Big Government Regulations Are Destroying Charities — Here’s How

August 10, 2017

Imagine you’re a doctor trying to bring desperately needed medical supplies to a war torn city, where innocent men, women, and children are dying from lack of care. You’ve just secured $80,000 in donations from generous Americans, and immediately send a money transfer to your medical colleagues on the ground — but the transfer is frozen.

Six months pass before the bank finally clears the money transfer. By then, the war is over, and people already died because doctors lacked supplies.

That’s the reality for too many international charities right now. They can’t get money to their volunteers because government regulations, in the form of “de-risking” rules, are paralyzing banks from helping clients who do business abroad.

De-Risking: A government rule aimed at terrorism, but hurting charities

De-risking is “termination of or the restriction of business relationships to avert risk related to money laundering and terrorist financing.”

Put simply, to avoid penalties for accidentally aiding money laundering or terrorist financing; banks will freeze or terminate accounts and money transfers with any organization doing business in a “suspect” area of the world.

In general, that means if you’re doing business in a foreign country where terrorists are known to hide, like Syria or Iraq, the bank will freeze any transfers or accounts connected to that country. Furthermore, because government regulators haven’t provided guidance on how banks can legally work with “suspect” countries, banks have just cut off ties, because the fines are massive if they slip up:

For example, from 2011 to 2012 there was a 131-fold increase in fines and monetary settlements under deferred prosecution agreements, from $26.6 million to $3.5 billion. This latter figure includes a $1.9 billion settlement paid by HSBC to U.S. and U.K. regulators for inadequately monitoring wire transfers to Mexican drug cartels, and for violating sanctions through business with clients in Cuba, Iran, Libya, Myanmar, and Sudan.

The potential and realized costs of serving these typically lower-income populations compared to the profits might just be too great. This trend has caused financial institutions around the world to be very conservative and caused them to close high-risk accounts based on sector or geographic considerations.

As a result, with little clarification on what exactly proportionate standards are, both national governments and individual financial institutions tend to avoid segments perceived as risky, particularly if they are not highly profitable segments.

If you’re a bank faced with the decision whether to release an $80,000 wire transfer or block it, you must consider the risk of government retaliation. That is, in the minuscule off-chance that a given international transfer somehow funds terrorism, even without your knowledge, then the government will hammer you with billion dollar fines. So if you’re a risk-averse banker, then you’ll probably block the transaction.

Banks aren’t acting wrongly in blocking transmission. They are acting rationally in the face of overbearing government regulations, and the results are startling.

Two-thirds of all international charities struggle under these regulations 

You don’t have to work in war zones like Syria, Iraq, or Afghanistan to feel the pressure. Two-thirds of all US charities reported struggling with their banks over de-risking:

Two-thirds of all U.S. charities that work abroad are reporting difficulties accessing financial services because of the banking trend, according to one of two new studies that show for the first time the scope of the impact the banking trend has had on aid providers working in catastrophe zones.

No U.S. charity has been put on a terrorist list since 2009, but the report contends that at least 5,875 of the roughly 8,665 U.S. charities that work overseas have been adversely affected by banking behavior aimed at disrupting terrorism

The de-risking regulations are so overbearing that some charities are turning to the black market to get resources to those desperate for money, aid, and resources.

If you’re an organization like the Syrian American Medical Society with 1.4 million people under your care, and the banks completely close your accounts, the only choice available is the black market – despite having done nothing wrong.

When government regulations become overbearing, it’s time for deregulation 

When banks are too terrified to help legitimate charities working on the front lines of war zones, it’s time to remove the barriers.

Conservatives have the answer to this problem: it’s deregulation.

The government is expecting banks to become police officers, find the terrorists, and stop their banking activities. Banks, understandably balking at this challenge, are just avoiding any and all risk to minimize fines.

Banks should be able to help charities without the fear they’ll be hit with massive fines if they are deceived by secret international operatives. The government shouldn’t frighten the entire financial system from working with international charities — that was never the point of these regulations.

Preventing money laundering and terrorist financing is a good and noble goal. But when crime prevention goes so far that good charities and banks are harmed, and innocent civilians die from access to medical care, it’s time to deregulate.

Conservatives are perfectly positioned to lead the charge on deregulation. It’s time to take action and help our charitable organizations save lives and spread the greatness of Western democracy.


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Daniel Vaughan

Daniel Vaughan is a columnist for the Conservative Institute and lawyer in Nashville, Tennessee. He has degrees from Middle Tennessee State University and Regent University School of Law. His work can be found on the Conservative Institute's website, or you can receive his columns and free weekly newsletter at The Beltway Outsiders. Connect with him on Twitter at @dvaughanCI.