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Whose risk? Bank de-risking and the politics of interpretation and vulnerability in the Middle East and North Africa

Published online by Cambridge University Press:  14 December 2021

Sherine El Taraboulsi-McCarthy
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Abstract

Following the events of 11 September 2001, measures aimed at countering the financing of terrorism (CFT) were intensified by States. Many countries around the world adopted strict anti-money laundering and CFT regulations for the transfer of funds globally. This process increased the costs of complying with regulatory requirements and imposed high penalties on banks for non-compliance. As a result, preventive measures – often known as “de-risking” – were taken up by banks, including terminating the accounts of clients perceived as “high-risk” for money laundering or terrorist financing, and delaying transfers. These measures, however, have had negative consequences, reducing financial access for local civil society organizations in conflict-affected contexts that are deemed high-risk for terrorist activities. Drawing on five years of research to understand the impact of de-risking on conflict-affected contexts from a local perspective, this paper reflects on the local political economy of CFT, with a focus on the Middle East and North Africa. It explores two key areas of inquiry. The first of these is the politics of interpretation – how counterterrorism as a discourse and a set of practices, of which CFT is one, gets interpreted by local authorities and banks, and subsequently gets reinterpreted to the population. This also has implications for which local actors are better positioned to access funds than others, and why. The second area of inquiry is the politics of vulnerability – how the local political economy impact of CFT can increase the social and economic vulnerabilities of some groups more than others. This paper demonstrates that under the guise of “counterterrorism”, local authorities in conflict-affected contexts have used CFT to restrict the non-profit and philanthropic space and are using banking regulations to shape that space in ways that are bound to have negative medium- and long-term implications for it.

Keywords

counterterrorismcountering the financing of terrorismpolitical economyMiddle East and North Africahumanitarian engagementphilanthropycivil societybanksde-risking
Type
Financial access, de-risking and the role of the banking sector
Information
International Review of the Red Cross , Volume 103 , Issue 916-917: Counterterrorism, sanctions and war , April 2021 , pp. 747 - 762
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press on behalf of the ICRC

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References

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3 The cost of non-compliance for banks is significant. For example, between 2018 and 2019, global regulators levied a near-record $10 billion worth of fines against banks, and by summer 2020, these same regulators had already issued $5.6 billion in fines against financial institutions. See Jeff John Roberts, “A Near Record Year for Money Laundering: Banks Hit with $10 Billion in Fines”, Fortune, 11 March 2020, available at: https://tinyurl.com/2hdbuczv (all internet references were accessed in November 2021); Ascent, “The Not So Hidden Costs of Compliance”, 30 June 2020, available at: www.ascentregtech.com/blog/the-not-so-hidden-costs-of-compliance/

4 See J. J. Roberts, above note 3.

5 It is worth noting here that financial firms spend significant sums on ensuring compliance. For example, the Asia-Pacific, European, Middle Eastern and African, Latin American, and North American markets spend about $181 billion per year on maintaining financial crime compliance. See Ascent, above note 3.

6 While “terrorist finance” is usually understood as money and as such, approaches to countering the financing of terrorism have been mainly about disrupting the flow of money for terrorist organizations or those suspected on terrorism, Wittig argues that the term is best understood as “exchange of value in any form”, with money being only one such form. See Timothy Wittig, “Terrorist Finance: Myth and Reality”, in T. Wittig, Understanding Terrorist Finance, Palgrave Macmillan, London, 2011.

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9 See T. Keatinge, above note 7; S. Gordon and S. El Taraboulsi-McCarthy, above note 8; Samantha Bricknell, “Misuse of the Non-Profit Sector for Money Laundering and Terrorism Financing”, Trends & Issues in Crime and Criminal Justice, No. 424, September 2011; Othman, Radiah, “Institutionalization of Risk Management Framework in Islamic NGOs for Suppressing Terrorism Financing”, Journal of Money Laundering Control, Vol. 17, No. 1, 2014CrossRefGoogle Scholar; Sherine El Taraboulsi-McCarthy and Camilla Cimatti, Counter-Terrorism, De-Risking and the Humanitarian Response in Yemen: A Call for Action, HPG Working Paper, ODI, London, 2018, available at: https://odi.org/en/publications/counter-terrorism-de-risking-and-the-humanitarian-response-in-yemen-a-call-for-action/.

