Humanitarian Assistance: USAID Should Improve Information Collection and Communication to Help Mitigate Implementers’ Banking Challenges

Since 2012, the United States has provided approximately $36 billion in humanitarian assistance to save lives and alleviate human suffering. Much of this assistance is provided in areas plagued by conflict or other issues that increase the risk of financial crimes. The World Bank and others have reported that humanitarian assistance organizations face challenges in accessing banking services that could affect project implementation.

GAO was asked to review the possible effects of decreased banking access for nonprofit organizations on the delivery of U.S. humanitarian assistance. In this report, GAO examines (1) the extent to which State and USAID partners experienced banking access challenges, (2) USAID partners' reporting on such challenges, and (3) actions U.S. agencies have taken to help address such challenges. GAO selected four high-risk countries—Syria, Somalia, Haiti, and Kenya—based on factors such as their inclusion in multiple financial risk-related indices, and selected a non-generalizable sample of 18 projects in those countries. GAO reviewed documentation and interviewed U.S. officials and the 18 partners for the selected projects.

Implementing partners (partners) for 7 of 18 Department of State (State) and U.S. Agency for International Development (USAID) humanitarian assistance projects that GAO selected noted encountering banking access challenges, such as delays or denials in transferring funds overseas. Of those 7 projects, 1 partner told us that banking access challenges adversely affected its project and 2 additional partners told us that the challenges had the potential for adverse effects. Moreover, the majority of partners (15 out of 18) for the 18 projects noted experiencing banking access challenges on their global portfolio of projects over the previous 5 years.

USAID's partners' written reports do not capture potential risks posed by banking access challenges because USAID generally does not require most partners to report in writing any challenges that do not affect implementation. Six of the 7 projects that encountered challenges were USAID-funded. Of those 6 USAID projects, 5 partners told us that these challenges did not rise to the threshold of affecting project implementation that would necessitate reporting, and 1 did not report challenges although its project was adversely affected. Additionally, GAO's review of about 1,300 USAID partner reports found that the few instances where challenges were mentioned lacked sufficient detail for GAO to determine their type, severity, or origin. Without information on banking access challenges that pose potential risks to project implementation, USAID is not aware of the full extent of risks to achieving its objectives.

The Department of the Treasury (Treasury) and State have taken various actions to help address banking access challenges encountered by nonprofit organizations (NPO), but USAID's efforts have been limited. Treasury's efforts have focused on engagement between NPOs and U.S. agencies, while State has issued guidance on the topic to its embassies and designated an office to focus on these issues. In contrast, USAID lacks a comparable office, and NPOs stated that it is difficult to find USAID staff to engage with on this topic. Further, GAO found that awareness of specific challenges was generally limited to USAID staff directly overseeing the project. Without communicating these challenges to relevant parties, USAID may not be aware of all risks to agency objectives and may not be able to effectively engage with external entities on efforts to address these challenges.

GAO recommends that USAID should take steps to (1) collect information on banking access challenges experienced by USAID's partners and (2) communicate that information both within USAID and with external entities, such as other U.S. agencies and partners. USAID concurred with our recommendations.

The United States, primarily through the Department of State (State) and  the U.S. Agency for International Development (USAID), has provided  approximately $36 billion in humanitarian assistance over the previous 6  years in order to save lives, alleviate human suffering, and reduce the  social and economic impact of disasters worldwide. Partners including  nonprofit organizations (NPO) implement much of this assistance in areas  experiencing conflict, instability, or other issues that increase the risk of  financial crimes.

The World Bank and others have expressed concerns that derisking and  decreased banking access make it more difficult for NPOs to transfer  funds to areas that are perceived as high-risk, in part because of  concerns about possible terrorist abuse or money laundering risks. For  example, a recent survey by the Charity and Security Network (CSN), a  trade association for NPOs, found that two-thirds of U.S.-based NPOs  with international operations experienced banking access challenges,  including delays in transferring funds, increased fees, and account  closures. As a result, there have been concerns that NPOs, including  State and USAID implementing partners (partners), may face long delays  in transferring funds or be unable to transfer funds at all to implement  projects or respond to humanitarian disasters, such as those in Syria,  Somalia, and elsewhere. In addition, NPOs may be forced to move  money through less transparent, less traceable, and riskier channels.  Further, a large group of NPOs, banks, and others gathered at a World  Bank meeting on derisking stated that the inability to get humanitarian  assistance to refugees from political conflicts or natural disasters could  result in death from starvation, exposure, and disease.

This is one of four GAO reports addressing a congressional request to  review the various effects of derisking, including on the delivery of  humanitarian assistance. In this report, we examine (1) the extent to  which State and USAID partners experience banking access challenges  that affect their implementation of humanitarian assistance projects, (2)  USAID partners’ reporting on banking access challenges, and (3) actions  relevant U.S. agencies have taken to help address banking access  challenges encountered by NPOs. In addition, we provide information on  the extent to which State and USAID experience banking access  challenges in providing assistance in high-risk countries in appendix I.

To address these objectives, we selected 18 U.S.-funded humanitarian  assistance projects in four high-risk countries – Syria, Somalia, Haiti, and  Kenya – and interviewed the 18 unique partners for each of these  projects. We selected the four high-risk countries based on factors  including the high level of humanitarian assistance they received from  U.S. agencies, their inclusion on multiple financial-risk-related indices  showing they are at higher risk for financial crimes, and to obtain  geographical diversity. The conclusions drawn from the information we  obtained from our interviews and the examination of projects in these four  countries cannot be generalized beyond our selected partners and  projects. See appendix II for a description of the countries we selected for  this review.

To examine the extent to which State and USAID partners experienced  banking access challenges that affected their implementation of  humanitarian assistance projects, we conducted semi-structured  interviews with 18 partners about (1) the specific project we had selected  in one of our high-risk countries and (2) their experiences implementing  their global portfolio of humanitarian assistance projects over the previous  5 years. We did not ask the partners to quantify the number of projects  they had implemented over the previous 5 years, nor did we ask them to  quantify the number of projects in their global portfolio for which they had  experienced banking access challenges. To determine our sample, we  selected 18 projects from our selected countries (7 projects in Syria, 5 in  Somalia, 3 in Haiti, and 3 in Kenya). We selected more projects in Syria  and Somalia because those countries had received a greater proportion  of the U.S. humanitarian assistance. We selected our projects to ensure  that we included 18 unique partners (15 NPOs and 3 United Nations  organizations), as well as a mix of State and USAID projects (3 State and  15 USAID). Our sample included several partners that operate in over  100 countries, as well as a few that operate in less than 20 countries.

The partners in our sample had fiscal year 2016 annual revenues ranging  from $5.9 billion to just over $10 million.

