Stakeholder Dialogue on De-risking Supporting Financial Access for Humanitarian Organizations and Charities © 2017 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because the World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. All queries on rights and licenses should be addressed to the World Bank Publications, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; e-mail: pubrights@worldbank.org. Photo Credit: istockphoto.com Design & Layout: Aichin Lim Jones INTRODUCTION THEMES On 11 January, 2017, the World Bank and the All participants agreed that it is vital that Association of Certified Anti-Money Laundering humanitarian organizations and charities (hereafter: Specialists (ACAMS) organized a second NPOs) maintain timely access to financial services roundtable meeting, as part of the ongoing in order to provide much needed humanitarian Stakeholder Dialogue on De-Risking in an effort services, particularly in crisis situations. Often, to address financial exclusion. The objective of the NPOs are at the forefront of conflict situations, meeting was to promote access of humanitarian in geographical locations that are considered by organizations to financial services and to discuss financial institutions to pose elevated levels of practical measures to: money laundering or terrorist financing (ML/TF) risks. Factors such as weakened state institutions, • Foster the relationship between non-profit diminished rule of law, lack of financial transparency, organizations (NPOs) and financial institutions; and the threat of criminal and terrorist groups and • Improve the regulatory and policy climate for activities contribute to such a risk assessment. financial access for NPOs; and • Build coalitions and create opportunities for Financial Access by Humanitarian sharing information and good due diligence Organizations and Charities practices. Financial Access Difficulties Forty-five representatives from non-governmental In order to determine where to introduce measures organizations (e.g., humanitarian organizations, to ensure more timely financial access for NPOs, it umbrella organizations, donors, and think tanks), is important to understand the difficulties that NPOs governments (including policy, regulatory and face. Specifically, what constitutes financial access law enforcement authorities), international and what problems merit further work? While some organizations, financial institutions and academics parties considered that only a full loss of access to participated. financial services (e.g., closing of bank accounts) This report captures the main themes of the meeting constitutes a financial access problem, others and the subjects that participants recommended for raised the importance of the timely and predictable further work. The findings reflect the discussions. execution of requested financial services, such as They do not necessarily represent the opinions of the cross-border wire transfers. Some NPOs do have World Bank or ACAMS. The meeting reflected that difficulties in opening bank accounts, but this there was a common understanding on many issues, problem is less prevalent than delays and increased but that there are certain issues where more clarity costs in the transfer of funds. Financial access and joint work would be useful. Three roundtable problems appear to occur predominantly in the sessions were held during the meeting. Each jurisdiction where the humanitarian aid needs to be concluded with a brief summary of considerations delivered. and possibilities for cooperation, which are set out in this report. STAKEHOLDER DIALOGUE ON DE-RISKING: WHAT WILL IT TAKE TO SAFEGUARD FINANCIAL INCLUSION? 1 Though a delay in the receipt of wire transfers heightened risk associated with a transaction is not cannot be equated with the loss of/inability to open always clear to NPOs. During the discussions, the a bank account, the effects on the operations of possibility to increase standardized information NPOs and the people they serve can be significant. requests was raised, possibly in a tiered manner. There are examples of NPOs using alternative Moreover, correspondent banks of the originating channels to transfer large sums of money, many and receiving financial institution are apparently times in physical (e.g., cash) form. In one instance, asking for follow-up information in some cases, an NPO routed USD 3 million through various even after a US originator bank has sent the wire money transfer providers. NPOs indicate that they transfer through. The question was raised whether would much prefer to send payments via the formal the correspondents receive all the information on financial system, but, at times, need to resort to these the NPO and the transactions, or whether they apply measures in order to achieve more timely pay-outs. stricter requirements than the US originator banks. The delay in wire transfers is frequently paired with Examples were provided of requests for information requests for additional information to substantiate concerning the customers/partners of customers, or the transaction and support compliance requirements on the parents of directors of foundations. One of the (such as OFAC screening or transaction monitoring challenges to be tackled therefore is how to ensure processes). Financial institutions pointed out that a communication/information transfer between an move to cash by NPOs may itself increase the risk NPO and financial institutions downstream while profile of the NPO concerned. recognizing that each banking relationship is unique and each transaction is case specific. Information requested from NPOs Variation in information requests by financial Information about NPOs institutions Just as NPOs may lack knowledge regarding NPOs noted that the variation and repetition in AML/CFT compliance and associated information information requests makes it difficult to comply requests, financial institutions may not always have fully with all such requests- particularly for small sufficient understanding of the operations, projects, NPOs. Not only do financial institutions ask for donors, beneficiaries, geographical areas, third different types