Another victim of bank de-risking: Nonprofits

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WASHINGTON — Two-thirds of U.S. nonprofit organizations with operations in foreign countries have been affected by banks’ de-risking practices, according to a report released Tuesday.

In a survey of 305 nonprofits, the Charity and Security Network found that most of these organizations had faced payments transfer delays, requests for unusual additional information and fee increases, among other obstacles.

“Financial access for [nonprofits] must be recognized as a barrier that needs to be addressed on par with correspondent … banking and money service businesses,” the report said. “Now is the time to seek solutions.”

According to the report, banks are being led to these de-risking practices because of pressure from regulators.

Financial institutions’ "compliance-related concerns and regulatory expectations are among the most significant reasons for de-risking,” the report said.

The de-risking practices in some cases went even further than delays and red tape, according to the survey, which was conducted by a team of researchers at George Mason University’s Center for Social Science Research.

For instance, 10% of the nonprofits surveyed reported being denied their request to open accounts, and 6% said they had faced account closures.

Overall, 15% of the nonprofits reported facing de-risking issues constantly or regularly. The findings were valid within a 5.4% margin of error, according to the report.

“When programs are delayed or cancelled because of the inability to transfer funds, peace is not brokered, children are not schooled, staff is not paid, hospitals lose power, the needs of refugees are not met and in the worst cases, people die,” the report said. “Maintaining current policies in the face of evidence of the negative humanitarian consequences is not only harmful but inconsistent with American values.”

In their recommendations, researchers advocated for “multistakeholder” dialogue, for the use of technological tools to streamline banks’ due diligence practices and for the creation of a “special banking channel” that could be used in cases of humanitarian crises.

But the report also called on banking regulators to reduce pressure on financial institutions that are trying to serve nonprofits.

Banking examiners are “often intrusive,” according to the report. They are often “second-guessing FIs' due diligence procedures and applying pressure that increases compliance costs and discourages FIs from serving” nonprofits.

The Charity and Security Network called for a retraining of examiners to ensure they are “up-to-date” on the concept of a risk-based anti-money-laundering and counterterrorism financing approach.

Bank examiners should also understand that nonprofits “are not by definition high-risk customers,” the report said.

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