FINANCIAL ACCESS

Recommendations

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The U.S. government process to address financial access issues, however, remains heavily weighted to illicit finance concerns, with the range of other agencies and interests not playing a commensurate role. Ultimately, even AML/CFT objectives are not promoted when financial access of NPOs is restricted. Excessive regulatory expectations and enforcement are pushing more money into opaque channels where it is more likely to fall into the wrong hands. Fear of compliance failures results in a vacuum that is likely to be filled by less transparent and accountable financial institutions, undermining the integrity of the global financial system and U.S. security. Recommendations There are several promising avenues for stakeholders to explore. The recommendations and options discussed in this report should be viewed as the starting point in a process that moves toward solutions and in no way do they exclude additional ideas that emerge from further consideration of the problem. However, in order to be effective, solutions must meet these basic criteria: • Address the drivers of narrowing financial access for NPOs • Adapt to all sizes of NPOs and FIs • Improve the implementation of the risk-based approach to AML/CFT programs • Avoid anything that would make compliance more complex and burdensome This report recommends the following: Launch a Solutions-Oriented Multi-Stakeholder Dialogue There is an urgent need for all stakeholders to collaboratively review the existing illicit finance system and the policies designed to prevent it, and work to address the serious and systemic problems hindering financial access for U.S. nonprofits. For that reason, this report’s top recommendation is for a multi-stakeholder dialogue to work towards solutions to NPO financial access problems. Update the Bank Examination Manual and Bank Examiner Training As enforcers of the Bank Secrecy Act with the ability to impose civil fines, Federal Bank Examiners are key to regulatory oversight and significantly influence FI behavior. As this report reveals, their work is often intrusive, second-guessing FIs’ due diligence procedures and applying pressure that increases compliance costs and discourages FIs from serving their NPO customers. In addition, regulatory oversight often varies by examiner and the inconsistency adds to FI uncertainty. As suggested by multiple FIs interviewed for this report, a program is needed to re-train examiners to bring them up to date on the risk-based and proportionate framework, to create consistency between FI examinations, and to emphasize that NPOs are not by definition high-risk customers. EXECUTIVE SUMMARY ix
The NPO section of the Bank Examination Manual has not been updated to reflect the June 2016 changes in the Financial Action Task Force’s Recommendation 8. A collaborative effort between FIs, NPOs and the Federal Financial Institution Examination Council is needed to remove outdated language concerning risk assessment of NPOs. The resulting revision should guide FIs through a proportionate risk-based approach. Create an NPO Repository/Utility to Streamline FI Customer Due Diligence Technology-based solutions that enable effective and proportionate FI compliance, often referred to as “utilities,” can tackle much of the paperwork and oversight that results in rising compliance costs and hence, restricted financial access for NPOs. These utilities can eliminate much of the burdensome and duplicative documentation requests cited by numerous focus group participants. One proposal calls for a repository created specifically for NPO financial access purposes that would set out customized criteria that allow all types of organizations— large and small, established and new, secular and religious—to be included. FIs could then use the repository to collect information for their customer due diligence, obtaining it quickly and inexpensively. Using existing models as a guide, a team of lawyers and financial industry experts would evaluate the information submitted by NPOs. Create a Special Banking Channel for Humanitarian Crises As discussed in Chapter 7 of this report, the most profound and perhaps devastating impact of NPOs’ financial access problems is the loss of humanitarian programming. When the international financial system is not able to meet the needs of NPO customers doing humanitarian work, new and special procedures to facilitate the transfer of funds overseas may be needed. Given the dire humanitarian need in places like Syria, it is even more important that fund transfers are timely and that NPOs have access to bank accounts. Although special procedures would not address the systemic problem revealed by this study, they could alleviate some of the most dangerous and serious impacts. Institute Safe Harbor Protections The World Bank/ACAMs dialogue suggested the creation of safe-harbor provisions, whereby FIs that bank NPOs in good faith and meet certain criteria would be held harmless if funds inadvertently ended up in the wrong hands. Adopting a safe harbor would give U.S. banks confidence that they can do business with higher-risk customers and regions provided they maintain rigorous risk-mitigation controls that are recognized by regulators. Investment in consistent and effective due diligence procedures would lessen the threat of prosecution or regulatory enforcement, or at a minimum, cap penalties at nominal amounts. This approach could be highly effective in expanding financial access for NPOs. EXECUTIVE SUMMARY x
