SYRIAN ARAB REPUBLIC: Banking Industry Compliance Challenges Impede Humanitarian Aid Efforts

The Syrian crisis has created a complex environment for aid agencies seeking to transfer funds into the country or neighboring states, with counter-terrorist financing (CTF) legislation and international sanctions severely limiting humanitarian efforts.

Regulatory Challenges

Neighboring countries such as Turkey, Lebanon, and Jordan have their own regulatory challenges and financial systems. This has made it difficult for aid agencies to arrange straight-line bank-to-bank transfers through the global correspondent bank network, hindering their ability to pay staff and suppliers and adding significant costs.

Bank De-risking and Its Consequences

According to a recent study, up to a third of donor funds were held between correspondent and recipient banks for four to six months. NGOs have had to reorganize programming priorities to focus on less contentious areas. The study estimates that bank de-risking has reduced the cash available to NGOs by at least 35%, with funds remaining unavailable for three to five months longer than usual.

Humanitarian Organizations’ Challenges

• Moving money through correspondent banking systems
• Consequences of banks closing accounts
• Increased due diligence requirements
• Increased transaction costs associated with international financial transactions
• Interaction between CTF legislation and neighboring states’ legislative and regulatory arrangements
• Engaging with the informal financial sector (hawala system) in Syria

Recommendations

To address these challenges, experts recommend:

1. Developing international standards for acceptable risk thresholds and due diligence requirements for humanitarian organizations
2. Agreeing a due diligence code of conduct between banks and NGOs
3. Implementing an international humanitarian financial clearing system
4. Regulating hawala banking channels in areas where they are the only viable means of moving money into humanitarian need
5. Recognizing higher overhead costs associated with operating in Syria and increasing donor coverage of these costs for local NGOs

The Syrian crisis has created a complex environment for aid agencies, with CTF legislation and international sanctions severely limiting humanitarian efforts. By addressing these challenges through international cooperation and regulation, it may be possible to improve the delivery of humanitarian aid and support those affected by the conflict.