We also interviewed several NPOs not included in our sample and  several NPO groups to obtain their views on banking access challenges  faced by those providing humanitarian assistance. Lastly, we reviewed  relevant studies on banking access challenges for NPOs conducted by  the World Bank and CSN. A survey conducted for the CSN study was  designed to be generalizable to all U.S. NPOs working internationally and  received more than 300 responses from these organizations, of which  more than 70 reported that they had received U.S. government funding.  We examined their aggregate responses in detail. We also reviewed  documentation and interviewed the officials responsible for the survey  and determined that they had used a reasonable methodology to conduct  the survey.

To examine USAID partners’ reporting on banking access challenges, we  reviewed fiscal year 2017 progress reports for our 18 sample projects to  determine if banking access challenges the partners told us about had  been reported in accordance with requirements in the award agreement.  We also reviewed over 1300 USAID partner reports for fiscal years 2016  and 2017 from a wider selection of high-risk countries to determine the  extent to which banking access challenges are being reported to  USAID.

To examine actions relevant U.S. agencies have taken to help address  banking access challenges encountered by NPOs, we reviewed  documentation from and conducted interviews with State, USAID, and the  Department of the Treasury (Treasury) on actions they have taken to  help address these challenges. We also interviewed relevant staff at the World Bank on efforts undertaken to address banking access challenges.  See appendix III for additional details about our scope and methodology.

We conducted this performance audit from July 2017 to September 2018  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

U.S. Humanitarian Assistance Funds Sent Overseas Often Rely on Multiple Banks to Reach Their Final Destination

International financial transactions, including the transfer of U.S.  humanitarian assistance funds, rely on a system of correspondent  banking relationships. State and USAID provide humanitarian  assistance through funding awards to partners. Funds to U.S. partners  are deposited into the partners’ bank accounts located in the United  States. The partners are then responsible for transferring the funds to  recipient countries for project implementation. These transfers typically  involve the use of a correspondent, or intermediary, bank to transfer the  funds from a U.S.-based account to an account held at the recipient  country, where the funds are then used by in-country staff to implement  the project. See appendix IV for more information on the State and  USAID offices providing humanitarian assistance.

According to research by the Bank for International Settlements, the  number of correspondent banking relationships has declined over the  past several years, especially for banks that are located in higher-risk  jurisdictions (such as those subject to sanctions), have customers  perceived as higher-risk, and who generate revenues insufficient to  recover compliance costs. Further, the Financial Stability Board noted  that a decline in the number of correspondent banking relationships could  affect the ability to send and receive international payments and may  drive some payment flows underground, with potential consequences on  growth, financial inclusion, and the stability and integrity of the financial  system.

U.S. Banks Must Comply with Anti-Money Laundering Regulations and U.S. Sanctions

When performing overseas money transfers, U.S. banks and financial  institutions must comply with the Bank Secrecy Act’s (BSA) anti-money  laundering (AML) regulations and relevant regulations that implement  U.S. sanctions.

The BSA has established reporting, recordkeeping, and other AML  requirements for financial institutions. BSA/AML regulations require that  each bank tailor a compliance program that is specific to its own risks  based on factors such as products and services offered, and customers  and locations served. By complying with BSA/AML requirements, U.S.  financial institutions assist government agencies in the detection and  prevention of money laundering and terrorist financing by, among other  things, maintaining compliance policies, conducting ongoing monitoring of  customers and transactions, and reporting suspicious financial activity.

In addition to BSA regulations established by Treasury, federal banking  regulators have issued their own BSA regulations. These regulations  require banks to establish and maintain a BSA compliance program that,  among other things, identifies and reports suspicious activity. The  banking regulators are also required to review banks’ compliance with  BSA/AML requirements and regulations, and they generally do so every  12 to 18 months as a part of their routine safety and soundness  examinations. Among other things, examiners review whether banks  have an adequate system of internal controls to ensure ongoing  compliance with BSA/AML regulations. The federal banking regulators  may take enforcement actions using their prudential authorities for  violations of BSA/AML requirements. They may also assess civil money  penalties against financial institutions and individuals.

Banks must also comply with relevant regulations that implement U.S.  sanctions in certain countries. When the United States imposes sanctions  on an entity or individual, it freezes assets subject to U.S. jurisdiction. All  U.S. transactions with the entity or individual are prohibited, including  transactions by banks and NPOs. When appropriate, Treasury’s Office of  Foreign Assets Control (OFAC) may issue a general license authorizing  the performance of certain categories of transactions, including funds  transfers for the provision of humanitarian assistance. OFAC also issues  specific licenses on a case-by-case basis under certain limited situations  and conditions.

Treasury Helps Prevent Financial Crimes and Considers NPOs Providing Humanitarian Assistance in High-Risk Areas Potentially Vulnerable to Exploitation

Treasury, as a lead agency in fighting financial crimes and as an issuer of  regulations that have a significant effect on charities’ access to the  banking system, takes actions to help prevent financial crimes, and  considers NPOs operating in conflict areas and other high risk zones as  potentially vulnerable to such crimes. Treasury leads U.S. efforts to fight  various financial crimes primarily through its Office of Terrorism and  Financial Intelligence (TFI). TFI develops and implements U.S.  government strategies to combat terrorist financing domestically and  internationally, and develops and implements the National Money  Laundering Strategy as well as other policies and programs to fight  financial crimes. Relevant offices under TFI include:

The Office of Terrorist Financing and Financial Crimes  (TFFC). TFFC, the policy development and outreach office for TFI,  works across all elements of the national security community –  including the law enforcement, regulatory, policy, diplomatic, and  intelligence communities – and with the private sector and foreign  governments to identify and address the threats presented by all  forms of illicit finance to the international financial system.

The Office of Foreign Assets Control (OFAC). OFAC  administers and enforces economic and financial sanctions based  on U.S. foreign policy and national security goals against targeted  foreign countries and regimes, terrorists, international narcotics  traffickers, transnational criminal organizations, human rights  abusers and corrupt actors, those engaged in activities related to  the proliferation of weapons of mass destruction, and other threats  to the national security, foreign policy, or economy of the United  States.

The Financial Crimes Enforcement Network (FinCEN). FinCEN,  among other duties, is responsible for administering the BSA, has  authority for enforcing compliance with its requirements and  implementing regulations, and also has the authority to enforce  the BSA, including through civil money penalties. FinCEN issues  regulations under the BSA and relies on the examination functions  performed by other federal regulators, including federal banking  regulators. FinCEN also collects, analyzes, and maintains the  reports and information filed by financial institutions under BSA  and makes those reports available to law enforcement and  regulators.

According to Treasury, organizations, including NPOs, implementing  humanitarian assistance in high-risk areas may be vulnerable to  exploitation by terrorist groups and their support networks. These terrorist  groups and support networks may establish or abuse charities to raise  and move funds, or provide other forms of support, that benefit the  terrorist groups. As of May 2017, Treasury, through OFAC, had  designated 67 charities, branches, and foreign terrorist organizations’  potential fundraising front organizations for violations of U.S. sanctions.

