Terrorist financing and managing risk in the not for profit sector are banks exercising undue caution?
At the end of last year, the leading think tank Demos published a report in which it argued that improved standards in combating terrorist financing have had far-reaching and unintended consequences for charities, restricting financial access and thus preventing them from providing humanitarian assistance where it is sorely needed. Only last summer, HSBC announced controversially that the accounts of several organisations, including an international development charity, would be closed on the basis that they fell outside the bank’s risk appetite. It is clear that banks have adopted an increasingly cautious approach in response to stringent counter-terrorism legislation. The law Making funds or other economic resources available to designated individuals and entities is a criminal offence in the UK under the Terrorist Asset-Freezing etc. Act 2010.
The consolidated list of designated individuals and entities is published on the HM Treasury website. It is essential for any organisation providing aid to a high risk region to have in place robust policies and procedures for ensuring that funds are not diverted towards terrorist financing, even inadvertently.In addition, if there is evidence to suggest that charitable funds are being used to support a proscribed organisation then not only are the trustees at risk of committing a criminal offence, the charity itself may be subject to proscription under the Terrorism Act 2000. Offences include but are not limited to: ¢ Raising funds for or donating money to a proscribed organisation; ¢ Receiving or using money or other property for the purposes of terrorism; and ¢ Failing to report suspicions of terrorist finance offences to the police.For charities operating in conflict zones or unstable regions, it is essential to undertake an appropriate level of due diligence on all partners with which it envisages working. The level of due diligence required will necessarily involve an assessment of the risks involved but appropriate safeguards and good governance will inevitably help in reducing a charity’s exposure.Recent developments “ a focus on proportionality.
On 5 March 2015, the Humanitarian Policy Group (HPG) of the Overseas Development Institute (ODI) published a report in which it suggested that a lack of proportionality has had a negative effect and hampered efforts to address concerns. The report highlights the significant impact of delayed transfers and other restrictions on a charity’s ability to carry out aid operations, delaying payments to suppliers and causing disruption to projects.The Charity Finance Group also released a briefing on 12 March 2015 for charities on the impact of banks’ de-risking on not for profit organisations. Interestingly, the briefing paper distinguishes between proportionate de-risking (for example, enhanced checks for charities sending money to high risk regions) and disproportionate de-risking in the form of removal of financial facilities by banks without prior warning.David Anderson QC, Independent Reviewer of Terrorism Legislation, published his annual report on the operation of the Terrorist Asset-Freezing etc. Act 2010 on 12 March 2015.
His report made reference to guidance published in October 2014 by the Office of Foreign Assets Control (OFAC), in which it recognised that humanitarian assistance may unwittingly end up in the hands of members of a designated group and that these incidental benefits are not a focus for OFAC sanctions enforcement. David Anderson QC hoped that the UK government would consider assurances along the lines of the OFAC guidance as part of the solution to a pressing problem.Looking to the future “ the government’s approach Following pre-legislative scrutiny, on 26 March 2015, the government issued its response to the Joint Committee on the Draft Protection of Charities Bill report. The Committee pointed to a real risk of a ‘chilling effect’ on UK NGOs’ activities overseas at a time when their efforts are possibly more critical than ever before and recommended that guidance should be published relating to prosecutions under counter-terrorism legislation and the public interest test. In an effort to address the concerns raised by the Committee, the government agreed to draw this recommendation to the Director of Public Prosecutions. The government response provides hope that greater clarity on the law will be provided, ensuring that charities are able to implement appropriate safeguards and continue their vital work across the world.
To read the documents referenced in this blog in full, visit: Demos report: http://www.demos.co.uk/files/DEMOSuncharitablebehaviourREPORT.pdf?1419986873
Charity Finance Group briefing: http://www.cfg.org.uk/news/press-releases/2015/march/~/media/Files/Policy/Banking/Briefing%20%20Impact%20of%20banks%20derisking%20activities%20on%20charities%20%20March%202015.pdf
Humanitarian Policy Group at the Overseas Development Institute report: http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/9479.pdf
Report by David Anderson QC: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/412084/TAFA_2014__4th_report_.pdf
Government response to the Joint Committee on the Draft Protection of Charities Bill report: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/418027/Government_response_to_joint_committee_on_draft_protection_of_charities_Cm_9056_accessible.pdf