By Alex Marriage
Alex Marriage is Research and Projects Assistant at EISF. He has three years’ experience in international development NGOs primarily working on policy and advocacy. Firstly as an intern for Jubilee Debt Campaign. At the European Network on Debt and Development (Eurodad) Alex contributed to successful international campaigns for corporate and financial transparency to address tax evasion and corruption. Whilst at Eurodad Alex also produced a report on anti-money laundering and terrorist financing. Since then he has been a trainee at the European Commission Anti-Fraud Office as well as a freelance development researcher.
Many non-governmental organisations (NGOs) have found that counter-terrorist financing (CTF) rules have been interpreted and implemented by national governments and banks in a way which has delayed aid and put NGO staff at greater security risk. In response to civil society concerns, the global standard setting body for anti-money laundering (AML) and countering terrorist financing, the Financial Action Task Force (FATF), revised its approach in October 2016 to reflect civil society organisations’ concerns.
Charities had originally been classified as ‘particularly vulnerable’ to abuse by terrorists by FATF, although this classification was recently removed. The abuse that FATF and others have been concerned about can take various forms: from fake NGOs to legitimate organisations being defrauded to acquire or channel money. Partners or suppliers might also be set up or abused by terrorists. The rules are intended to make organisations take reasonable steps to check that funds are not being diverted. It is important for an NGO (as for any organisation) to demonstrate due diligence, meaning that they have good systems in place to detect terrorist financing. There is an obligation to report if an organisation suspects funds have been diverted to terrorists.
In this blog, I will briefly outline the security risks that aid workers can and have faced due to counter-terrorist financing measures, and go on to describe the international mechanism through which CTF measures are developed and evaluated. I will go on to outline the recent changes to CTF recommendations and what this might mean for humanitarian NGOs.
What are the security concerns?
NGOs have been affected by the way in which states and the private sector have implemented CTF standards, as recommended by FATF and each government’s own counter-terrorism policy advisors. One problem has been that authoritarian governments have been able to use CTF to justify the repression of human rights defenders and advocacy organisations operating in their countries. In addition, humanitarian NGOs have seen their banks introduce new measures to comply with CTF legislation, which has resulted in operational and security concerns overseas. This has predominantly manifested itself through:
- Banks refusing to transfer funds or keep accounts open in high-risk geographical areas.
- The introduction of greater security checks and information requests by banks.
Non-standard money transfer routes
Some banks, not wanting to fall foul of the AML-CTF legislation, have opted to simply not transfer funds to payees in conflict zones and areas where terrorists operate. Some have completely stopped doing business with NGOs and local banks operating in these areas. This action is known as de-risking.
If banks refuse to transfer funds, then some NGOs have opted to use cash couriers leading to the risk of robbery and harm to aid workers transporting cash. Others have started using the informal hawala system, which some NGOs have reported can cause security incidents. It is ironic that the effects of this legislation often push NGOs into more marginal, riskier and less traceable forms of money transfer where it is more likely to be misappropriated on route to beneficiaries.
Under some legislation, if any terrorist benefits from a service directly or indirectly, this can count as material support to a terrorist group. This could include food or emergency medical care. It has often been pointed out that this contradicts the humanitarian principles that state that aid should be given to all those in need.
As a result of these laws, some banks expect aid organisations to know an unrealistic amount about their beneficiaries, to have a procedure in place to prevent this. Such requests also ignore the guidance from FATF that banks do not need to ‘know their customer’s customer’. Attempting to meet this expectation could be perceived as spying and can cause an NGO to use up scarce resources. Requiring more staff on the ground, for example, has security implications, especially in a conflict zone.
Additionally, if an NGO attempts to meet this request by collecting lists of beneficiaries this could lead to host states asking to see such lists, potentially endangering beneficiaries or creating mistrust if the NGO refuses to share this information. This could affect an NGO’s local acceptance and therefore the security of aid staff operating in that geographical area.
Some banks have instituted additional security checks before approving the transfer of funds, thus causing delays in implementation that can have serious implications for an NGO’s operational security. This delay can also be caused by an NGO not being fully prepared to answer the questions that some banks have posed in a timely manner.
Who makes the rules and what are the recent developments?
FATF is a global intergovernmental body set up to prevent money laundering and terrorist financing. It makes recommendations, which states then transpose into their own legislation. FATF has developed a series of recommendations that are recognised as the international standards for combating money laundering and the financing of terrorism.
