Thursday, March 5, 2015


A white paper, UK Humanitarian Aid in the Age of Counter-Terrorism: Perceptions and Reality*, released this week by the Overseas Development Institute, asserts that British banks are unfairly closing charity accounts, and perceiving bona fide charities that seek to assist victims in the Middle East as terrorist financing threats whose low level of profits for the banks does not justify the risk level that occurs when banking such charities.

There are valid points to be made on both sides of the argument, but my issue with the report is much narrower; it alleges that commercial off-the-shelf databases of high-risk individuals and entities

"Inevitably alert banks to client names that are not on official sanctions and designation
  lists.  How a financial institution chooses to interpret these "hits" is up to the institution
  in question,  but there is no doubt that the proliferation of such unregulated private sector
  compliance tools has increased rather than decreased 'de-risking..' Once a name is flagged
  as potentially risky, it  is far more work for a financial institution to investigate and retain
  a client, than it is to de-risk, particularly if the client in question is of limited
  profitability."  Report at 14.

The report makes much of the fact that one well-known database provider asserted that, in one year alone, it identified more than 180 entities before they appeared on the OFAC list. This is precisely my point; regulators often do not list a sanctioned entity until after exhaustive research and investigation, to ensure that they get it right. Commercial databases operate on a real-time basis, with a large global staff,
and often post information about an individual or entity years before sanctions appear. That is a plus, in my humble opinion. The report's reference to the databases as 'unregulated private sector tools," misses the fact that these private resources will return information needed now by the banks and NBFIs, not two years later.

If a dodgy British charity, sending money to a Middle Eastern country known for a dysfunctional domestic banking system, rampant corruption, and/or terrorist entities, is named & shamed by a private database, that is the correct risk-based outcome. We do not wait years for an official sanction appear,  to act, and there have been many instances of extremely long delays in sanctions imposition on charitable entities, as we well know.

In my humble opinion, the report is blaming the commercial high-risk databases for account closings, when it should cast blame, appropriately, upon charities that, intentionally, negligently, or even accidentally, fund terrorist organizations in the Middle East. Those charities should not have UK bank accounts.

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