On November 19, 2020, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Financial Crimes Enforcement Network, National Credit Union Administration, and Office of the Comptroller of the Currency (collectively, the “Agencies”) issued a joint fact sheet clarifying how banks subject to the Bank Secrecy Act (“BSA”) should apply a risk-based approach to customer due diligence (“CDD”) requirements for charities and other non-profit organizations.

In the past, U.S. and foreign regulators have expressed the view that “the flow of funds both into and out of [non-governmental organizations] can be complex, making them susceptible to abuse by money launderers and terrorists.”  In that context, the joint fact sheet provides welcome clarification that the U.S. government does not generally view the charitable sector as presenting unique AML, terrorist financing, or sanctions risks and that access to financial services is critical for charities to achieve their important missions, particularly during the COVID-19 pandemic.

To that end, the joint fact sheet outlines considerations to assist banks in evaluating a charitable customer’s risk profile and conducting appropriate risk-based CDD.  These considerations are:

  • The purpose, nature, activities, and programs of the organization;
  • The geographic locations served, particularly if these locations include high-risk areas where terrorist groups are active;
  • The organization’s structure, including key individuals and internal controls;
  • The organization’s incorporation, registration, tax-exempt status, and reporting with regulatory authorities;
  • Voluntary participation in self-regulatory programs to enhance governance, management, and operational practices;
  • Financial statements, audits, and any self-assessment activities;
  • General information about the donor base and funding sources;
  • General information about beneficiaries and criteria for disbursing funds; and
  • Affiliations with other organizations, governments, or groups.

The joint fact sheet reminds banks that charities report specific information annually on IRS Form 990, which may provide useful information with respect to these considerations.

The joint fact sheet, which as informal guidance does not formally alter existing BSA/AML requirements or supervisory expectations, concludes by affirming that charities and non-profit organizations provide vital services and that banks should apply a risk-based approach to these organizations, consistent with existing CDD and other BSA/AML requirements.

Print:
EmailTweetLikeLinkedIn
Photo of Nikhil Gore Nikhil Gore

A member of the international arbitration and financial institutions practices, Nikhil V. Gore represents sovereign states and U.S. and global firms in international treaty-based and commercial disputes. He also regularly represents U.S. financial institutions, and the U.S. branches and affiliates of foreign financial…

A member of the international arbitration and financial institutions practices, Nikhil V. Gore represents sovereign states and U.S. and global firms in international treaty-based and commercial disputes. He also regularly represents U.S. financial institutions, and the U.S. branches and affiliates of foreign financial institutions, in investigations and inquiries involving the Federal Reserve, OCC, FDIC, CFPB, and state banking regulators.

Mr. Gore has served as counsel in investment and commercial arbitrations spanning several industries and a variety of regions, including Asia, Eastern Europe, North America, and Southern Africa. Additionally, he has expertise in the law of the sea, and was part of the Covington team that secured an order from the International Tribunal for the Law of the Sea, which required Russia to release three Ukrainian naval vessels and twenty-four servicemen detained in the Black Sea in 2018.

In his financial institutions practice, Mr. Gore has experience with enforcement actions and investigations relating to the Bank Secrecy Act, the federal criminal money laundering statutes, the full range of safety and soundness issues (including, in particular, supervisory reviews of bank control functions), and fair lending and consumer compliance. Mr. Gore is a regular contributor to the firm’s financial services blog.