of information, they may also use party involvement and internal controls of the NPOs different definitions, since Customer Due Diligence that they provide services to. Participants discussed (CDD) policies vary among institutions and not potential solutions to share such information with all contain clear definitions. One NPO shared financial institutions. The idea of a ‘white list’ of an anecdote of an experiment: a wire transfer for approved NPOs was discussed, but was broadly the same destination, with the same transactional deemed unworkable since this could have many purpose, of the same value was offered to two unintended consequences (e.g. not being on the list financial institutions. Both financial institutions might be interpreted as meaning an NPO was on a asked for information on a particular Politically black list). Instead, perhaps a Know-Your-Customer Exposed Person; one financial institution included Utility could serve to better inform financial a clear definition, the other one did not. The same institutions proactively and increase transparency information was provided, based on the definition on NPOs’ operations. Information to support such that was provided. The financial institution that a utility may already be available among donor provided the definition processed the wire transfer and umbrella organizations, which collect similar immediately, whereas the other wire transfer took information for their internal vetting processes. six months to complete. Additionally, financial institutions may be unaware of general NGO operations and controls that may Furthermore, the distinction between CDD be available to support due diligence efforts, as information requests (on-boarding, periodic well as clarification of other available resources and refreshers or as a result of a change in the client tools financial institutions may be able to leverage profile) and information requests as a result of as part of their due diligence. 2 STAKEHOLDER DIALOGUE ON DE-RISKING: WHAT WILL IT TAKE TO SAFEGUARD FINANCIAL INCLUSION? Suggestions: Information requested from NPOs • Develop (Wolfsberg Group-type) questionnaire for NPOs to serve as a baseline for due diligence requests; • Develop a KYC database/repository for financial institutions on NPOs; • Source of data; use institutions that are already collecting data: NPO-umbrella organizations, donors or other bodies (function as a knowledge source on NPOs); • Achieve clarity on and formulate specific risk mitigation measures and parameters in high-risk corridors; • Improve mechanisms to communicate, provide assurance/clarity to downstream financial institutions, once originator financial institution has approved client transaction (downstream information). Regulatory and Policy Landscape financial services to humanitarian organizations? Could there be instruments that benefit the financial Supervisors and the risk categorization of institutions’ reputation, such as the Fair Finance NPOs Guide (an index used in the Netherlands)? Like financial institutions, bank regulatory examiners responsible for supervising financial Bearing residual risk institutions might not have sufficiently updated Most NPOs and financial institutions make information on how to perform examinations on a concerted effort to fulfill their compliance financial institutions’ services to NPOs, which obligations. In a truly risk-based environment, may impact the risk assessments made by financial there will always be a degree of residual risk. In institutions. A shared understanding and clarity on the the current system it is unclear who is accountable specific risk-mitigation measures and parameters in if that residual risk materializes, leading some high-risk corridors for NPOs could be helpful. This financial institutions to a very low risk appetite. For would include guidance on appropriate mitigation example, although the US government has issued measures. This would also help further differentiate a statement that OFAC recognizes that there are between risks faced by different NPOs in general. situations in which some humanitarian assistance Although the FATF changed its recommendation may unwittingly end up in the hands of members of on NPOs – no longer identifying all NPOs as being a designated group, and that such incidents are not “particularly vulnerable” to TF –this does not yet the focus for its sanctions enforcement, there is still seem to have trickled down to risk assessments by a fear that a zero-tolerance approach will be adopted the financial institutions and regulators. and that financial institutions will be on the hook for any misappropriations of funds downstream. Incentives for financial institutions to provide services to NPOs Could something be done to alleviate that fear? For instance, under the UK Bribery Act a company Financial institutions need to balance costs and will not be prosecuted for bribery, provided it can benefits. The cost is a function of the need to mitigate show it has made all reasonable efforts (in policy legal, compliance, regulatory and reputational risk. and implementation) to mitigate this risk. Would These may be triggered by just rumors alone, which something similar be feasible here- or would the spread quickly through social media. On the benefit specifics of the safe harbor be so intricate as to make side, there is little to tip the scales. The profit margin it unworkable? Could regulatory agencies provide on services to NPOs is relatively low, and no other clearer guidance that would serve as a suitable positive incentives have been created. What ‘carrots’ gauge of “reasonable efforts”? How could more could there be for financial institutions to provide comfort be created that incidental misdirection of STAKEHOLDER DIALOGUE ON DE-RISKING: WHAT WILL IT TAKE TO SAFEGUARD FINANCIAL INCLUSION? 