Page 1 and 2: FINANCIAL ACCESS for U.S. NONPROFIT
Page 3 and 4: ABOUT THE CHARITY AND SECURITY NETW
Page 6 and 7: List of Figures and Tables Figures
Page 8 and 9: Acknowledgements The study benefite
Page 10 and 11: EXECUTIVE SUMMARY In response to th
Page 12 and 13: The scope of the problem, which aff
Page 16 and 17: Improve Implementation of the Risk-
Page 18 and 19: INTRODUCTION On September 8, 2000,
Page 20 and 21: have delayed or denied financial tr
Page 22 and 23: Second, this report is focused sole
Page 24 and 25: Most NPOs that claim tax-exempt sta
Page 26 and 27: Chapter 2 THE CONTEXT FOR NPO FINAN
Page 28 and 29: The Risk-Based Approach Although th
Page 30 and 31: FATF TREATMENT OF NPOs 38 In Octobe
Page 32 and 33: in compliance activities. Extensive
Page 34 and 35: Regulatory Authorities for Financia
Page 36 and 37: NPOs AND DUE DILIGENCE Robust due-d
Page 38 and 39: As was previously mentioned, obtain
Page 40 and 41: Chapter 3 DERISKING: COMPLICATIONS
Page 42 and 43: While FIs do not discuss issues rel
Page 44 and 45: Geographic Derisking Derisking also
Page 46 and 47: Security Consequences of Derisking
Page 48 and 49: account or electronic instrument to
Page 50 and 51: “…it is not surprising that som
Page 52 and 53: to the entire sector as “high-ris
Page 54 and 55: There are 8,665 such groups, based
Page 56 and 57: Table 4: Frequency of Financial Acc
Page 58 and 59: NPOs Are Paying Higher Fees for Ban
Page 60 and 61: Wire Transfers Destined for All Par
Page 62 and 63: Figure 9: U.S. Government Funding b
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An insufficient number of survey re
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Turn the proportions of NPOs servin
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SECTION THREE PERSPECTIVES OF PRIMA
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The undertone of skepticism as to w
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Moreover, U.S. government officials
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Acknowledgement of Derisking and Re
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Engagement with NPO Sector As NPOs
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Some interviewees commented that th
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was designed as a regime to help la
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Numerous FIs emphasized that, “Th
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Response to U.S. Government Efforts
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Several FIs shared their suggestion
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NPOs also consistently complain abo
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Chapter 7 NONPROFIT ORGANIZATIONS "
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NPOs Support AML/CFT Policies but A
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Unfamiliarity with NPO Business Mod
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Table 9: Transparency Standards and
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Delays in Fund Transfers Some NPOs
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Excessive Information Requests Info
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Problems Opening Foreign Accounts W
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workarounds to problems of access t
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The Thomson Reuters Foundation cond
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SECTION FOUR OBSERVATIONS & RECOMME
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Implementation of the Risk-Based Ap
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The U.S. government process to addr
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RECOMMENDATIONS Launch a Solutions-
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NGO SOURCE: A MODEL THAT COULD BE A
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Improve Implementation of the Risk-
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Other Options In cases in which for
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• Further research should examine
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APPENDIX A BIBLIOGRAPHY Books • E
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• Long, Paige. “Banks say take-
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• FATF. “Best Practices Paper:
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The Urban Institute Center on Nonpr
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• Financial Crimes Enforcement Ne
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Web Resources • Charity & Securit
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Given the difficulty [your organiza
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34. Can you estimate for us the num
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South Asia Afghanistan, Bangladesh,
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