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KYC Compliance Tops the List of Concerns for NGO Treasurers

  • By Andrew Deichler
  • Published: 7/28/2015
BETHESDA, MD -- Complying with know your customer (KYC) regulations topped the list of concerns for attendees at the latest meeting of the Association of Global Development Treasurers, held Monday at the AFP headquarters. The group, comprised of treasury and finance professionals for non-governmental organizations (NGOs), is primarily concerned with the unintended consequences of banks’ interpretations of the regulations.

Compliance and regulations

Organizations that operate in regions like Syria, Burma (Myanmar) and Sudan are subject to KYC by banks. Nonprofits are considered high-risk because they work in these areas, even though they are delivering life-sustaining services.

Because of the difficult environment in which NGOs work, a few banks have even resorted to “know your customer’s customer” (KYCC) rules. “It’s something they’re asking for, just so they can get an extra layer of comfort,” one NGO treasurer said.

Sassan Parandeh, CTP, treasurer for ChildFund International, said that his organization has been primarily focused on the changes in the global banking industry. “The level of compliance has been really tough,” he said. “The challenge is, we’re being asked, over and over, to vet our board members. Sometimes it’s from the same bank; different offices in different countries will want the same thing in different formats.”

Kathryn Powers, global treasurer for World Vision International (WVI), noted the unintended consequences of the banks’ sometimes intrusive requests of NGOs. “The banks are asking us for very detailed personal information on our board members, such as passport information and personal family details,” she said. “The regulators aren’t necessarily asking for this, but the banks are interpreting them that way to make sure they’re well within compliance.”

If the issue is not resolved, there could be deeper unintentional consequences in the long run. The additional costs of banks’ understandably conservative interpretations of KYC regulations—brought on by recent fines—present a substantial financial burden on top of already thin margins. The end result may ultimately be that some banks could reduce their NGO client base.

Powers noted that there is an irony here; the government is providing NGOs with grants to provide infrastructure for refugees, food, aid, etc. However, the banks are so concerned with running afoul of government regulations that their requirements for NGOs are unintentionally making it difficult for these organizations to function in these countries. Therefore, more education is needed. “This is an opportunity for us to really start the dialog with the banks and regulators in a more formal way. The banks are the ones who have to get more comfortable with this.”   

One encouraging sign is that regulators such as the Office of Foreign Assets Control (OFAC), the Department of the State and the Department of the Treasury are open to, and even welcome, dialogue with NGOs. “They are trying to combat terrorist financing, but they are also mindful of unintended consequences,” Powers said.

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