Charities cancelling aid projects due to ‘endless’ bank anti-terror checks, report warns British charities working in conflict zones such as Syria and Somalia are being hampered by onerous banking checks which result […]

British charities working in conflict zones such as Syria and Somalia are being hampered by onerous banking checks which result in delays to funds to help refugees and the cancellation of entire aid programmes, a report has warned.

Strict regulations imposed after the 9/11 attacks to prevent the financial system being used to channel money to terror groups or rogue states are impeding the ability of charities to deliver aid which in many cases has been funded by the Government, according to the influential Chatham House think-tank.

The study found that Muslim humanitarian charities were particularly affected by the restrictions applied by banks in Britain and abroad with organisations in some cases being denied access to financial services and seeing bank accounts closed.

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Closure

In one case, a charity that monitors human rights in Sudan and Somalia and receives funding from the Foreign Office is facing closure after its bank decided to close its account, leaving it unable to pay staff and effectively freezing its assets of £200,000.

All other banks have refused to serve the organisation despite the Foreign Office providing it with an official letter explaining its backing and the importance of the charity’s work.

The report said that the weight of compliance demands being placed on charities was impeding the Government’s ability to deliver on its own commitment to refocus the Department for International Development’s (Dfid) £11bn aid budget to support fragile or broken states.

Tom Keatinge and Florence Keen, co-authors of the Chatham House study, said: “Charities are confronted by ever-increasing restrictions on their access to, and use of, financial services. Paradoxically though, it is often government funds – through Dfid – which are being blocked.

The Government must determine whether the delivery of aid is more important than the risk that some aid may be diverted.”

9/11

Banks have operated rules designed to halt the flow of terrorist and criminal funds since the aftermath of 9/11.

But the financial crisis and a series of swingeing fines on banks including HSBC for failure to comply with strict regulations has seen banks shift away from thousand of clients as they seek to minimise their exposure to any potential breach of anti-terror or money-laundering rules.

The study found that charities working in conflict zones where terror groups are active, in particular those rooted in Muslim communities, were being “acutely” hit by this trend and were having to spend heavily to employ extra staff and buy software to meet compliance rules.

In one case, a British charity was spending £40,000 a year to meet the demands for extra evidence from banks, while another had seen the number of compliance requests it received rise from 75 in 2014 to 600 in 2015.

‘Disproportionate demands’

The study said both banks and charities recognised the necessity of the checks but warned there was evidence that in some cases banks were making disproportionate demands to simply make a charity go elsewhere rather than face the embarrassment of having to reject an application.

In one case, a charity spent a year answering questions to open a deposit account which could not even be used to transfer funds. Delays over the transmission of funds to support some 10,000 people in Syria run by another charity meant the programme had to be cancelled in 2013.

As a result, charities are now often having to adopt a back-to-front approach of designing aid programmes around compliance rules or having to resort to less transparent and more expensive transfer methods such as third-party payment schemes. One charity said a lack of access to favourable exchange rates through conventional transfers was costing it £500,000 a year.

Support

The report said there was a need for the Government to take action to tackle the problems being faced by charities, including publicly stating that aid delivery was a key commitment that the banking industry needed to support.

The report found: “Without this leadership, the UK government’s development objectives are at risk of failure, as loss of financial services further restricts the activity of [charities] at a time when their activities are certainly more critical than ever before.”

The Government has said it recognises the problems faced by charities and is seeking to ensure that banks decisions on granting access to the finance network are proportionate.