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Summary

• British NGOs undertaking humanitarian operations in or near areas where non-state armed groups (NSAGs) are active face increasing restrictions on their access to the financial system, including delayed transfers, the freezing of funds and in some cases the complete closure of bank accounts. These restrictions impede the UK government’s ability to meet its commitment under the 2015 National Security Strategy and Strategic Defence and Security Review to refocus its aid budget to support fragile and broken states and regions.
• The perception of NGOs as ‘high risk’ can be traced in part to Recommendation 8 (originally Special Recommendation VIII) of the Financial Action Task Force (FATF). Drawn up after 9/11, this recommendation until recently described NGOs as being particularly vulnerable to misuse for terrorist financing, contributing to highly cautious behaviour by banks.
• Since the global financial crisis, banks have been subject to far tougher regulatory and enforcement regimes for non-compliance. This has resulted in a diminishing appetite for risk, hitting humanitarian NGOs acutely, as banks have shifted away from clients perceived to present the greatest risk of terrorism financing and money laundering.
• Banks are crucial partners for the authorities in the implementation of international sanctions and counterterrorism legislation. For UK-based humanitarian NGOs, this presents the challenge of dealing not only with UN and EU sanctions but also with the extraterritorial reach of the US, as banks seek to ensure that funds and aid are not diverted to designated individuals and NSAGs. While licensing programmes for such humanitarian activity do exist, they have had little meaningful impact as yet on NGOs and their ability to navigate the financial system.
• Humanitarian NGOs generally accept the need for regulation and due diligence, but the current weight of compliance demands by their banking partners is often seen as disproportionate, resulting in a need to spend donor money on additional staff and due diligence tools, increased administration costs, aid delivery and financial transfer delays, and in some circumstances the closure of programmes to which funding cannot be delivered.
• Donors, particularly government agencies such as DFID, appear to have done little to alleviate this burden of compliance, leaving the responsibility for the due diligence required for funds transfers with humanitarian NGOs operating in high-risk zones.
• Banks and NGOs must cultivate relationships – with the support of the Charity Commission – that allow for reciprocal education regarding compliance expectations on the part of the former, and the operating risks and mitigation steps being taken by the latter.
• The UK government is encouraged to take ownership of this challenge, providing guidance and clear messaging where ambiguity exists as regards sanctions and counterterrorism legislation, while championing the important work that humanitarian NGOs undertake. This means publicly stating that aid delivery is a key government commitment and one that the banking sector must support, as well as establishing the long-overdue working group to ensure that these issues are addressed as a priority.