Many of these rules involve setting standards which the banking industry and other private and non-governmental groups must comply with. In 2016, as a result of advocacy by civil society, FATF revised its recommendation in relation to the non-profit sector and accordingly updated its mutual evaluation methodology, which is used to assess how well countries are implementing these rules. In June 2016, after consultation with the non-profit sector, FATF revised its Recommendation 8 and related interpretive note, which relates to non-profit organisations specifically. The body changed the wording of the recommendation so non-profit organisations were no longer considered ‘particularly vulnerable’ to terrorist financing schemes. Furthermore, in October 2016, the mutual evaluation methodology was also updated by FATF. Mutual evaluations are one of FATF’s main sources of leverage. Bad mutual evaluation scores can lead to a country’s banks being cut off from the international financial system. The most significant changes made to the guidance for evaluation assessors are as follows: Supervision of non-profits should focus on those that the country’s government has identified as being at risk of terrorist financing abuse rather than the whole sector. The guidance now emphasises that such supervision should be ‘focused and proportionate’. Assessors will now consider whether ‘legitimate charitable activities are not disrupted or discouraged’ by measures put in place to counter terrorist financing. Evaluations take about 18 months and ongoing evaluations will continue to use the old criteria. Therefore, it will take some time to see how effective the changes are.
The changes made by FATF, whilst very significant, are just a first step and will not necessarily lead to automatic changes in national rules. However, there is increasing awareness of the negative effects CTF has had on civil society organisations, particularly those NGOs operating in high terrorism risk areas. For example, in the UK, a working group is being set up between the government and NGOs; Chatham House has published research on the contradictions between CTF/counter-terrorism and international humanitarian law; and Royal United Services Institute (RUSI) are also researching this topic.
Robust rules must be in place to counter financing of terrorism but these rules should not stop aid reaching the millions of victims of terrorism and conflict. Organisations need to be able to securely finance humanitarian operations in a way that minimises unnecessary security risk to aid workers. EISF would like to hear from your organisation if CTF has affected the security of your staff and/or operations. Please e-mail Adelicia (firstname.lastname@example.org) if you are able to share your experiences.
Sources and Further Reading
FATF Updates Evaluation Criteria to Match Revised Recommendation 8, Charity and Security Network, 26 October 2016, http://www.charityandsecurity.org/node/1474
Stakeholder Dialogue on De-Risking: Findings and Recommendations, World Bank and the Association of Certified Anti-Money Laundering Specialists (ACAMS), 11 October 2016, http://www.acamstoday.org/stakeholder-dialogue-on-derisking/
Showing changes made by FATF at the October 23016 Plenary, FATF, October 2016, http://fatfplatform.org/wp-content/uploads/2015/02/Immediate-Outcomr-10-Revisions.pdf
For information note: operating within counter-terrorism legislation, Home Office and Office of Financial Sanctions, 26 November 2015, Last updated: 27 June 2016, https://www.gov.uk/government/publications/operating-within-counter-terrorism-legislation
Charitable Aid: A Valuable Export That Must Be Better Supported Commentary, Tom Keatinge, Royal United Services Institute, 22 February 2016, https://rusi.org/commentary/charitable-aid-valuable-export-must-be-better-supported
NGOs and Risk How international humanitarian actors manage uncertainty, Humanitarian Outcomes, February 2016, https://www.humanitarianoutcomes.org/ngos-and-risk
UK Counterterrorism Legislation: Impact on Humanitarian, Peacebuilding and Development Action, Chatham House, 11 November 2015, https://www.chathamhouse.org/event/uk-counterterrorism-legislation-impact-humanitarian-peacebuilding-and-development-action
Transcript of “File On 4” – “A Deadly Dilemma, British Broadcasting Corporation, 6 July 2014, http://news.bbc.co.uk/1/shared/bsp/hi/pdfs/01_07_14_fo4_adeadlydilemma.pdf An effective system to combat money laundering and terrorist financing, FATF-GAFI, undated, http://www.fatf-gafi.org/publications/mutualevaluations/documents/effectiveness.html
Countering Terrorist Financing Cross-border co-ordination on illicit financial flows, Chatham House, Centre for Financial Crime and Security Studies, undated, https://www.chathamhouse.org/conferences/countering-terrorist-financing#sthash.QNVE8778.dpuf Who we are, FATF, undated, http://www.fatf-gafi.org/about/