Banks’ “de-risking” policies threaten charity accounts
Banks are closing charities' accounts as part of a “de-risking” process designed to protect themselves from falling foul of anti-money laundering regulations imposed in the UK and US after the 2008 financial crisis. Companies and charities linked to countries that are designated high-risk, and which are often some of the poorest in the world, are particularly vulnerable. Charities including a medical research institute, a group supporting beggars in Kenya and the anti-fascist group Searchlight all had their accounts temporarily suspended by HSBC. The Financial Conduct Authority warned last year that de-risking could close thousands of accounts, with small charities at greatest risk. 
Fifteen years ago a group of Kenyan churchgoers decided to tackle the growing problem of young beggars in their small coastal town. The children had been orphaned by HIV and extreme poverty prevented their extended families from offering them a home. The women founded a charity whose UK arm, Upendo UK, sends donations to feed, clothe and educate 56 of these children so that impoverished relatives can afford to take them in.

In February the project was jeopardised when the charity’s bank, HSBC, cut off its funding stream without warning. “We only discovered that our account had been closed, along with all the standing orders and direct debits, when a donor asked why their payment had been rejected,” says founder Jo Jenkins. “HSBC had requested extra information, which I provided, and I was assured that everything appeared to be in order, but they still went ahead anyway.”

Upendo UK is one of several charities who have contacted The Observer to report that their banking facilities had suddenly been withdrawn. All appear to be casualties of the cut-throat market and tough anti-money laundering regulations following the financial crisis of 2008.

Banks, which face punitive fines from UK and US regulators if they fall foul of the rules, have been hastening to ditch accounts they fear might compromise them in a process known as “de-risking”. Companies and charities with links to countries deemed high risk are especially vulnerable. Since the highest-risk countries are often the most impoverished, the closures could prevent vital aid reaching the neediest recipients.

A medical research institute, which seeks to improve specialist treatments in the poorest parts of the world, feared it could no longer operate after its accounts were suspended by HSBC. “We’ve become the latest victim,” says a spokesperson for the charity which wants to remain anonymous. “Our account has been indefinitely suspended because one of our board members is from Egypt, and we make money transfers to this and other countries deemed high risk. As a small charity this will likely force us into administration.”

Meanwhile, a housing charity that supports homeless young women in London faced extinction after being told its bank account would be terminated. It too prefers not to be named. “We run a low-level operation and have had our accounts with the same bank since our inception 25 years ago,” says its director. “I can think of no reason why we might have offended the bank, other than this being an excuse to rid themselves of businesses they no longer feel benefit them.”

HSBC reinstated the accounts of the 52-year-old anti-fascism campaign and research group Searchlight last November, only after The Observer intervened. It had closed them without explanation following a review.

Last year the Financial Conduct Authority (FCA) warned of an “avalanche” of de-risking which could close thousands of accounts. Its report found that small charities were among customers at greatest risk of being ousted, along with foundations and cultural associations catering for certain ethnic groups.

One unnamed bank was discovered to have closed 59 charity accounts for suspected non compliance in 2014 and some charities had been forced to pay thousands of pounds on legal advice to safeguard their banking facilities.

The report warned that lives might be put at risk if charitable spending was restricted in vulnerable countries. “We are not talking here about the freedom to give money directly to known terrorists, but the ability to distribute aid money using local systems which may inevitably pass through areas controlled by terrorists,” it says. “We are also talking about maintaining aid flows to areas where the recipients may resort, out of desperation, to aggressive measures against aid staff.”

The FCA’s report came in the wake of the government’s national risk assessment of money laundering and terrorist financing which concluded that despite proven abuse being rare, the terrorist financing risks within the charitable sector are deemed “medium-high”.

But according to the Charities Aid Foundation (CAF), which provides banking and fundraising services to 1,250 charities, “de-risking” could end up encouraging the sort of crime it’s designed to prevent. “Charities play an essential role in providing aid and building stability in vulnerable countries. Compromising that stability by cutting off aid could increase the risk of terrorism,” says Hannah Terry, head of policy and campaigns at CAF, which has tried in vain to establish how many charities have been denied access to banking services.

“The reality for banks is that they have been in a very difficult position since 9/11 [when the US cracked down on potential terrorism funding],” says Terry. “They are being asked to police the contours of international crime without a rule book and the potential risk of banks getting it wrong is huge. It takes investment in compliance and due diligence to cater for customers with riskier links and we want more clarity on the regulations.”

The British Bankers’ Association is also calling for regulations to be reformed to allow humanitarian aid to reach countries deemed risky by the government without exposing banks to the prospect of punitive fines.

HSBC reinstated the accounts of Upendo UK and the medical research institute after The Observer intervened, while the homeless charity has been given a reprieve by its bank. Upendo UK was offered £300 in compensation but says it is trying to recoup more than £2,000-worth of cancelled standing orders.

“We aspire to set the industry standard for knowing our customers and detecting, deterring and protecting against financial crime,” says HSBC. “This includes asking existing customers to provide additional information about themselves and the intended nature of their business with HSBC. Where a customer doesn’t supply all of the information, HSBC may be forced to restrict their services. A decision of this kind is never taken lightly and we will continue to work with the government and industry bodies to support the not-for-profit sector and to help charity customers manage risk in their operations.”

The four charities in question insist they provided all the requested information, but that once the prospect of account closure had been raised, bank staff seemed powerless to prevent it.

“The most troubling aspect has been the evasive nature of the review team,” says the director of the homeless charity, which was served a notice of closure because the bank claimed it had provided insufficient information despite the fact it had submitted to three telephone interviews.

“You cannot speak by phone, you have to book an appointment days in advance with another department which then tells you that any decision rests with yet another department of which we are not allowed to know the manager. When I complained, I was given shopping vouchers because mistakes had been made, but was told that the complaints team could not remove the notice of closure. A lot of what I experienced was poor management and incompetence, as well as suspicion of us funding Isis.”

WHY CHARITIES GET CAUGHT OUT

Banks are monitoring money laundering. Photograph: Alamy

Money laundering is the exchanging of money or assets that were obtained criminally for money or assets that are legitimate. The legitimate money or assets don’t have an obvious link with any criminal activity. Money laundering also includes money that is used to fund terrorism, however it’s obtained.

Banks are obliged under the Money Laundering Regulations to monitor customers for suspected criminal activity and to perform risk assessments.

Given that banks are free to chose who they want to do business with, there is a chance they will decide that a charity with links to certain countries is too risky. Charities can help safeguard themselves by identifying and recording who donates what, and how and why.