The Majority of Selected State and USAID Implementing Partners Experienced Banking Access Challenges

For 7 of our 18 selected projects, State and USAID partners told us that  they had experienced banking access challenges. Additionally, 15 of the  18 partners we interviewed noted that they had experienced banking  access challenges on their global portfolio of humanitarian assistance  projects over the previous 5 years. Most of the 18 partners we  interviewed told us that they were able to mitigate these challenges  through various actions or the challenges were not significant enough to  affect project implementation. Nevertheless, a few partners noted that  projects they were implementing were adversely affected by such  challenges. For example, 1 of our 18 selected projects faced repeated  delays as a result of banking access challenges. Additionally, 2 partners  noted that they had to reduce the scope of implementation or suspend  projects in their global humanitarian assistance portfolio because of  banking access challenges. Furthermore, several partners and other  NPOs told us that such challenges posed potential risks to project  implementation. Lastly, a recent study found that more than two-thirds of  all U.S.-based NPOs that work internationally experienced banking  access challenges, but that few NPOs canceled programs as a result of  those challenges.

Funds Transfer Delays and Denials Were among the Most Frequently Cited Banking Access Challenges Banking Access Challenges Experienced on Selected U.S.- Funded Projects

For our 18 selected U.S.-funded projects, 7 of the partners told us that  they had experienced banking access challenges in implementing their  projects, with the majority citing delays or denials of funds transfers.  Specifically, 3 (of 5) partners in Somalia and 4 (of 7) partners in Syria told  us that they had experienced banking access challenges related to the  selected project. None of the partners implementing selected sample  projects in Haiti or Kenya noted that they had experienced any banking  access challenges. Denials of funds transfers to the destination country  was the most frequently cited banking access challenge (experienced by 5 of the 7 projects), followed by delays of funds transfers (experienced by  3 of the 7 projects) (see fig. 2).

Fifteen of the 18 partners that we interviewed noted that they had  experienced banking access challenges on their global portfolio of  humanitarian assistance projects implemented over the previous 5 years  (see fig. 3). The most frequently cited challenges were funds transfer  delays and denials. Twelve partners noted that they had experienced  transfer delays, with 8 noting that the delays occurred occasionally and 6  noting that the delays lasted weeks or months. Most partners that noted  experiencing delays told us that the delays were caused exclusively by  intermediary banks. Eleven partners noted that they had experienced  transfer denials, including 5 that told us the denials occurred occasionally.  Five partners also noted that transfers were denied by intermediary  banks.

In addition, 2 partners noted that they had experienced challenges  opening new bank accounts; 3, increased costs to transfer funds; 1, a  bank-initiated account closure; and 2, other challenges. For more  information on the types of banking access challenges that partners  identified, including details on the duration of delays and the frequency of  denials, see appendix V.

Some Banking Access Challenges Adversely Affected or Posed a Potential Risk to Project Implementation

Some partners that experienced banking access challenges told us that  those challenges had adversely affected or posed a potential risk to  implementation of projects. Of those partners experiencing challenges, 3  partners noted that banking access challenges had adversely affected a  project’s implementation. Specifically, 1 partner that experienced  challenges on one of our selected projects and 2 partners that  experienced challenges on projects outside of our sample noted that the  challenges they had experienced resulted in a project being adversely  affected in some form, such as:

Reduced scope of implementation. One partner told us that its  project in the Democratic People’s Republic of Korea was scaled  back significantly because of difficulty transferring funds to the  country.

Delays implementing a project. One partner told us that for one  of our selected projects, in part because of banking access  challenges, implementation of the project was delayed and  required approval for two no-cost extensions from USAID. The  partner noted that it had experienced recurring issues with funds  transfers to Syria, including 3- to 6-week delays and frequent  denials of transfers.

Suspension of an in-progress project. One partner told us that  an ongoing project it implemented in Syria (outside of our sample  of projects) to deliver food assistance had been suspended for  about a week because its funds transfers to the country were  denied.

While some projects were adversely affected, 6 of the 7 partners of our  selected projects that noted experiencing banking access challenges told  us that the challenges they had experienced did not adversely affect  project implementation. Similarly, 12 of the 15 partners that noted  experiencing banking access challenges on their global portfolio of  humanitarian assistance told us that the challenges did not affect project  implementation. Additionally, for both our selected projects and their  global portfolio of humanitarian assistance projects, the challenges  experienced were either not significant enough to affect project  implementation, or were mitigated through various actions. For example,  partners told us that they had mitigated challenges by:

Maintaining a funding buffer. Partners may keep enough  funding to operate a project for several weeks in order to mitigate  delays and denials of funds transfers. For example, one partner  noted that projects maintain approximately 4 weeks of operating  funds on hand, which is enough to mitigate transfer delays that  last up to 3 weeks.

Using alternate methods to move funds. Partners may use  alternate methods to move funds, such as using different  intermediary banks or money transmitters, or by carrying cash.  For example, one partner told us that when its U.S. bank stopped  allowing funds transfers to Syria, the partner opened an account  with a different bank. That partner also told us that because it was  unable to reliably transfer funds to Syria, it regularly transfers  funds to Lebanon—either to intermediaries or to the personal  accounts of individuals involved in the projects—and manually  moves the physical currency to Syria.

Maintaining multiple bank accounts. Partners may maintain  accounts with multiple banks in order to mitigate the risk of a  bank-initiated account closure. For example, one partner told us  that after a bank closed all of its accounts without warning or  explanation, the partner opened accounts across three different  banks in order to mitigate the effects of any individual bank closing  its account.

While most partners’ projects did not experience adverse effects as a  result of banking access challenges, three USAID partners—as well as  another NPO that we spoke with—told us that banking access challenges  posed a potential risk to project implementation, such as:

Potential for physical violence. One partner told us that, for one  of our selected projects, there were concerns of violence if  payments were halted because of funds transfer delays, while  another partner told us that violence was a concern if it was  unable to pay vendors on time. An NPO also told us that there  was a potential for physical violence if local staff were not paid on  time.

Potential for insolvency of vendors. One partner told us that,  for one of our selected projects, transfer delays prevented it from  reimbursing a money transmitter it used to move funds to Somalia,  which in turn caused that money transmitter to experience  financial difficulties. The partner stated that the delays were  almost significant enough to affect operations, though it was able  to resolve the situation in time to prevent its vendor from  becoming insolvent.

Potential for project suspension. One partner told us that it  provides advance funding for projects to account for delays, but at  times transfer delays have come close to exhausting the advance  funding. For example, the partner told us that it provided funding  for projects 4 weeks in advance and experienced transfer delays  averaging 3 weeks. In addition, an NPO told us that staff are  sometimes not paid for several months because of such delays;  thus, if transfer delays worsened or staff were unwilling to work  without being paid, project implementation may be adversely  affected.