3 funds, despite applying appropriate controls will would be helpful- particularly those that supervise not result in sanctions or other regulatory criticism? the relevant correspondent banks involved in the Are there other measures that could help expedite payment chain. Such initiatives have already been financial transactions for NPOs? undertaken, but further international communication and collaboration on these issues is important. Channels for government supported humanitarian aid programs Building coalitions In the case where NPOs execute government It was agreed that an ongoing dialogue is welcome programs for humanitarian aid no such benefit or to help ensure access to finance NPOs’ critical assurance is provided to financial institutions. While humanitarian and development activities. There there is a licensing system, the license is not always are already various coalitions that have shared accepted as a sufficient risk mitigation measure – their experience. In the UK, the British Banking particularly by foreign correspondents. Could there Association (BBA), together with Barclays, chaired be a government-financial institutions partnership a humanitarian licensing roundtable to facilitate for the execution of foreign aid programs: a banking humanitarian aid to higher risk jurisdictions that are channel secured for the project by the government subject to economic sanctions while respecting the (e.g., a foreign aid department together with the necessary sanctions and compliance controls. The treasury department)? This could be similar to the US Treasury has held ongoing multi-stakeholder one devised for Social Security Payments, where the dialogues with Mexico, and countries from the U.S. government sends out a Request for Proposal Middle East/North Africa-, Central American-, to financial institutions to match a payment channel Baltic- and Caribbean regions and convened several to a government program. meetings with key stakeholders over the past two years on banking challenges. These dialogues Need for international cooperation were initiated to deal with specific issues and have Wire transfer delays take place at financial evolved over time to cover broader policy issues. institutions and correspondent banks around the These dialogues have been very successful in world, meaning that greater engagement and strengthening the AML/CFT system and removing communication with government and private legal barriers, e.g. to information exchange. sector stakeholders everywhere is important to help Many stakeholders shared the view that multiple facilitate these transfers. Clear policy guidance coalitions can exist in the same space and that and overall engagement by public authorities the leadership of the World Bank and ACAMS Suggestions: Regulatory and Policy landscape • Develop positive incentives (“carrots”) for financial institutions to keep banking humanitarian organizations; • Repackage regulatory information for NPOs to provide them with clear guidance on financial institution expectations; • Enhance NPO specific language within existing examiners manual or other regulatory tools to better articulate nuances of risk for NPOs; • Multi-stakeholder developed training/communication training for examiners; • Risk-sharing arrangement between financial institutions and governmental organizations, especially where an NPO is executing a government program. (E.g. partnering with financial institutions to disburse humanitarian aid funds, alternative corridors); • Engage with authorities and correspondent banks beyond the US. 4 STAKEHOLDER DIALOGUE ON DE-RISKING: WHAT WILL IT TAKE TO SAFEGUARD FINANCIAL INCLUSION? in bringing together government, banking and engages with relevant stakeholders. The coalition NPO stakeholders is appreciated. The importance could become a model for NPO engagement on of communication in and between the different derisking. stakeholder groups was emphasized over the need for a common agenda. It was agreed that time NEXT STEPS should be spent to identify the relevant stakeholders and invite them to the table, including donors and The World Bank and ACAMS are grateful to all intelligence agencies. Securing the support of the participants for suggestions made during this highest levels of management of these stakeholders meeting, as well as the organizations they represent. and facilitating communication between them Together, we aim to explore the possibilities for should also be a priority. collaborative measures to help facilitate more timely financial access for humanitarian organizations and There are good experiences in starting with a charities. Many of the suggestions raised during small coalition of active members that work the meeting were constructive and will be further together for a specific objective. At the same time, elaborated for implementation by the various it was acknowledged that this topic is relevant stakeholders on a voluntary basis, with the support among a large group of stakeholders that may of the World Bank and ACAMS. Based on the have difficulties delegating a member due to its suggestions above, different work streams will be size, or may be harder to reach (e.g. when it is established to develop practical initiatives to further based in an area where humanitarian aid is being discuss and work towards some of the suggestions delivered). Therefore, it is essential to maintain put forward during this meeting. active communication with the broader network of stakeholders. An example of an effective NPO-led Interested in joining this coalition or learning coalition that started with a shared goal, is the Global more about this work? Please contact John Byrne NPO Coalition on the FATF. Within this coalition, a at jbyrne@acams.org or Emile van der Does at core group is responsible for designing the strategy, evanderdoes@worldbank.org . outreach and communication to all participants, and Suggestions: Building Coalitions • Start with the suggestions that set out practical and clear objectives to achieve the highest impact, while working under the banner of broad principles; • Start the coalition small, with specific targets, and grow the coalition from there; • Make sure the coalition is supported by a broader network of stakeholders and actively communicate with the network; • The basis for any coalition needs to be trust, communication, collaboration and shared ambition for impact. STAKEHOLDER DIALOGUE ON DE-RISKING: WHAT WILL IT TAKE TO SAFEGUARD FINANCIAL INCLUSION? 5