Yemen and bank de-risking: the impact on local NGOs

Published: February 13, 2018 | By Adelicia Fairbanks

Over the last few years, EISF has endeavoured to deepen the sector’s understanding of the effects of counter-terrorism legislation on the security of aid operations and aid staff. A lot of EISF’s focus, and that of others working on this issue, has been on international non-governmental organisations (NGOs) and the additional burden placed on them because of counter-terrorism legislation, particularly a lack of clarity on engaging with non-state armed actors and the impact of bank de-risking.

In a previous blog, EISF unpacked some of the additional risks faced by aid workers trying to transfer funds in non-traditional ways to their operations in high-risk contexts such as Syria and Yemen as a result of bank de-risking. EISF has, for example, highlighted the security consequences of organisations not being able to pay their bills in a timely manner and that, as a result, staff can face threats from suppliers and disgruntled communities.

In this blog, we take a closer look at Yemen and the implications of de-risking on local aid actors.

De-risking and humanitarian response efforts

De-risking refers to the practice of banks closing or restricting financial services to clients that they perceive ‘present a higher risk of money laundering and terrorist financing and offer limited returns in the form of profitability’ (Keatinge and Keen 2017: 10). Individuals and organisations living and working in high-risk countries may find themselves affected by de-risking, even if their financial transactions are legitimate, solely because of the environment in which they find themselves.

Research by the Charity Finance Group in 2015 has shown that because of bank de-risking, NGOs in high-risk countries have had to end partnerships, reduce or close programmes.

‘According to a member survey of the Muslim Charities Forum, a coordinating body that represents the largest Muslim non-profit organisations in the UK, 37% experienced difficulties in opening a bank account, with the greatest problems related to aid operations in areas facing conflict and violent extremism, including Somalia, Sudan and Iraq’ (El Taraboulsi-McCarthy and Cimatti 2018: 4).

The shift to more risk-averse behaviour from US and European banks, despite more lenient international financial recommendations emerging recently for the charity sector, is believed to be the result of tougher banking regulations and enforcement in the wake of the 2008 financial crisis.

It is important to note that ‘humanitarian NGOs generally accept the need for regulation and due diligence, but the current weight of compliance demands by their banking partners is often seen as disproportionate, resulting in a need to spend donor money on additional staff and due diligence tools, increased administration costs, aid delivery and financial transfer delays, and in some circumstances the closure of programmes to which funding cannot be delivered’ (Keatinge and Keen 2017).

To compound this situation, there is no clear legal recourse for individuals and organisations affected by de-risking. In fact, the burden of proof lies with the individual or organisation affected should they initiate a lawsuit as a result of being subjected to bank de-risking measures. This is difficult to do when the reasons for the actions taken by the bank are not communicated to those affected: ‘how banks understand “risk”, and how decisions to close bank accounts are made, remain largely unclear’ (El Taraboulsi-McCarthy and Cimatti 2018: 3).

De-risking and local humanitarian actors in Yemen

Yemen is the world’s worst humanitarian crisis at the moment and is experiencing tens of thousands of conflict-related casualties, severe food insecurity, and a cholera epidemic. However, the security situation in Yemen is making it extremely difficult for humanitarian organisations to operate in the country, with many international aid agencies relying on local partners or remote management to respond to humanitarian needs.

This situation is compounded by bank de-risking, which has impeded many Yemen-based humanitarian organisations, both local and international, from accessing financial services.

A recently published report by ODI refers to cases where international banks have delayed or cancelled transactions or even closed bank accounts of individual Yemenis and Yemeni organisations. As a consequence, humanitarian organisations have been delayed in transferring funds into the country from overseas, and on occasions been unable to do so altogether. The impact has been particularly adverse on local aid organisations and has resulted in some of these groups having to cease operations or not respond to events, such as the cholera outbreak.

‘With the breakdown of financial channels to and from Yemen, an estimated $200-$260m is stuck in frozen bank accounts, and individuals and organisations have been barred from accessing the global financial market’ (El Taraboulsi-McCarthy and Cimatti 2018: 8).

The inability to bring foreign funds into Yemen, and an unstable local banking system, have had adverse impacts on the operations of humanitarian organisations, especially in a country which relies heavily on imports and remittances. While this is concerning for international NGOs trying to operate in the country, it has the ability to paralyse local organisations.

Whereas international NGOs have the luxury of a greater voice and more options for responding to de-risking, whether that is by speaking to international governments and bank officials, putting in place greater due diligence systems to meet bank requirements, or by using creative means to transfer funding into the country, national actors often lack the clout and the resources to do the same.

The insecurity in Yemen means international NGOs must rely heavily on local staff and partner organisations to access populations in need. If this transfer of power, and risk, is done responsibly and in a way that truly empowers local actors, it would be in line with the localisation agenda and indeed something to strive for.

However, the situation caused by bank de-risking and the absence of a functioning formal banking system in Yemen means that local NGOs do not have the necessary financial access to allow them to firmly pick up the ‘humanitarian mantle’.

The implications this has for the security of aid operations, as well as localisation efforts, are concerning.

Conclusion

The international community is facing criticism that it is de-humanizing Yemenis and oversimplifying the humanitarian crisis the country is facing. A way to address these concerns is to empower local actors.

From an international NGO security standpoint, increasing the power and capacity of local actors to respond in Yemen means not only reducing the risk placed on international staff but also improving local actors’ ability to manage their own risks, thereby contributing to their security as well.

All of these efforts, however, must address the impact that bank de-risking – and the consequent restrictions on legitimate financial transactions – has on local aid actors.

With the localisation agenda and a greater reliance on local actors and NGOs in insecure locations, the international community must carefully consider and address not only the capacity of local NGOs but also the restrictions faced by these actors in taking control over their country’s humanitarian response efforts.

 

Sources and further reading

Counter-terrorism, de-risking and the humanitarian response in Yemen: a call for action, Sherine El Taraboulsi-McCarthy and Camilla Cimatti, Overseas Development Institute (ODI), February 2018, https://www.odi.org/publications/11020-counter-terrorism-de-risking-and-humanitarian-response-yemen-call-action

Yemen could be ‘worst’ humanitarian crisis in 50 years, Al Jazeera, 5 January 2018, https://www.aljazeera.com/news/2018/01/yemen-worst-humanitarian-crisis-50-years-180105190332474.html

Yemen: National Chaos, Local Order, Peter Salisbury, Chatham House, 20 December 2017, https://www.chathamhouse.org/publication/yemen-national-chaos-local-order

Counter-Terrorist Financing and Humanitarian Security, Alex Marriage, EISF, 5 April 2017, https://www.eisf.eu/news/counter-terrorist-financing-and-humanitarian-security/

Humanitarian Action and Non-state Armed Groups The Impact of Banking Restrictions on UK NGOs, Tom Keatinge and Florence Keen, Chatham House, April 2017, https://www.chathamhouse.org/sites/files/chathamhouse/publications/research/2017-04-28-nsags-banking-restrictions-ngo-keatinge-keen.pdf

Counter-Terrorism Legislation and NGO Security Risk Management, Adelicia Fairbanks, EISF, 22 December 2016, https://www.eisf.eu/news/counter-terrorism-legislation-and-ngo-security-risk-management-2/

Briefing: Impact of banks’ de-risking on Not for Profit Organisations, Charity Finance Group, March 2015, http://www.cfg.org.uk/Policy/~/media/Files/Policy/Banking/Briefing%20%20Impact%20of%20banks%20derisking%20activities%20on%20charities%20%20March%202015.pdf