Approximately Two-Thirds of U.S. NPOs That Operate Internationally Experienced Banking Access Challenges, According to a Trade Association Survey

A recent study by Charity and Security Network on banking access for  U.S. NPOs, which included NPOs that received U.S. government funds,  found widespread banking challenges for U.S.-based NPOs. Data for a  survey conducted as part of this study indicated that about two-thirds of  the responding U.S.-based NPOs that work internationally experienced  banking access challenges. The challenges included delays of wire  transfers, unusual requests for documentation, and increased fees. Some  NPOs also cited experiencing account closures and refusals to open  accounts.

About 15 percent of the NPOs that responded to the survey noted that  they experienced these banking access challenges constantly or  regularly, and about 3 percent of NPOs reported cancelling a project  because of banking access challenges. Furthermore, transfers to all  parts of the globe were affected, and the challenges were not limited to  conflict zones. According to the report, NPOs with 500 or fewer staff were  more likely to experience delayed wire transfers, fee increases, and  account closures. Smaller organizations were more likely to receive  unusual requests for documentation, according to the report. The smallest  NPOs, those with 10 or fewer employees, reported experiencing more  trouble opening accounts than larger organizations. According to the  report, as a result of the challenges they experienced, NPOs were  sometimes forced to move money through less transparent, less  traceable, and less safe channels, such as carrying cash.

As shown in table 1, survey data from the Charity and Security Network  study indicated that there were only minor differences between NPOs  receiving and not receiving U.S. government funding in terms of  experiencing banking access challenges. For example, about 15 percent  of responding NPOs, regardless of whether or not they received U.S.  funds, noted experiencing banking access challenges regularly or  constantly, with transfer delays the challenge most frequently cited by  both groups. Additionally, about the same proportion of NPOs that  received or did not receive U.S. funds reported that they rarely or never  experienced banking access challenges. Both groups of NPOs also noted  taking similar measures to deal with banking access challenges.

USAID Implementing Partners’ Reports Do Not Capture Potential Risks Posed by Banking Access Challenges

USAID’s partners’ written reports do not capture potential risks posed by  banking access challenges because USAID generally does not require  most partners to report in writing any challenges that do not affect  implementation. Six of the 7 projects that noted experiencing banking  access challenges were USAID projects. None of those 6 USAID partners  reported on the banking access challenges they had experienced to  USAID in their regular project reporting. USAID requires partners to report  adverse effects to their projects, but 1 partner that faced delays on its  project as a result of banking access challenges did not identify these  challenges as the reason for delays in its reporting to USAID. We also  reviewed over 1,300 USAID partner reports for fiscal years 2016 and  2017 from high-risk countries and found no explicit discussion of banking  access challenges.

USAID Generally Requires Implementing Partners Only to Report Banking Access Challenges That Affect Project Implementation

USAID generally requires partners implementing humanitarian assistance  projects to report challenges that affect project implementation. USAID,  through the Office of U.S. Foreign Disaster Assistance (OFDA) and the  Office of Food For Peace (FFP), provides humanitarian assistance and  monitors the implementation of projects through various methods,  including periodic performance reports. USAID’s reporting requirements,  as well as the number of partners of selected projects that told us they  had experienced banking access challenges, are as follows:

USAID/OFDA. USAID/OFDA agreements for the selected projects  we reviewed require the awardee to report via email (1)  developments that have a significant effect on the activities  supported by the agreement, and (2) problems, delays, or adverse  conditions that materially impair the ability to meet the objectives  of this agreement. The agreements also require Program  Performance Reports that must address reasons why established  goals were not met, the impact on the program objectives, and  how the impact has been or will be addressed. Four of the 6  USAID partners that told us they had experienced banking access  challenges were implementing USAID/OFDA projects.

USAID/FFP. USAID/FFP’s Fiscal Year 2017 Annual Program  Statement for International Emergency Food Assistance requires  partners to report, as part of their quarterly reporting, any  challenges that the project has faced during the quarter and how  they were resolved and discuss any potential challenges or delays  that may affect the program’s ability to achieve its objectives.  Each of the agreements—both for NPOs and for public  international organizations—that we reviewed require the partner  to notify USAID of any developments, problems, or delays that  may have an adverse effect on the project. Two of the 6 USAID  partners that told us they had experienced banking access  challenges were implementing USAID/FFP projects.

USAID Implementing Partners That Noted Experiencing Banking Access Challenges Did Not Include These Challenges in Their Program Performance Reports

Five of the 6 USAID partners of selected sample projects that noted  experiencing banking access challenges told us those challenges did not  adversely affect project implementation and therefore did not need to be  reported. The sixth—a partner that noted its project was adversely  affected by banking access challenges—did not include these challenges  in its reporting to USAID, although the challenges met the reporting  threshold of adversely affecting project implementation. While both  USAID and the partner told us that the delays were communicated to  USAID through emails and conversations with a designated USAID  contact and in the justification for the no-cost extensions submitted to  USAID, our review of the partner’s program performance reports to  USAID and the no-cost extensions found no explicit discussion of banking  access challenges.

USAID Partner Reports Did Not Include Any Explicit Mention of Banking Access Challenges for Fiscal Years 2016 and 2017

Our review of the over 1,300 publicly available USAID partner reports for  fiscal years 2016 and 2017 from high-risk countries found no explicit  discussion of banking access challenges. Overall, we identified 5  reports out of the over 1,300 that included some mention of challenges  related to banking access. However, those reports lacked sufficient detail  for us to determine the type, severity, or origin of the challenges. For  example, one report stated that there are sometimes delays in the  payment of salaries through foreign accounts, with no further details  about the delays, while another report stated that subgrantees  experienced delays in payments without identifying the reasons for these  delays, which could include late reports, late verification, late processing,  or banking issues.

While most of the partners we interviewed noted that they did not report  banking access challenges because the challenges did not adversely  affect their projects, an NPO advocacy group and a large international  NPO told us that NPOs may be reluctant to discuss or report banking  access challenges publicly because of concern about being perceived as  high-risk or unable to carry out their mission, and that any public mention  of banking access challenges could adversely affect their ability to raise  funds. Standards for Internal Control in the Federal Government require  agencies to identify and respond to risks related to achieving their goals,  and USAID currently has no other process for collecting information on  banking access challenges affecting its partners. Without this information,  USAID does not have a record of the frequency and prevalence of the  challenges and may not be aware of the full extent of risks to achieving its  humanitarian assistance objectives. Further, as mentioned previously,  two USAID partners stated that their projects faced potential adverse  effects from banking access challenges. Documenting the prevalence and  frequency of banking access challenges experienced by USAID partners  is important given the potential adverse effects that these challenges can  have on project implementation.