10 All interview respondents in this paper are anonymized because of the sensitivity of the topic and to alleviate concerns about reputational risk.

11 Princess Bazley-Bethea and Selena Bridges, “De-Risking: A Product of Avoidance”, InterAction, 15 November 2019, available at: www.interaction.org/blog/de-risking-a-product-of-avoidance/.

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13 See, for example, US Congress, “International Terrorism, Insurgency, and Drug Trafficking Present Trends in Terrorist Activity – Joint Hearings Before the Senate Committee on Foreign Relations and the Committee on the Judiciary, May 13, 14, and 15, 1985”, 1985, available at: www.ojp.gov/ncjrs/virtual-library/abstracts/international-terrorism-insurgency-and-drug-trafficking-present-0; Neil C. Livingstone, Fighting Back: Winning the War against Terrorism, Heath, Lexington, MA, 1987; Rachel Ehrenfeld, Narco-Terrorism: How Governments around the World Have Used the Drug Trade to Finance and Further Terrorist Activities, Basic Books, New York, 1990; Thomas Petzinger Jr., “We Clean Cash! Pakistan Pitches Money-Laundering in the U.S.”, Wall Street Journal, 18 March 1992; Bruce Hoffman, Inside Terrorism, Columbia University Press, New York, 2006.

14 Jean K. Giraldo and Harold A. Trinkunas, Terrorism Financing and State Responses: A Comparative Perspective, Stanford University Press, Stanford, CA, 2007, p. 11.

15 Michaela Erbenová et al., The Withdrawal of Correspondent Banking Relationships: A Case for Policy Action, International Monetary Fund (IMF), 2016, available at: www.imf.org/external/pubs/ft/sdn/2016/sdn1606.pdf.

16 Sue Eckert, Kay Guinane and Andrea Hall, Financial Access for US Non-Profits, Charity and Security Network, 2017, available at: www.charityandsecurity.org/system/files/FinancialAccessFullReport_2.21%20(2).pdf.

17 The FATF is an inter-governmental body established in 1989 by the ministers of its member jurisdictions. The mandate of the FATF is to “set standards and to promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and the financing of proliferation, and other related threats to the integrity of the international financial system”. The FATF also collaborates with other international stakeholders and works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse. See FATF, International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation: The FATF Recommendations, p. 7, 2012, available at: www.fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html.

18 The original FATF Forty Recommendations were drawn up in 1990 as an initiative to combat the misuse of financial systems by persons laundering drug money. The Recommendations were revised for the first time in 1996 to reflect evolving money laundering typologies. In 2001, the FATF expanded its mandate to deal with the issue of the funding of terrorist acts and terrorist organizations, and created the Eight (later expanded to Nine) Special Recommendations on Terrorist Financing. The FATF Recommendations were revised a second time in 2003, and these, together with the Special Recommendations, have been endorsed by over 180 countries, and are universally recognized as the international standard for AML/CFT. See ibid.

19 Human Security Collective (HSC), “Impact of CFT Measures on Civil Society”, 2021, available at: www.hscollective.org/our-work/working-themes/impact-of-cft-measures-on-civil-society/

20 Favarel-Garrigues, Gilles, Godefroy, Thierry and Lascoumes, Pierre. “Reluctant Partners? Banks in the Fight against Money Laundering and Terrorism Financing in France”, Security Dialogue, Vol. 42, No. 2, 2011CrossRefGoogle Scholar.

21 Human Security Collective (HSC) and European Center for Not-for-Profit-Law (ECNL), At the Intersection of Security and Regulation: Understanding the Drivers of “De-Risking” and the Impact on Civil Society Organizations, 2018, p. 7, available at: www.hscollective.org/assets/Uploads/Reports/8f051ee3cb/Understanding-the-Drivers-of-De-Risking-and-the-Impact-on-Civil-Society-Organizations_1.pdf.

22 David Artingstall, Nick Dove, John Howell and Michael Levi, Drivers and Impact of Derisking: A Study of Representative Views and Data in the UK for the Financial Conduct Authority, John Howell & Co., Shamley Green, 2016, p. 8, available at: www.fca.org.uk/publication/research/drivers-impacts-of-derisking.pdf.

