The scenes of the earthquake rescue have been heart wrenching. With the coldest nights upon the effected, seeking shelter in the buildings that have survived, has become a challenge for many. This risk of collapse, aftershocks and the memory of the disaster that struck, is too much.
Many charities are reporting a record-breaking fund-raising campaign.
The world has responded, and UK charities have once again responded to the call. Many charities are reporting a record-breaking fund-raising campaign. Despite the cost-of-living crisis, rich and poor have reached deep into their pockets, some even donating their household items to awaiting containers ready to go.
The dark open secret
In the midst of this crisis where the best of humanity has come out, there is an open secret with dire consequences on the most desperate – the sanctions over Syria.
As the Syrian crisis began, banking financial sanctions were imposed on the Syrian Government, making aid transfer of funds to Syria impossible. The current focus is on the eastern Turkyie and only the areas of Syria under the control of Turkyie Government. The rest of Syria under the Syrian Government control is out of reach with the affectee losing out.
The sanction regime
The UN and / or the UK government place financial sanctions / restrictions to achieve a specific foreign policy or national security objective. The Office of Financial Sanctions Implementation (OFSI), part of His Majesty’s Treasury (HM Treasury), provides information for charities operating internationally in its guidance for the charity sector. Those working in the international charity sector must refer to this.
In the banking world, the risk associated with charities working in sanctioned countries is considered to be high. Consequently, Muslim charities working in Syria often become a target.
UK financial sanctions apply to all entities and persons subject to UK law, wherever they are in the world. These cannot be ignored as it is crime to breach these sanctions.
The banks take sanctions seriously and will not engage in business if there is a risk of a sanction breach. In the past banks have attracted hefty fines from regulators for facilitating a sanction breach. In the banking world, the risk associated with charities working in sanctioned countries is considered to be high. Consequently, Muslim charities working in Syria often become a target.
Recently an update to Syrian sanctions regulation came into force. Although this opened a restricted corridor for INGOs, I expect only the large mainstream non-Muslim INGOs to benefit. Many Muslim charities may still lose out.
So what should charities do
A meaningful due diligence is a must to have any credibility with the banks. Five key components being:
1. Know the sanctions: Its not enough to operate a international relief charity just driven by faith values. Those running the charities must know the sanctions regime and therefore must refer to the OFSI list of restriction before engaging an individual, partner, or supplier for work in Syria.
2. Adopt the right policies: This is the minimum standard required to operate within the international relief sector. Anti money laundering policies, sanctions compliance policy, counter terrorism financing policy, anti-fraud and bribery policies are ALL relevant – these may be separate documents or all on one. The coverage and trustee approval is what matters.
Charities operating in high risk countries are often subject to enhanced due diligence by banks. As part of this, the banks assess compliance to policies and expect to see real examples showing compliance. Therefore, these policies should be relevant and up to date.
3. Audit Trail matters: High risk banking transactions are flagged up by the banks AI systems. Charities are then contacted for information relating to these transactions. This includes the following:
- Background on the recipient of the funds – this is where the documents confirming checks against the OFSI lists matter. Personal references do not count.
- Rationale of the transfer – this is where project proposals, project invoices become relevant. Charities that compromise on paperwork and run based on verbal assurances, lose out.
Complying with sanctions is a legal requirement and a crime if breached
4. Employ the right people: Complying with sanctions is a legal requirement and a crime if breached. Charities should ensure that the right senior person is the overall lead for compliance to the policies. Staff normally in the finance department independent to Programmes should ensure that the necessary checks are completed and documents completed before transfers are made.
Management override of policies compromises a key control for banks.
5. Relationship with the bank manager: Charities should treat the bank as a member of their team. They often have more intelligence over charity finances and business relationships than charity trustees and management think. Be open and ensure the bank to be one step ahead, so when you transfer funds, the bank systems already expect such a transfer. Banks don’t like surprises as the whole ani-money laundering regime is based on “knowing your client”.
Banks don’t like surprises as the whole ani-money laundering regime is based on “knowing your client”.
Working in the international charity sector requires embedded and robust due diligence processes and an able management to navigate through the complexities of international fund transfers. Mere good intensions are not enough.
And it is also the case that the politics and resulting sanctions can restrict vital humanitarian aid that saves lives and protects dignity of those in most need. There is a cost that humanity pays.
Author: Nasir Rafiq is a widely experienced Fellow Chartered Accountant (ICAEW) and a Charity Financial Governance Expert.
He is the Managing Partner of Dua Governance, a Charity Governance specialist accountancy firm.
Nasir has held many senior finance positions within the UK charity sector and continues to advise many charities on financial governance matters.