Treasury and State Have Taken Various Actions to Help Address Banking Access Challenges Encountered by NPOs, While USAID Efforts Have Been Limited by a Lack of Communication Both within the Agency and Externally

Both Treasury and State have taken actions to help address banking  access challenges encountered by NPOs; however, USAID’s efforts to  address these challenges have been limited by a lack of communication  about them—both within the agency and with external entities. Treasury,  as a lead agency in fighting financial crimes and as an issuer of  regulations that have a significant effect on charities’ access to the  banking system, has conducted meetings between charities, banks, and  government officials to discuss banking access challenges and released  guidance on sanctions and other related issues. State, as a provider of  funding for humanitarian assistance, has issued guidance to its overseas  posts on banking access challenges. In addition, both State and Treasury  are involved in international efforts led by the World Bank and the  Financial Action Task Force (FATF) to help address banking access  challenges. Although USAID’s partners have experienced banking access  challenges, USAID has had more limited engagement than State and  Treasury with other agencies, international organizations, and NPOs on  addressing such challenges—in part because of a lack of communication  about them, both within the agency and with external entities.

Treasury Is Involved in Several Efforts to Help Address Banking Access Challenges Experienced by NPOs

Treasury’s efforts to help address banking access challenges  encountered by NPOs include holding roundtable meetings and issuing  guidance and resources for charitable organizations. Treasury, in its role  as a regulator of the banking system, serves as a nexus between the  banks and the U.S. agencies providing humanitarian assistance. Treasury  has organized several roundtable meetings with the charitable sector to  facilitate a dialogue on banks’ expectations. These sessions brought  together representatives from charities, banks, financial supervisors, and  the U.S. government to discuss the factors that banks consider related to  charity accounts and that examiners use in their review of banks’  procedures. Since 2013, Treasury’s Office of Terrorist Financing and  Financial Crimes (TFFC) has dedicated three of these roundtable  meetings specifically to banking access challenges affecting charities, as  follows:

December 17, 2013: This initial Treasury / TFFC working group  meeting with charities included a discussion of terrorist financing  risk mitigation guidance. There was also a discussion of banking  access challenges, during which TFFC provided an overview of  the NPO section of the manual used by bank examiners to  conduct bank examinations and explained the bank examination  process to the charities.

March 21, 2014: This meeting focused on a discussion of access  to financial services for charities. A Muslim-American charity  delivered a presentation on how it has managed its banking  relationships over the past several years. Several banks also  delivered presentations to help charities better understand the  factors that banks consider and the complex processes related to  banking transactions and opening or maintaining bank accounts.

November 12, 2015: This meeting included a stakeholder  discussion of banking access challenges for charities, with  charities, bankers, and regulators presenting each of their  perspectives and discussing the challenges faced on all sides.

In addition, in May 2015, Treasury, with the Department of Homeland  Security, conducted a roundtable on banking access challenges with  Syrian-American charities, U.S. regulators, and bankers. This event was  focused on challenges affecting the Syrian-American charitable  community and delivering humanitarian assistance to Syria during the  worsening conflict. Treasury provided guidance related to OFAC’s  general license 11a for U.S. charities to provide humanitarian assistance  for Syria. Further, officials reported that Treasury also maintains contact  with the charitable sector through various domestic and international  events, and holds frequent meetings with members of the charitable  sector in Washington, D.C. and around the United States. Treasury has  also issued guidance and resources on its website for charities, including  frequently asked questions and best practices. Treasury’s website  provides information and resources for all stakeholders in four strategic  areas—private sector outreach, coordinated oversight, targeted  investigations, and international engagement. The guidance includes:  voluntary best practices regarding anti-terrorist financing for  charities,  lists of frequently asked questions regarding sanctions and  charities,  list of charities that have been designated by OFAC for assisting  or having ties to terrorist organizations,  several international multilateral organization reports on banking  access challenges and terrorist exploitation of charities, and

OFAC guidance specifically related to the provision of  humanitarian assistance.

Lastly, Treasury has taken actions on derisking challenges more  generally. According to Treasury officials, these more general actions  focused on encouraging dialogue and making clear to financial institutions  that they are expected to make individual risk-based decisions rather than  wholesale, indiscriminate policies for entire sectors or classes of  customers.

Treasury officials noted that banks retain the flexibility to make business  decisions such as which clients to accept, since banks are in the best  position to know whether they are able to implement controls to manage  the risk associated with any given client. These officials indicated that  Treasury pursues market-driven solutions and cannot order banks to  open or maintain accounts. The officials have stated that Treasury does  not view the charitable sector as presenting a uniform or unacceptably  high risk of money laundering, terrorist financing, or sanctions violations.  However, charities delivering critical assistance in high-risk conflict zones  have, in some cases, had terrorist organizations and their support  networks exploit donations and operations to support terrorist activities.

State Has Issued Guidance to All of Its Overseas Posts to Help Address Banking Access Challenges

State has issued guidance to its staff overseas to help address banking  access challenges encountered by NPOs and others and identified a  focal point for banking access challenges within the agency. In July 2017,  State issued internal guidance, through a document issued to all of its  overseas embassies, regarding derisking. State, based on guidance from  Treasury, developed guidance for all personnel that provides background  on “de-risking” and related talking points, additional web-based  resources, and an assessment framework tool to evaluate the current  state of banking relationships in a given market. The guidance includes  links to resources from Treasury, U.S. banking regulators, and various  international organizations, such as the World Bank, International  Monetary Fund, and FATF. The guidance is designed to give embassy  staff some tools to work with host governments on these issues and to  help identify countries and markets where further U.S. government  engagement is necessary.

In addition, State’s Office of Threat Finance Countermeasures serves as  the main focal point for all banking access challenges brought to the  attention of State. This office provides assistance to State’s embassies  when banking-access-related issues are raised through the embassy to  State headquarters. All embassy staff, as part of the guidance issued on  derisking, have been instructed to direct all questions received on  banking access issues to the Office of Threat Finance Countermeasures.  In addition, this office is responsible for interfacing with Treasury on  banking access issues and staff from this office have attended all of the  relevant Treasury-hosted roundtable meetings focused on banking  access challenges encountered by charities.

Treasury and State Are Also Involved in Efforts Undertaken by the World Bank and the Financial Action Task Force Aimed at Addressing Banking Access Challenges

The World Bank and FATF have several efforts underway—with  participation from Treasury and State—to address banking access  challenges for NPOs. The World Bank, in collaboration with the  Association of Certified Anti-Money Laundering Specialists (ACAMS), is  working with humanitarian organizations, banks, and U.S. regulators on  the question of how humanitarian organizations can maintain access to  the financial system. More specifically, the World Bank and ACAMS have  launched three primary work streams focused on different aspects of  banking access to improve NPOs’ understanding of what the financial  institutions require and to improve the banks’ understanding of how NPOs  operate. According to a World Bank official, the three workstreams are as  follows:

Work Stream 1: This work stream aims to ensure a better  understanding of bank examiners of the NPO sector and to enable  more risk differentiation on the part of those examiners when they  conduct on-site supervision and examine bank client accounts.

