Demos: Counter-terrorism strategy is ‘costing charities millions’

– New report reveals challenges NGOs face in securing and transferring funds due to the counter-terrorism regulation fears of banks
– Calls on banks, charities, and government bodies to improve dialogue on resulting financial restrictions and impact on charitable activity
– Critical aid struggling to reach conflict zones such as Syria

International aid charities are struggling to use their donations for frontline services due to stricter counter-terrorism legislation causing banks to shut down accounts in an effort to reduce their overall risk.

The warning comes in a new report by the cross-party think tank Demos, which argues that new regulations could be ‘costing charities millions’ in aid funding due to additional compliance costs and money being tied up in domestic accounts due to blocked transfers.

It coincides with the current review of the Protection of Charities Bill and just a few weeks before the government’s terrorism legislation reviewer, David Anderson QC, is due to publish his latest review of the operation of the government’s terrorist asset-freezing legislation.

The Demos investigation is led by Tom Keatinge, an expert with several years’ experience in the field of finance and banking regulation, who conducted dozens of interviews with high-level figures in government and the banking and charity sectors to pinpoint the root causes preventing money getting to where donors intended, and how to address them.

The report cites figures showing the UK has over 160,000 registered charities, with total reported turnover in excess of £63 billion per annum. According to official figures approximately 20% (£740 million) of the government’s bilateral assistance funds distributed by the Department for International Development are channelled through NGOs.

The Uncharitable Behaviour report recognises the challenges posed by the threat of terrorist activity, but proposes a number of measures to help the government and organisations ease the obstacles they place on their activities. It recommends:

– Consideration should be given to introducing a form of ‘kite-marking’ that recognises strong governance standards in the NGO sector.
– Banks should consider the promotional benefits of ‘reputation return’ by working more closely with NGOs to find solutions to the challenges they face, allowing banks the opportunity to emphasise their ‘partnerships’ with the NGO sector.
– Smaller charities should seek to reduce duplicated administration costs by looking to merge with similar organisations in their sector (such as the recent merger of Prostate Cancer Research Foundation, Prostate Action and Prostate Cancer UK).
– Banks should co-ordinate their engagement with NGO umbrella groups, with the help of the BBA, to ensure a productive dialogue on financial restrictions and charitable activity.
– Many NGOs should improve their professionalism to re-establish trust with the banking sector. This includes classifying money transmission as a critical element when planning programmes and engaging with banks.
– Finally, the government must show leadership in addressing the issue of counter-terror finance legislation’s impact on NGOs’ financial access, to prevent decisions being made by banks on commercial grounds alone.

David Anderson QC, appointed by the government as its independent reviewer of terrorism legislation, said:

“There are acute concerns within the charitable sector regarding banks withdrawing or curtailing services to NGOs.  I welcome any report that seeks to address these concerns.”

Lisa Nandy, Shadow Civil Society Minister said:

“This report provides worrying evidence that fear about terrorism is stopping legitimate charities from doing lifesaving work.

“The Government has taken an inconsistent approach when it comes to charity regulation, it asks the charity commission to come down hard on organisations it suspects of having ties to extremists, but seems more relaxed about other charitable abuse like tax avoidance. This sets the wrong tone for the banks who lend to charities and for the public who donate to them.

“As we debate the draft protection of charities bill we need to get some balance back into the debate. It is vital that robust scrutiny of the charity sector is even handed across the board, and doesn’t prevent good charities from their critical work.”

Tom Keatinge, author of the report, said:

“There is surprising consensus amongst all stakeholders on the challenges posed – what is lacking is leadership, on all sides, in resolving this issue.

“The UK is rightly proud of its history of charitable giving by both individuals, corporations, and government. However, the impact of creeping counter-terrorism fears on the banking sector means that delivering the benefit of this generosity is becoming increasingly challenging, and costing charities millions in lost donations and due diligence expense.

“The stark reality is that in the name of security we are creating greater insecurity.”

Jonathan Birdwell, Head of Citizenship at the think-tank Demos, said:

“This report highlights the unintended consequences that can follow from our efforts to prevent terrorism. Banks and charities need to remain vigilant to prevent funds from finding their way to Islamic State and other terrorist groups. But this report shows that many innocent charities are also getting caught in the dragnet. As a result, critical aid is not finding its way to the places that need it most, including the almost three million refugees from the Syrian conflict.

“Banks must do more to work with charities to ensure compliance rather than simply cut ties with charities that might be deemed ‘risky’ because of the areas in which they operate. By doing so, banks can demonstrate their good citizenship credentials, and possibly win back a ‘reputational return’ that could help to polish their tarnished image.”



The report, Uncharitable Behaviour, authored by Tom Keatinge is published by Demos on Wednesday 31 December 2014.

This research was supported by the Joseph Rowntree Charitable Trust.