Millions of pounds of donations to charities have been inadvertently held up, blocked or returned by banks, over fears that the money could end up financing terrorism, a thinktank report warns.
International banks, including HSBC, UBS and NatWest, have frozen accounts held by UK-registered charities and international non-governmental organisations delivering aid in areas such as Syria, Gaza and Iraq.
The thinktank, the Overseas Development Institute, warned that a lack of guidance from the Treasury on how banks should respond to counter-terrorism legislation had caused “overly risk-averse action” towards UK charities in conflict zones.
Muslim groups have argued that they are being disproportionately targeted by the authorities, noting that more than a quarter of the statutory investigations launched by the Charity Commission since April 2012 and remaining open have been directed at Islamic organisations.
The institute – whose report is entitled UK humanitarian aid in the age of counter-terrorism: perceptions and reality – said the sums were not trivial. In one example a charity that requested anonymity had to forgo donations worth £2m in the last 12 months due to funds being blocked by a bank.
Researchers have also said that wages paid to the bank accounts of aid workers living outside the UK have also been delayed or blocked by banks.
The ODI report was published as charities, including the Joseph Rowntree Trust, were put under pressure from politicians and a regulator’s investigation to explain their funding of several hundred thousand pounds to an activist’s group that had contact with Mohammed Emwazi, the man reknowned as the masked militant Jihadi John.
Sara Pantuliano, director of the ODI’s humanitarian policy group, said that in many cases charities needed to enhance their due diligence. “We have seen this a lot when you had many new charities popping up to support work in Syria. Five hundred appeared in a matter of months.” Pantuliano pointed out UK terror legislation was extremely broad and that charities had to act if they had “suspicions that fundraising was used for terrorism”.
However, governments around the world have pointed out that the not-for-profit sector has been abused by terrorists in order to fund-raise – often from communities who do not know where their cash ends up.
Last year the Financial Action Task Force, the inter-governmental body set up to track terror money trails, cited more than 100 cases of charities being used for terrorist purposes. Most involved diversion of funds.
Richard Dye, head of finance at the Disasters Emergency Committee, an umbrella organisation of 13 international charities including Oxfam and Christian Aid, said: “There is clear evidence that banks are de-risking in response to counter-terrorism legislation, and this is having an impact on the humanitarian sector. The effect is greatest on organisations and country programmes that are perceived to be a higher risk.”
The ODI said that the UK government needed, in particular, to work with Washington – since the US’s extra-territorial reach heavily affected “the decision making and risk aversion of banks in this country”.
Last year, for the first time, a jury found a foreign bank liable in a civil terrorism financing trial in the US. The Jordan-based Arab Bank, one of the most prominent financial institutions in the Middle East, transferred money from donors in Saudi Arabia and elsewhere through its branch in New York and on to backers of Palestinian suicide bombers who killed Americans in two dozen attacks in Israel from 2000 to 2004. This summer a second jury will consider how much Arab Bank must pay; some have estimated the sum could approach $1bn.
Tom Keatinge, an independent financial researcher for the ODI, said: “Civil suits, such as against Arab Bank, have been pursued through the US courts, further sensitising banks to US regulations. The demonstrated extra-territorial reach of the US authorities in pursuing banks has had a chilling effect on risk appetite globally.
“Since 9/11, the US has taken advantage of the central role of the US dollar in global finance to influence the actions of banks that have operations in the US – wherever they happen to be in the world. Access to the US market is critical and thus banks’ decision-making will very often be overshadowed by US regulations, even when the decision in question has nothing to do with the US market.”
The ODI report said it was lack of guidance from the UK government, and specifically the Treasury, on how banks should respond to counter-terrorism law, that was the main cause of charities’ finances being blocked.
Andrew O’Brien, head of policy at the Charity Finance Group, said: “We are hearing consistently from charities that the current counter-terrorism infrastructure is putting humanitarian operations at risk in conflict areas such as Syria. We believe that governments, banks and charities have to work together to resolve this.
“Banks need to put more resources into understanding their clients and the procedures that they have put in place to safely transfer money, as well as give fair warning of any changes to bank policy. Charities need to take a more proactive approach in building relationships with their banks and take responsibility for ensuring that they are meeting the rules”
“Governments and regulators need to facilitate discussions between banks and the charity sector and also review counter-terrorism legislation to ensure that it isn’t hampering vital humanitarian work. We are pleased that the joint committee on the draft protection of charities bill has supported this view by calling on the government to undertake a review, in its recent report.”
A Treasury spokesperson said: “UK charities play a vital role in providing assistance to people in areas of conflict, and the government is committed to ensuring legitimate charities have access to banking services whilst also protecting them from abuse by criminals or terrorists.
“We are concerned about the growing numbers of charities that have lost their bank accounts or necessary financial services. This is part of an emerging global trend of banks withdrawing services, for a variety of reasons, many of which do not originate from counter-terrorism legislation.
“Given the global nature of the difficulties, the UK government has been leading international efforts to prioritise and advance work to address this problem. Through work in the G20 and Financial Action Task Force, the UK is leading the development of new international guidance that will help banks to take a proportionate approach to complying with their obligations to combat terrorist financing, rather than avoiding risk altogether by withdrawing banking services from charities completely.”