Work Stream 2: This work stream aims to help banks conduct  due diligence on charities more easily through the use of  technological tools, such as databases that contain key  information on charities.

Work Stream 3: This work stream aims to work with the  regulatory bodies to help bank examiners change their  perceptions of the risk potential of charities.

In addition, the World Bank and ACAMS have organized roundtable  meetings as part of the ongoing Stakeholder Dialogue on De-Risking. The  objectives of a January 2017 meeting were to promote access of  humanitarian organizations to financial services and to discuss practical  measures to foster the relationship between NPOs and financial  institutions, improve the regulatory and policy climate for financial access  for NPOs, and build coalitions and create opportunities for sharing  information and good due diligence practices. Officials from Treasury  and State have been involved with the dialogues and various work  streams.

FATF, with participation from both Treasury and State, also has several  efforts underway to help address banking access challenges, including  revising its recommendations and issuing guidance. Derisking has been a  stated FATF priority since October 2014. In June 2016, FATF revised its  recommendation that pertains to how countries should review NPOs and  its interpretive note to better reflect how to implement measures to protect  NPOs from terrorist abuse, in line with the proper implementation of the  risk-based approach. According to Treasury, this approach emphasizes that not all charities are considered high-risk. Specific changes included  defining NPOs, removal of the words “particularly vulnerable” from  previous language, and emphasis on a risk-based approach for  evaluating NPOs. The FATF has also issued guidance and best practices  to guide both financial institutions and regulators on how to properly  implement the risk-based approach, in line with the revised FATF  recommendations. Additionally, according to Treasury, the FATF updated  a report analyzing the global terrorist threat to the charitable sector,  gathering over 100 examples of terrorist abuse of charities to pinpoint  which types of charities are considered higher-risk. This report and its  findings were published in June 2014.

USAID’s Efforts to Address Banking Access Challenges Are Limited by Lack of Communication, Both within the Agency and with External Entities, on Challenges Faced by Partners

USAID efforts to address banking access challenges have been limited,  in part because of a lack of communication within the agency and with  external entities about challenges faced by USAID’s partners.

Within USAID, we found that information on banking access challenges  faced by partners was not always communicated beyond staff directly  overseeing the project. We found that the USAID staff who had direct  responsibility for managing the project were generally aware of banking  access challenges that affected project implementation, and had taken  steps to help mitigate these challenges on a project-level basis. However,  other relevant staff, such as USAID management and country-level  headquarters staff, were not aware of these challenges. For example,  partners in Syria and Somalia that we interviewed noted experiencing  banking access challenges, but the USAID officials representing these  countries in headquarters told us they were not aware of such challenges  occurring recently. This situation may be, in part, because USAID has no  designated office or process that focuses on communicating these issues  throughout the agency to other relevant officials, including USAID  management. Federal standards for internal control note that  management should use quality information to achieve the entity’s  objectives, and that entity management needs access to relevant and  reliable communication related to internal as well as external events. If  information on banking access challenges experienced by USAID  partners is only reported to program-level staff and not communicated to  a wider audience within the agency, then the agency as a whole may not  fully recognize the overall risks posed by banking access challenges to  USAID’s ability to achieve its objectives. Further, the agency may miss  opportunities to assist other partners that might be experiencing similar  issues based on lessons learned from previous experiences, if staff are  not aware of the banking access challenges that have been experienced  by its partners implementing other projects or working in other countries.

USAID participation in interagency and partner efforts to address banking  access challenges has been limited, in part because of a lack of  communication with these external entities. According to Treasury  officials, because there is no main focal point at USAID for banking  access challenges, there is no consistency on who attends, or whether  anyone attends, the Treasury-hosted roundtable meetings on banking  access challenges from USAID. Further, an NPO trade association and  other NPOs told us that it is difficult to find a person at USAID to engage  with on banking access challenges. Lastly, a USAID/OFDA official stated  that USAID has had limited engagement on issues related to banking  access challenges. The OFDA official stated that once OFDA fully staffs  its new Award, Audit, and Risk Management Team, it will be able to more  fully engage on these issues. Federal standards for internal control state  that management should communicate the necessary quality information  both internally and externally to achieve the organization’s objectives.  Without effective communication with partners and other government  agencies about banking access challenges its partners face, USAID’s  ability to effectively and consistently engage with these entities or  contribute to efforts to help address these challenges is limited.

The United States provides humanitarian assistance in countries that are  often plagued by conflict, instability, or other issues that increase the risk  of financial crimes. Some of these countries also face U.S. sanctions that  are aimed at their governments or other actors that engage in terrorism or  illicit activities. Additionally, to ensure that the U.S. financial system is not  used for money laundering or financing terrorism, financial institutions  such as banks are subject to various U.S. laws and regulations that  require banks to conduct proper due diligence on entities, such as those transferring funds to high-risk countries. However, there is concern  among some organizations that banks’ higher level of due diligence,  especially for clients such as charitable organizations that provide  humanitarian assistance in high-risk countries, may create undue  difficulties, including delays, for these organizations.

Charitable organizations and others believe that because the United  States and a key multilateral organization previously labeled charitable  organizations as high-risk, banks remain reluctant to serve these  organizations even though a case-by-case assessment of risk is now  recommended. As such, we found that the majority of implementing  partners—many of which are charitable organizations—of U.S.  government assistance that we interviewed had experienced some  banking access challenges.

Despite our findings and others’ findings on the prevalence of banking  access challenges facing humanitarian assistance organizations,  USAID’s current partner reporting does not capture information related to  the potential risks of banking access challenges faced by its partners.  Without collecting this information, USAID cannot help the partners  mitigate banking access challenges. Additionally, if these challenges are  not documented and shared throughout the agency, the prevalence of the  challenges and potential risks cannot be fully assessed. Further, without  communicating about banking access challenges faced by its partners  throughout the agency and to others, the potential risk to agency  objectives will not be known and USAID’s ability to engage with other  agencies and organizations in helping to address these challenges is  limited.

We are making the following two recommendations to USAID:  The Administrator of USAID should take steps to collect information on  banking access challenges experienced by USAID’s implementing  partners. (Recommendation 1)

The Administrator of USAID should take steps to communicate  information on banking access challenges faced by partners both within  USAID and with external entities, such as other U.S. agencies and U.S.  implementing partners. (Recommendation 2)

We provided a draft of this report to State, USAID, and Treasury for  comment. We received written comments from USAID that are reprinted  in appendix VI. USAID concurred with our recommendations. Treasury  provided technical comments, which we incorporated as appropriate.  State told us that it had no comments on the draft report.

