The perfect analogy for the current situation is pain when it comes to Anti Money Laundering regulations that are being enforced by banks and increase scrutiny from donors and governments. A few days ago, I read with great interest a LinkedIn Blog from David Blair “KCY is killing your customer“
I would like to remain positive but where do I see things going (unless we do something). Here some trends from developing countries in the context of country ownership and from developed countries nudge NGOs to merge.
The only difference with NPOs and other sectors (i.e the private sector) is that the scrutiny requirements that they now have to meet in order to maintain international relationships (if the banks actually want to accept the transaction) is also being applied by other institutions. Most of the efforts by the NPO sector are focused around Recommendation #8 even though new laws being passed by governments is most likely related to the need to receive a good FATF evaluation. (see India’s reporting requirements “Foreign Funding for NGOs”
If government want to receive a good evaluation, you would think that they would want their agencies to implement such measures when they provide finance (i.e. USAID). For example Colombia has more than 45 laws around Money Laundering and remains one of the most impacted country (as per this InterAmerican Institute)
So if you want to obtain changes, should you focus all of your efforts on FATF? or banks, financial institution, governments, government agencies,
The blog is full of great links and information citing many of the frustration that “corporates” are expressing in the context of increasing AML regulations and scrutiny for banks to Know Your Customers Customers.
There is so much to say on this subject and this is without a doubt the “situation” that will most likely impact the new development agenda. As the focus of the Global Goals is on private financing the need to adjust the financial infrastructures to make this possible will need cooperation, collaboration, and willingness to change the way business was done.
One of the first question that comes to mind is …. would you know if you are directly or indirectly helping laundering money? or financing terrorism? (I will come back to this subject as part of another blog). Have you been guilty of such while being somewhat oblivious? I will give describe a few cases in Latin America and Africa … food for thoughts!! This is all to the points of Know Your Customers Customers (KYCC).
It looks like many sectors have reached somewhat of a “pain threshold point” but little has changed. Here are some interesting points to consider before continuing:
1) Bankers do not like the current state of KYC either. Compliance departments continuously up the ante with regard to KYC in their search for safe haven from billion dollar fines. It is a Sisyphean task because no one knows what next year’s regulators will consider sufficient effort.
An article published by American Bankers – “AML Rules Create Undue ‘Suspicion’ of Customers, B of A Exec Says” Kristin Broughton writes “….Bankers are often quick to close down accounts if there is “uncertainty” about transactions, out of a growing fear about enforcement penalties, he said. Ramaswamy compared the current financial regulatory environment to air travel following the 9/11 terrorist attacks.
“It’s sort of like the worst days of the no-fly list,” said Ramaswamy, global AML risk management executive at B of A and an ex-federal prosecutor, though he acknowledged that some of the concern about risk is legitimate. “Suspicion is becoming the guiding principle as to whether people get access to an account.“
The article is worth reading but here is another section that is worth mentioning when it comes to ”’so what …and what’s next for those affected. Kristin writes “…A fear of penalties “should not color the decision-making approach of banks that are carrying out good-faith efforts to abide by the law,” said Nathan Sheets, undersecretary for international affairs in a speech last week. Still, it is up to the industry to come up with a response, Sheets said. “Ultimately, it will require some investment on the sake of institutions.“
2) While most would agree with Mr. Nates comment, I think that the solution should come from the sector itself. No one really enjoys added administrative burden ….and AML/CFT/KYCC is one major administrative burden (i.e. this article “KYC Compliance Tops the List of Concerns for NGO Treasurers“). If the banks come up with solutions …and there are added cost …you can imagine that the cost will be passed on to consumers. If sectors, such as the NPO/CSO/NGO sector doesn’t come up with their own “self-serving solution” we know that this is what they will be faced with (from the same article) — “What professionals are saying is, ‘The risk I can’t manage is [that of] being second-guessed about why I did what I did,'” said Richard Small, an attorney at Ernst & Young. Banks are now being encouraged to extensively document cases where they have cut ties with particular industries, Small said, describing that as a recent change. “My personal opinion is, if you don’t want to do business with somebody, don’t do business with somebody,” he said.
3) In her recent speech, Jennifer Shasky Calvery (Director Financial Crimes Enforcement Network) concludes with the following thoughts “...Achieving this balance, where we identify and close gaps without imposing undue burden, is an issue that resonates with each and every rulemaking we undertake. From my perspective, this is particularly true in our ongoing work with respect to the finalization of the Customer Due Diligence (CDD) rule. Based on the comments that we received following our proposal, we continue to work to get a better understanding of the costs associated with the rule. We are doing this so that when we issue the final rule, our balancing of costs and benefits will be well understood, notwithstanding some of the general difficulties associated with quantitative assessments when dealing with the fight against money laundering, terrorist financing, and other illicit activity ….”
1) We know no one seems to like this (even the banks)
2) It looks like state of compliance is the “new normal“
3) It looks like the impact of FATF goes beyond banks (donors, countries)
The suggestion from Nathan Sheets is that this is the banks problem….to resolve this….and it looks like banks already made that decision. If we expect banks to go that deep in due-diligence someone will have to pay for it and it’s rarely the banks. If the banks do it …that still lives governments and donors to deal with when it comes to due diligence.
Copied from David Blair >>> We cannot expect governments, regulators, or banks to solve this problem for us. If we act together by agreeing common standards, we have a much greater probability of success in forcing banks to accept standard KYC documentation, thus saving ourselves from time-wasting frustration and also helping to keep society safe.
The only problem that needs to be resolved is “price” – contrary to the private sector, NPOs can’t pass the cost down to consumers. The one most affected will be the “social, economic, or environmental” cause that they are supporting…or even worst is that if the sector doesn’t work together for a solution “what we are advocating for” the cost might be even higher if they can’t continue operating. Due diligence is expensive and necessary … a discussion about the standard, cost, technology, and opportunities to collaborate is necessary and should take place sooner than later.
I did this test yesterday (see image below) on the ACAMS laundering.com website. As you can see, donations to NGOs is a method to finance terrorism. I don’t think any sector is safe from terrorism financing and we will all benefits from greater transparency and collaboration.
Increase transparency and collaboration (not that they are not transparent already) can only help connect funding to local organizations and effectively measure our collective impact.