she said. “We need the government to encourage the banks. It’s not as if humanitarian relief for conflict zones is something new.”

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