Banks, policymakers, law enforcement agencies and non-profits in Nigeria have come together to kick off tri-sector dialogues to address bank derisking of non-profit organizations (NPOs) from a multi-sectoral perspective. The tri-sector dialogues commenced with the inauguration of the Multistakeholder Working Group on Charities (MSWGC) on April 30, 2024, facilitated by Spaces for Change [S4C] in Lagos. Setting up the MSWGC became imperative following the Banks and Civil Society Conference held on February 8, 2024, where stakeholders in the law enforcement, banking, and civil society sectors examined the impacts of anti-money laundering and countering the financing of terrorism policies and measures on NPOs in Nigeria.
At the inauguration ceremony attended by commercial banks, fintechs, financial intelligence and financial crimes agencies, law enforcement agencies, NPOs, charity regulators and the Financial Action Task Force regional body for West Africa (GIABA), S4C presented the evidence of financial exclusion and disruptions to legitimate NPO operations arising from the implementation of banking policies and regulatory measures to counter the financing of terrorism in Nigeria. These include dearth of banking services in certain regions of the country, bureaucratic onboarding processes for NPO customers, registration and certification difficulties, high debit and account maintenance charges, confirmation bias for cash movements, financial exclusion of beneficiaries of humanitarian assistance, onerous beneficiary and vendor screening processes, complex due diligence requirements, complex account opening documentation requirements, harsh application of AML/CFT policies, misuse and/or overstretching of terrorism financing legislation, sudden freeze or closure of accounts without notification, blocking of bank accounts unlinked to BVN and NIN, etc.
Due to the above pressures, many charities devote considerable time and resources to compliance functions as opposed to charitable activities—which is the main reason why they are set up in the first place. Another particularly aggravating factor is the duplication of burdensome compliance obligations to multiple regulatory authorities, forcing many NPOs to consider abandoning their charitable activities for other for-profit ventures. High compliance functions such as sanctions screening, vendor vetting, customer due diligence and stringent financial reporting are ostensibly at odds with the mandates of charities. Some of these measures, though necessary for enhancing financial integrity, place undue burdens on charities while producing chilling effects on smaller organizations.
Regulators and banks acknowledged that these restrictions need to be removed. However, they stem from convergent approaches adopted by different sectors in combating terrorism financing. To non-profits, they just want to deliver good works and humanitarian assistance to beneficiaries in great need with little or no impediments to their operations. Banks, on the other hand, want to ensure that illegitimate or sham entities do not exploit the financial systems to commit crimes, move or disburse funds under the guise of charity. Banks said they do not suspend or freeze bank accounts without reason. First, actions taken by banks are based on the directives issued by the Central Bank of Nigeria (CBN). Secondly, sudden freeze or suspension of a bank account may be linked to sanctions screening, documentation gaps or an ongoing criminal investigation. It is usually done without notification to avoid tipping off (notifying a suspected criminal or terrorist that an account is being investigated either directly or indirectly). Thirdly and most importantly, banks are highly-regulated and may de-risk certain types of customers to evade penalties. Due to the strict regulation of banks, they are usually careful when dealing with customers’ accounts, especially NPOs.
One thing that cannot be overlooked is overzealousness on the part of financial institutions. Some financial institutions overzealously apply blanket restrictions on all NPO customers. This provoked conversations regarding how to apply international counterterrorism norms locally, taking into account the political, social, and economic peculiarities of the country. To this end, the Nigerian government, through the Special Control Unit Against Money Laundering (SCUML), has conducted the Terrorism Financing Risk Assessment (TFRA) of the NPO sector in 2021 in compliance with FATF’s Recommendation 8 which requires countries to identify the subset of non-profit organizations (NPOs) vulnerable to terrorist financing (TF) risks. Consequently, Nigeria has been re-rated from non-compliant to fully compliant with R8 by the Inter-Governmental Action Against Money Laundering in West Africa (GIABA)—the FATF regional style body (FSRB) for West Africa. Blanket application of anti-terrorism financing policies and measures are inconsistent with the results of the TFRA. Regulators acknowledged Spaces for Change’s role in ensuring that the implementation of AML/CFT policies and measures in Nigeria do not hurt human rights and shrink the civic space. S4C’s commitment and role as technical experts to SCUML during the TFRA contributed to Nigeria’s favorable Recommendation 8 rating.
The above conflicting perspectives and concerns raised by NPOs and banks demonstrate the importance of the tri-sector dialogues. Stakeholders also received expert guidance on setting up such dialogues and what it portends for Nigeria in the international community. Nigeria is the first country in Africa to set up a working group like the MSWGC to address banking service challenges faced by NPOs. For Nigeria to sustain its current FULLY COMPLIANT rating on FATF Recommendation 8, certain measures must be implemented by the government and the NPOs. On the government’s part, they must ensure that laws or measures put in place to mitigate TF risks are not in any way disrupting legitimate NPOs operations. The government must take into consideration self-regulatory measures put in place by the NPOs as well. NPOs must, however, make concerted efforts to mitigate their TF risks. One of the steps include identifying the TF risks they are exposed to, communicating the risk, and training their staff and partners on their TF risk exposure. Embracing self-regulation and voluntary compliance will go a major way in tackling the issue of TF risks in the NPO sector.
The inauguration ceremony concluded with the constitution of the MSWGC and the election of the principal officers of the MSWGC. The main responsibility of the MSWGC is to work together to address the critical TF-linked challenges that NPOs face and encourage voluntary compliance in the NPO sector. The inauguration of the MSWGC was supported by the Global Center for Cooperative Security (GCCS).