We are sending copies of this report to the appropriate congressional  committees, the Secretary of State, the Administrator of the U.S. Agency  for International Development, the Secretary of the Treasury, and other  interested parties. In addition, the report is available at no charge on the  GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-9601 or melitot@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix VII.

Appendix I: Banking Access Challenges Experienced by State and USAID Did Not Affect Operations in High Risk Countries

State and USAID Experience Some Banking Access Challenges, Such as Delays in Overseas Transfers of Funds

While the Department of State (State) and the U.S. Agency for  International Development (USAID) have encountered some banking  access challenges, such as closed accounts and delays in transferring  funds, these challenges did not affect their operations for providing  assistance to high-risk countries. To send funds overseas, State, through  two U.S. disbursement offices managed by State’s Bureau of the  Comptroller and Global Financial Services (CGFS), maintains foreign  currency bank accounts in 172 countries. Funds are transferred from a  Federal Reserve Bank to a U.S. dollar bank account maintained by State,  after which the funds are directed through a correspondent bank or a  foreign exchange broker to a foreign bank account maintained by State.  A correspondent bank serves as the intermediary between the bank  sending a transfer, in this case a U.S. dollar denominated bank account,  and the bank issuing payment to the recipient, in this case the State-held  account in the recipient country. Both the bank sending the transfer and  the bank receiving the transfer hold an account at the correspondent  bank, which is used for fund transfers, cash management, and other  purposes.

According to State, all State transfers overseas, as well as the majority of  USAID payments overseas, are managed by CGFS, and in fiscal year  2017 CGFS’s two disbursement offices processed approximately 3 million  payments through accounts managed by State in 172 countries. State  officials told us that State encounters occasional banking access  challenges, including short delays in funds transfers, denials of funds  transfers to certain countries, and one bank-initiated account closure.

Banking Access Challenges Do Not Affect State and USAID Operations

State officials told us that they are able to mitigate the occasional banking  access challenges that they encounter to ensure operations are not  affected. For example:

State’s transfers to countries sanctioned by the Office of Foreign  Asset Control (OFAC) are occasionally flagged by intermediary  banks. According to State, in fiscal year 2017 approximately one- tenth of one percent (0.1%) of payments were delayed because of  OFAC sanctions. When this occurs, State receives questions on  the details of those transfers. According to officials, this is an  ongoing challenge, but State resolves such delays within 2  weeks—and typically within days—and there are no operational  effects as a result of the delays.

In some instances—including once in 2012, and once in 2018—an  intermediary bank used by CGFS’s U.S. bank stopped processing  transfers to a recipient bank in a specific country. According to  State officials, in both cases State identified an alternative  intermediary bank to transfer funds to the destination country. In  both cases, there were no operational effects.

In 2014, an intermediary bank used by CGFS’s U.S. bank ended  its banking relationship with an OFAC-sanctioned country (Syria),  and State was unable to move funds from its U.S.-dollar  denominated accounts to that country. State, with the advice of  the recipient bank in the OFAC-sanctioned country, identified an  alternative intermediary bank that was able to move funds to that  country using euro-denominated accounts.

In 2014, a U.S. bank—at which State maintained an account and  that State used to fund its operations in Brunei—notified State that  it would be closing State’s account with 29 days’ notice. State  worked with Treasury to identify an alternative bank that would be  willing to maintain a State bank account. The operation was not  affected.

Appendix II: GAO-Selected Countries Have an Increased Risk of Financial Crimes

For this review, we selected four countries—Syria, Somalia, Haiti, and  Kenya—that may have a higher risk of financial crimes because of  conflict, instability, or other issues. We selected them based on factors  including the level of humanitarian assistance they received from U.S.  agencies, their inclusion on multiple financial-risk-related indices, and  geographical diversity.

Syria. Since 2011, Syria has been plagued by an ongoing  multisided armed conflict fought primarily between the government  of President Bashar al-Assad, along with its allies, and various  forces opposing both the government and each other. Syria’s  economy has deeply deteriorated amid the ongoing conflict,  declining by more than 70 percent from 2010 to 2017. During  2017, the ongoing conflict and continued unrest and economic  decline worsened the humanitarian crisis, necessitating high  levels of international assistance, as more than 13 million people  remained in need inside Syria and the number of registered Syrian  refugees increased from 4.8 million to more than 5.4 million.  Multiple terrorist groups operate inside Syria, raising the potential  risk of terrorist financing. Additionally, according to a Central  Intelligence Agency report, Syria is a transit point for opiates,  hashish, and cocaine bound for regional and Western markets,  and weak anti-money-laundering controls and bank privatization  may leave it vulnerable to money laundering. The U.S. maintains  a comprehensive Syria sanctions program. A general license in  the Syria regulations authorizes nonprofit organizations to provide  services, including financial services, to Syria in support of certain  not-for-profit activities, such as activities to support humanitarian  projects to meet basic human needs and support education in  Syria. Organizations providing humanitarian assistance that is not  authorized by the general license may apply for a specific license  to engage in those transactions. The United States has provided  approximately $3.3 billion in humanitarian assistance for Syria  since 2012.

Somalia. Since 1969, Somalia has endured political instability and  civil conflict, and is the third-largest source of refugees, after Syria  and Afghanistan. Somalia lacks effective national governance and  maintains an informal economy largely based on livestock, money  transfer companies, and telecommunications. In the absence of a  formal banking sector, money transfer companies have sprung up  throughout the country, handling up to $1.6 billion in remittances  annually. According to a 2016 State report, Somalia remained a  safe haven for terrorists who used their relative freedom of  movement to obtain resources and funds, recruit fighters, and plan  and mount operations within Somalia and neighboring countries.  The United States maintains a targeted list-based Somalia  sanctions program. Organizations providing humanitarian  assistance may apply for a specific license to engage in  transactions that otherwise would be prohibited by the Somalia  sanctions regulations. The United States has provided  approximately $1.2 billion in humanitarian assistance for Somalia  since 2012.

Haiti. Currently the poorest country in the western hemisphere,  Haiti has experienced political instability for most of its history.  Remittances are the primary source of foreign exchange,  equivalent to more than a quarter of GDP, and nearly double the  combined value of Haitian exports and foreign direct investment.  In January 2010, a catastrophic earthquake killed an estimated  300,000 people and left close to 1.5 million people homeless.  Hurricane Matthew, the fiercest Caribbean storm in nearly a  decade, made landfall in Haiti on October 4, 2016, creating a new  humanitarian emergency. An estimated 2.1 million people were  affected by the category 4 storm, which caused extensive damage  to crops, houses, livestock, and infrastructure across Haiti’s  southern peninsula. Haiti is identified as a fragile state by the  Organisation for Economic Co-operation and Development, and  as a jurisdiction of primary concern for money laundering in  State’s International Narcotics Control Strategy Report. According  to USAID, the agency has provided $187.8 million in humanitarian  assistance for Haiti since 2012.

