Banks are block­ing war-zone char­i­ties

Bloomberg Businessweek (Asia) - - CONTENTS - Gavin Finch and Ed­ward Robin­son

▶▶Banks are afraid to han­dle funds of char­i­ties op­er­at­ing in war zones

▶▶“What we are see­ing is a ra­tio­nal re­ac­tion to in­creased reg­u­la­tion” Frances Guy was close to rolling out a pro­gram 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 the char­ity’s bank, Stan­dard

Char­tered, re­fused to trans­fer $50,000 to put the project in mo­tion.

Chris­tian Aid, spon­sored by 41 churches in Bri­tain and Ire­land, is one of many or­ga­ni­za­tions fac­ing such re­stric­tions. U.S. author­i­ties have levied bil­lions of dol­lars in fines against Stan­dard Char­tered, HSBC Hold­ings, and BNP Paribas for vi­o­lat­ing sanc­tions on pariah na­tions in re­cent years. As a re­sult, the banks have stopped send­ing money to cer­tain coun­tries and have even closed ac­counts of cus­tomers who do aid work in per­ilous places. The Char­ity Fi­nance Group, a trade as­so­ci­a­tion in Lon­don with 1,350 mem­bers, says 200 to 300 or­ga­ni­za­tions have had their ac­counts can­celed or en­dured long de­lays and re­jec­tions of money trans­fers.

Some Amer­i­can banks are re­fus­ing to make cash trans­fers for Ox­fam, the global an­tipoverty or­ga­ni­za­tion set up in 1942 to relieve famine in Greece. This win­ter, Chris­tian Aid said it planned to de­liver blan­kets to dis­placed peo­ple in Iraq, but by the time the money came through, it was al­most spring. “The un­in­tended con­se­quence here is that aid is be­ing de­nied to peo­ple in des­per­ate need of as­sis­tance,” says Guy, a for­mer U.K. am­bas­sador to Ye­men and Le­banon.

Banks have also closed ac­counts for hun­dreds of money-trans­fer out­fits that wire $582 bil­lion a year in re­mit­tances from mi­grant work­ers to their fam­i­lies back home. Mark Car­ney, gover­nor of the Bank of Eng­land and chair­man of the Fi­nan­cial Sta­bil­ity Board, has warned about the “fi­nan­cial aban­don­ment” of en­tire coun­tries.

The U.S. 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 U.S., were im­pris­oned for fun­nel­ing millions of dol­lars to Ha­mas, the Pales­tinian group des­ig­nated a ter­ror­ist or­ga­ni­za­tion by the U.S. Depart­ment of State. In a pend­ing case in New York, about 200 vic­tims of ter­ror­ist 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 U.S. Depart­ment of the Trea­sury.

The Obama ad­min­is­tra­tion’s use of sanc­tions to pun­ish Rus­sia and Iran has trig­gered an ex­plo­sion of new stan­dards and reg­u­la­tions dic­tat­ing what banks can and can’t do when serv­ing clients. Banks are tak­ing the safest course and sim­ply shut­ting the ac­counts of cus­tomers who pose even the slight­est risk. “What we are see­ing is a ra­tio­nal re­ac­tion to in­creased

reg­u­la­tion,” says Lanier Saper­stein, a part­ner in New York at Dorsey & Whit­ney, a law firm that rep­re­sents ma­jor banks. In 2012 the U.S. Depart­ment of Jus­tice filed a crim­i­nal charge against Stan­dard Char­tered for il­le­gally mov­ing millions of dol­lars through the fi­nan­cial sys­tem on be­half of sanc­tioned Ira­nian, Su­danese, and Libyan en­ti­ties. Stan­dard Char­tered has paid al­most $1 bil­lion to set­tle cases brought by the fed­eral govern­ment and New York state. HSBC took a $1.9 bil­lion hit in 2012 af­ter it was charged with per­mit­ting Mex­i­can drug traf­fick­ers to laun­der hun­dreds of millions of dol­lars through its ac­counts and vi­o­lat­ing sanc­tions laws.

The Bri­tish firms now op­er­ate un­der de­ferred-pros­e­cu­tion agree­ments, which means they could lose their

U.S. bank­ing li­censes if they re­peat their of­fenses or fail to up­grade in­ter­nal con­trols ad­e­quately. Spokes­men for HSBC and Stan­dard Char­tered de­clined to com­ment.

The U.S. Trea­sury ac­knowl­edges that clos­ing the ac­counts of clean or­ga­ni­za­tions 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 are also as­sur­ing U.S. and for­eign banks that the author­i­ties won’t pe­nal­ize them for in­no­cent mis­takes. “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.

On a March af­ter­noon in Lon­don, two for­mer U.K. govern­ment min­is­ters tes­ti­fied be­fore a par­lia­men­tary com­mit­tee. Clare Short and An­drew Mitchell, both for­mer sec­re­taries of state for in­ter­na­tional de­vel­op­ment, de­scribed a re­cent fact-find­ing trip to Turkey’s bor­der with Syria. They were im­pressed by the scale of the hu­man­i­tar­ian ef­fort—Is­lamic Relief has de­liv­ered £143 mil­lion ($207 mil­lion) in aid to 6.5 mil­lion Syr­ian refugees since the out­break of war. But Short and Mitchell were out­raged that banks re­peat­edly de­layed the ar­rival of money ear­marked for char­i­ties op­er­at­ing in the re­gion.

Is­lamic Relief has co­op­er­ated with the United Na­tions and the West over the past 32 years. Still, HSBC closed the char­ity’s bank ac­count at the end of 2014 af­ter a month­s­long 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. But with the char­ity send­ing aid into a coun­try torn apart by 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,” Is­lamic Relief U.K. Di­rec­tor Im­ran Mad­den says.

For the field-kitchen project, Guy as­sured Stan­dard Char­tered that Chris­tian Aid would track the

money. But the bank couldn’t get com­fort­able with the char­ity send­ing money into Syria. More­over, Chris­tian Aid planned to rely on hawala,a cen­turies-old sys­tem of mov­ing cash around the Mus­lim world that op­er­ates out­side for­mal bank­ing chan­nels. Un­der hawala, some­one in Lon­don who wants to send money to a rel­a­tive in Syria vis­its a lo­cal bro­ker, hands over the cash, and, in re­turn, re­ceives a code. The rel­a­tive uses this 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 Sept. 11, U.S. author­i­ties have tar­geted some hawala net­works for help­ing ter­ror­ists move money. “They are not pre­pared to take any risk in­side Syria,” says Guy, who had to ditch the field-kitchen project. “That’s their right. It’s just dis­ap­point­ing.”

The bot­tom line Char­i­ties such as Ox­fam work­ing in war zones are hav­ing trou­ble trans­fer­ring money: Banks don’t want to fund ter­ror­ists ac­ci­den­tally.

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