23 See ibid.

24 See G. Favarel-Garrigues, T. Godefroy and P. Lascoumes, above note 20.

25 James A. Haley, De-Risking of Correspondent Banking Relationships: Threats, Challenges and Opportunities, Woodrow Wilson International Center for Scholars, Washington, DC, 2018, p. 12, available at: www.wilsoncenter.org/sites/default/files/media/documents/article/2018_haley_report-edits-2-2018-final.pdf.

26 Ibid., p. 12, fn. 24 (emphasis in original).

27 It is important to note that the argument here is not to say that the threat of terrorism is not real. In the UK, horrific attacks on London and Manchester in 2017 are examples of the continued threat that terrorism poses. The argument here is about proportionality – that is, ensuring that counterterrorism measures are not victimizing the innocent and that conceptualizations of risk adequately encompass contextual factors.

28 IMF and Union of Arab Banks, The Impact of De-Risking on MENA Banks, Joint Survey, Washington, DC, 2015, available at: https://uabonline.org/wp-content/uploads/2020/06/De-Risking_on_the_MENA_Region.pdf.

29 HSC and ECNL, above note 19, p. 7.

30 J. Woodsome et al., above note 8.

31 This is particularly true today as cross-border delivery of humanitarian aid becomes significantly more difficult, threatening lives and putting people at risk of acute food insecurity. Unlocking financial flows can help relieve the humanitarian crisis by allowing Syrians to have access to funds. See Alan Shaw-Krivosh, “UN Mandate for Cross Border Aid to Syria to Expire Today”, Foreign Brief, 10 July 2021, available at: www.foreignbrief.com/daily-news/un-mandate-for-cross-border-aid-to-syria-to-expire-today/.

32 James King, “How Derisking Became a Humanitarian Issue”, The Banker, 1 February 2017, available at: www.thebanker.com/World/How-derisking-became-a-humanitarian-issue/(language)/eng-GB.

33 Stuart Gordon, Alice Robinson, Harry Goulding and Rawwad Mahyub, The Impact of Bank De-Risking on the Humanitarian Response to the Syrian Crisis, HPG Working Paper, 2018, available at: www.syrialearning.org/system/files/content/resource/files/main/the-impact-of-bank-de-risking-on-the-humanitarian-response-to-the-syrian-crisis.pdf.

34 Sherine El Taraboulsi-McCarthy, The Challenge of Informality: Counter-Terrorism, Bank De-Risking and Financial Access for Humanitarian Organizations in Somalia, HPG Working Paper, ODI, London, 2018, p. 1, available at: https://odi.org/en/publications/the-challenge-of-informality-counter-terrorism-bank-de-risking-and-financial-access-for-humanitarian-organisations-in-somalia/.

35 Sherine El Taraboulsi-McCarthy, “Philanthropy in Captivity: Counter-Terrorism Measures and Arab Philanthropy” Alliance, 2 May 2018, available at: www.alliancemagazine.org/blog/philanthropy-captivity-counter-terrorism-measures-arab-philanthropy/.

36 See S. Gordon and S. El Taraboulsi-McCarthy, above note 8.

37 Modirzadeh, Naz K., Lewis, Dustin A. and Bruderlein, Claude, “Humanitarian Engagement under Counter-Terrorism: A Conflict of Norms and the Emerging Policy Landscape”, International Review of the Red Cross, Vol. 93, No. 883, 2018, p. 624Google Scholar.

38 Christou, Odysseas and Adamides, Constantinos, “Energy Securitization and Desecuritization in the New Middle East”, Security Dialogue, Vol. 44, No. 5–6, 2013, p. 509CrossRefGoogle Scholar.

39 Benjamin Bathke, “German Bank Blacklist of Yemeni Nationals Widens”, DW, 10 March 2017, available at: www.dw.com/en/germanbank-blacklist-of-yemeni-nationals-widens/a-37839413.

40 S. El Taraboulsi-McCarthy, Yazeed Al Jeddawy and Kerrie Holloway, Accountability Dilemmas and Collective Approaches to Communication and Community Engagement in Yemen, HPG Commissioned Report, ODI, London, 2020, available at: https://odi.org/en/publications/accountability-dilemmas-and-collective-approaches-to-communication-and-community-engagement-in-yemen/.

