De-risking debate: new momentum toward inclusion?

Last week saw the release of the final report from the summer “Stakeholder Dialogue On De-risking” by the World Bank and ACAMS.

I covered some of the themes earlier in this blog but I am hoping with this release and other ongoing meetings, projects, and studies that we will finally get serious and comprehensive about the most challenging AML-related issue since identifying terrorist financing schemes. Read the report

A reason for optimism is that there is at least one area (“wind blowing”) that all of us seemed to agree needed immediate consideration and focus.

So, starting at the end of the report with proposed next steps, it was clear that the participants recognized the harmful effect account and customer risk decisions are having on charities. (I’m going to stop using the term “de-risking.”) Specifically, there will be working groups created to both better understand the plethora of causes impacting humanitarian financial access and the risks involved with such relationships.

A related report, Humanitarian Impact Of Syria-Related Unilateral Restrictive Measures, just released by the United Nations, discusses how sanctions harm charitable causes in Syria. The report makes a point that parallels what causes overall negative account risk decisions:

“Private sector entities (particularly banks and exporters) are reluctant to support humanitarian activity—‘chilling effect’: There is perilous reluctance among western suppliers and banks to offer humanitarian goods and related finance, in part, for fear of sanctions issues, such as fines for inadvertent technical violations.”

The World Bank/ACAMS report draws the same conclusion and we highlighted one particular comment from a participant:

“The impact of de-risking is real and strong. In trying to prevent money laundering and terrorism finance, restrictions on sending money are resulting in the death of persons, particularly victims of terrorism.”

Looking for a way out

So what are possible solutions?

Some of the recommendations offered by the attendees may not be practical, or they may cause more unintended issues. Among them:

“Financial institutions should be transparent and provide retail customers such as NPOs [non-profit organizations] and MSBs [money service businesses] with reasons for terminating accounts, and opportunities to address issues of concern before closing accounts”

Sounds like a good idea, but it isn’t. Having to define the rationale for exiting or not onboarding a customer can, in some jurisdictions, lead to litigation; impact internal, confidential reporting; and, frankly, would not improve the current environment.

However, another theme needs active consideration by the entire AML community of regulators, law enforcement, and the private sector…

Creation of a safe haven and a public registry

For far too long our government partners have placed the lion’s share of responsibility on the private sector regarding risk decisions. And then they wonder why entities categorized as “high-risk” have difficulty maintaining financial relationships with banks and other financial service providers.

It is time to step up.

The argument against creation of a “whitelist” of acceptable entities, in this case charities, has always been opposed by those in government as something that is too difficult to maintain or keep current. This has been the official position, whether the concept is a list of acceptable charities or some version of assisting the current confusion, with recommendations such as:

“Charities should be subjected to a vetting process to ensure they meet high standards for transparency. Regulators should support a standard audit scope and issue consistent guidelines to provide clarity and lower compliance costs, facilitating risk differentiation, and allowing for different treatment of individual NPOs.”

It is time for those in the government in a position to do so to share in the pursuit of the goal to change the environment by getting beyond suggesting “best practices.” They need to give the financial sector information, protection, and support for assisting U.S. and foreign non-governmental organizations that are so essential for victims of terrorism, oppressive governments, and criminals of all kinds.

There are many aspects to addressing account and customer risk decisions beyond charities and NGOs and all need to be addressed.

But for now, what we can accomplish toward entities created to fund vastly needed humanitarian causes should be our collective priority.

I am confident if we leave our egos at the door and admit we can develop new solutions, we can help.

“Don’t think twice it’s all right …”**

* “Subterranean Homesick Blues,” by Bob Dylan, the 2016 recipient of the Nobel Prize in Literature

** From another Dylan song.