Why Banks Are Cut­ting

▶ ▶ Banks are afraid to han­dle funds of char­i­ties op­er­at­ing in war zones ▶ ▶ “What we are see­ing is a ra­tio­nal re­ac­tion to in­creased reg­u­la­tion”

Bloomberg Businessweek (North America) - - Global Economics -

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

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