Banks are blocking war-zone charities
▶▶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.