How can banks send funds to legitimate overseas charities without violating anti–money laundering rules?
Banking
Asked by Question Bot12/Jul/20161 answer
1 Answer
F
Faisal Khan
Answered 12/Jul/2016
Banks are extra cautious when it comes to international money transfers.
Most banking financial institutions (be it small or large) have a very myopic view of the entire money transfer ecosystem. For a vast majority of mid-to-small banks, the AML officers, etc. have just CAMS training, etc. but no practical on-ground interaction & experience with the MTO/MT market.
The common bias is that, small amounts of international P2P (person-to-person) wire transfers that are sent internationally are high-risk payments because the probability of these payments turning out to be payment for terrorist financing is very high.
Most of the transfers that are small value (SVT - Small Value Transfers) are for purposes of home-maintenance, there is little or no data to suggest that there is any connection with anti-money laundering and these small value transfer payments (typically US$ 200 or less).
When banks or specifically AML officers fail to understand this (and why would they?) the bank's stance is to treat it as high-risk and deny such banking clients.
The client is deemed high-risk because of the fact that the US Regulators demand an extra-ordinary set of scrutiny on international transfers that most small and medium banks cannot afford to provide (in terms of technology, HR, processes, etc.).
A simpler way to avoid this allegedly risky business is not to take it all together, and hence the de-risking of business.
Charities, do however pose a problem. I will list some of them below:
Because of the fact that large amounts of money can pass through charities in the form of donations, regulators fear this money could snake its way for terrorist financing and/or money laundering for nefarious purposes.
Because this guarantee cannot be given with a high-degree of certainty, banks will refuse business for processing transfer for charities.
Small amounts that are capped (lets say US$ 200 or US$ 500) are still okay, but uncapped transfers pose a greater risk.
One way to lessen the threat posed by such transfers, is to have an adequate mechanism in place of screening the charities (which is not available today for the greater part of the world), and to be able to cap the transfer limits.
Most banking financial institutions (be it small or large) have a very myopic view of the entire money transfer ecosystem. For a vast majority of mid-to-small banks, the AML officers, etc. have just CAMS training, etc. but no practical on-ground interaction & experience with the MTO/MT market.
The common bias is that, small amounts of international P2P (person-to-person) wire transfers that are sent internationally are high-risk payments because the probability of these payments turning out to be payment for terrorist financing is very high.
Most of the transfers that are small value (SVT - Small Value Transfers) are for purposes of home-maintenance, there is little or no data to suggest that there is any connection with anti-money laundering and these small value transfer payments (typically US$ 200 or less).
When banks or specifically AML officers fail to understand this (and why would they?) the bank's stance is to treat it as high-risk and deny such banking clients.
The client is deemed high-risk because of the fact that the US Regulators demand an extra-ordinary set of scrutiny on international transfers that most small and medium banks cannot afford to provide (in terms of technology, HR, processes, etc.).
A simpler way to avoid this allegedly risky business is not to take it all together, and hence the de-risking of business.
Charities, do however pose a problem. I will list some of them below:
- How do you know the end charity is bona fide?
- How do you know the funds will end up where they are being promised?
- How do you do extra due-diligence on a charity that does not operate in your country?
- How do you do due-diligence on the owners and/or operators of the charity if these people are not listed or do not reside in your country?
- Was this charity operating by any other name previously?
- What are the baseline amounts that are being funneled into this charity?
- Is the charity licensed and monitored on its end by the financial regulator?
Because of the fact that large amounts of money can pass through charities in the form of donations, regulators fear this money could snake its way for terrorist financing and/or money laundering for nefarious purposes.
Because this guarantee cannot be given with a high-degree of certainty, banks will refuse business for processing transfer for charities.
Small amounts that are capped (lets say US$ 200 or US$ 500) are still okay, but uncapped transfers pose a greater risk.
One way to lessen the threat posed by such transfers, is to have an adequate mechanism in place of screening the charities (which is not available today for the greater part of the world), and to be able to cap the transfer limits.