41 See S. El Taraboulsi-McCarthy and C. Cimatti, above note 9.

42 Arab Monetary Fund, IMF and World Bank Group, Withdrawal of Correspondent Banking Relationships in the Arab Region: Recent Trends and Thoughts for Policy Debate, 2016, available at: www.amf.org.ae/sites/default/files/Files/content/CBRs%20in%20the%20Arab%20Region%20Survey_FINAL%20Report_Final.pdf.

43 HSC, above note 19.

44 FATF, “Outcomes of the Plenary meeting of the FATF, Busan Korea, 22–24 June 2016”, 24 June 2016, available at: www.fatf-gafi.org/publications/fatfgeneral/documents/plenary-outcomes-june-2016.html.

45 Clive Walker, “Terrorism Financing and the Governance of Charities”, in Colin King, Clive Walker and Jimmy Gurulé (eds), The Palgrave Handbook of Criminal and Terrorism Financing Law, Palgrave Macmillan, Cham, 2018; Ben Hayes, Lia van Broekhoven and Vanja Skoric, “De-Risking and Non-Profits: How Do you Solve a Problem that No-One Wants to Take Responsibility For?”, OpenDemocracy, 13 July 2017, available at: www.tni.org/my/node/23602; CGD Working Group, Unintended Consequences of Anti-Money Laundering Policies for Poor Countries, Washington, DC, 2015, available at: www.cgdev.org/publication/unintended-consequences-anti-money-laundering-policies-poor-countries.

46 Sherine El Taraboulsi-McCarthy, “A Humanitarian Sector in Debt”: Counter-Terrorism, Bank De-Risking and Financial Access for NGOs in the West Bank and Gaza, HPG Working Paper, ODI, London, 2018, p. 5, available at: https://odi.org/en/publications/a-humanitarian-sector-in-debt-counter-terrorism-bank-de-risking-and-financial-access-for-ngos-in-the-west-bank-and-gaza/.

47 Ibid.

48 Hamas, which took control of Gaza following elections in 2006, is considered a terrorist organization by a number of Western and Middle Eastern countries.

49 For a more detailed account of the interlocking challenges faced by Palestinian NPOs, see ibid.

50 Othman, Radiah and Ameer, Rashid, “Institutionalization of Risk Management Framework in Islamic NGOs for Suppressing Terrorism Financing”, Journal of Money Laundering Control, Vol. 17, No. 1, 2014, p. 106CrossRefGoogle Scholar.

51 S. El Taraboulsi-McCarthy, above note 46. Hamas was listed as a terrorist organization in 2003 and is subject to sanctions by a number of Western States, including includes Australia, Canada, Japan, the United States and countries of the European Union. See Kate Mackintosh and Patrick Duplat, Study of the Impact of Donor Counter Terrorism Measures on Principled Humanitarian Action, United Nations Office for the Coordination of Humanitarian Affairs and Norwegian Refugee Council, 2013, p. 87, available at: www.nrc.no/globalassets/pdf/reports/study-of-the-impact-of-donor-counterterrorism-measures-on-principled-humanitarian-action.pdf; Omar Shaban, “Unlocking the Gaza Strip's Economic Potential and Fostering Political Stability: Europeans should Seize the Opportunity of the Rapprochement between Fatah and Hamas”, SWP Comments No. 42, German Institute for International and Security Affairs, October 2017, p. 2, https://tinyurl.com/5rmby4bp. No-contact policies have also been introduced with regard to members of the Hamas-led cabinet. Canada was the first Western State to introduce such a policy, followed – among others – by the United States under the Palestinian Anti-Terrorist Act, passed in May 2006. This stipulates that “no officer or employee of the US Government should negotiate or have substantive contacts with members of the Palestinian terrorist organizations” (K. Mackintosh and P. Duplat, above, p. 90).

52 See S. El Taraboulsi-McCarthy, above note 46.

53 See ibid.

54 See ibid.

55 See S. El Taraboulsi-McCarthy, above note 35.

56 See ibid.

57 See S. Gordon and S. El Taraboulsi-McCarthy, above note 8.

58 See ibid.

59 See S. El Taraboulsi-McCarthy, above note 46, p. vii.

60 See ibid., p. 6.

61 See ibid.

62 S. El Taraboulsi-McCarthy and C. Cimatti, above note 9.

63 Ibid., p. 10.

64 Ibid.

65 See S. El Taraboulsi-McCarthy, above note 34, p. 7.

66 See S. Gordon and S. El Taraboulsi-McCarthy, above note 8, p. 5.