Kenya. Kenya is the economic, financial, and transport hub of  East Africa. Since 2014, Kenya has been ranked as a lower  middle income country because its per capita GDP crossed a  World Bank threshold. Al-Shabaab aims to establish Islamic rule  in Kenya’s northeastern border region and coast and carried out a  spate of terrorist attacks in Kenya. Kenya is identified as a fragile  state by the Organisation for Economic Co-operation and  Development, and as a jurisdiction of primary concern for money  laundering in State’s International Narcotics Control Strategy  Report. The United States has provided approximately $807  million in humanitarian assistance for Kenya since 2012.

Appendix III: Objectives, Scope and Methodology

This report examines (1) the extent to which implementing partners of the  Department of State (State) and the U.S. Agency for International  Development (USAID) experience banking access challenges that affect  their implementation of humanitarian assistance projects, (2) USAID  implementing partners’ reporting on banking access challenges, and (3)  actions relevant U.S. agencies have taken to help address banking  access challenges encountered by nonprofit organizations (NPO). In  addition, we provide information on the extent to which State and USAID  experience banking access challenges in providing assistance in high-risk  countries in appendix I.

To address these objectives, we examined U.S.-funded projects and their  implementers in four high-risk countries—Syria, Somalia, Haiti, and  Kenya. We selected these countries based on factors including the high  level of humanitarian assistance they received from U.S. agencies, their  higher propensity for the occurrence of financial crimes based on their  inclusion on multiple financial-risk-related indices, and to obtain  geographical diversity. More specifically, to identify our list of high-risk  countries in terms of banking or financial risk, we used several indices  including ones based on financial risk, money laundering risk, and  counterterrorism-related risk. The indices we chose to use were

State’s International Narcotics Control Strategy Report (2014- 2016) (Money Laundering Risks),  the Department of the Treasury’s (Treasury) Office of Foreign  Assets Control (OFAC) sanctions,  the Organisation for Economic Co-operation and Development’s  (OECD) Fragile State Index (2014-2016),  the 2017 Financial Action Task Force (FATF) High Risk and Non- Cooperative Jurisdictions list, and  the BASEL AML Index, 2017.

We then identified 19 countries that appeared on at least two of the five  lists and received at least $100 million in U.S. based humanitarian  assistance from 2012 through 2017, based on data from the United  Nations Office for the Coordination of Humanitarian Affair’s financial  tracking system. We then applied the following primary selection criteria  to select our four countries: whether they (1) appeared on at least three of  the five identified lists and (2) have received at least $100 million in U.S.  humanitarian assistance since 2012. Secondary considerations that  informed our selection included whether a country had been identified as  having banking access challenges by USAID, geographical diversity, and  ensuring we had at least one country from each of the five indices we  chose. The data we obtained for these four countries cannot be  generalized beyond our selected projects and partners.

For our first objective, to examine the extent to which implementing  partners of State and USAID experienced banking access challenges that  affected their implementation of humanitarian assistance projects, we  conducted semi-structured interviews with 18 partners about (1) one of 18  specific projects we had selected in one of our high-risk countries and (2)  their experiences implementing their global portfolio of humanitarian  assistance projects over the previous 5 years. In order to determine our  sample of partners, we selected a weighted, non-generalizable sample of  18 projects located in our four selected high-risk countries. We selected  our projects from a list, provided by State and USAID, of 195 projects that  were active as of the end of fiscal year 2017 in these countries. In making  our selection of projects we made sure that our sample included a mix of  projects from each country (7 projects for Syria, 5 for Somalia, 3 for Haiti,  and 3 for Kenya), and a mix of State and USAID projects (3 State and 15  USAID). We selected those numbers for each country and each agency  based on the number of projects in each country and the proportion of  assistance provided. We selected one State project in each of the three  countries where they were active.

Once we had determined these parameters for our non-generalizable  sample, we made the final selections of the projects at random, making  sure that we did not select more than one project for any one partner.  Several of the implementing partners in our sample operate in over 100  countries in every part of the world, while a few operate in 20 or fewer  countries. Three of the partners are United Nations organizations. The  implementing partners in our sample had fiscal year 2016 annual  revenues ranging from $5.9 billion to just over $10 million. We conducted  semi-structured interviews with each of the 18 implementing partners on  potential banking access challenges, such as the ability to open and  maintain new accounts and make transfers in a timely fashion, and the  effect of those challenges on project implementation. Our interviews were  separated into two distinct sets of questions—one on banking access  challenges the implementing partner encountered on the selected project,  and the other on any banking access challenges the implementing  partner encountered in its global portfolio of humanitarian assistance  projects over the previous 5 years (2013-2017).

When discussing their global humanitarian assistance portfolios, the  partners did not limit their responses to projects funded by U.S.  government agencies, but instead considered projects funded by all of  their donors. We did not ask the partners to quantify the number of  projects they had implemented over the previous 5 years, nor did we ask  them to quantify the number of projects in their global portfolio of  humanitarian assistance for which they had experienced banking access  challenges. Our interview followed a protocol that asked both closed and  open-ended questions. For most banking access challenges, when  interview respondents indicated that their project or organization had  experienced a banking access challenge, we probed for details of the  challenge, including whether the challenge had caused an adverse effect  on the project, such as project delays or cancellations. After the  interviews had been conducted, we content-coded some of the open- ended answers we received. Specifically, we developed codes on  whether any challenges reported had adversely affected the projects, the  extent and duration of delays in transferring funds, and the extent and  frequency of denials of international fund transfers. Two analysts  independently coded each interview. The analysts then compared their  coding and reconciled any initial disagreements.

We also reviewed relevant studies on banking access challenges for  NPOs conducted by the World Bank and the Charity and Security  Network (CSN). The study conducted by CSN included a survey that was  designed to be generalizable to the population of all U.S. NPOs with  activities outside the U.S., including providing humanitarian assistance.  This survey received more than 300 responses, which constituted a  reported response rate of about 38 percent. The researchers conducting  the survey indicated that this response rate could be considered high for  a public opinion telephone survey but low for a survey like the Census.  The study determined the survey findings to be representative of the  population with some qualifications, such as the fact that smaller  organizations were more likely to complete the survey than larger  organizations. The maximum margin of error was estimated to be 5.4  percent. More than 70 of the NPOs reported that they had received U.S.  government funding. We requested and received some additional data  analysis from the researchers who had conducted this survey. We  examined the aggregate survey responses in detail and compared them  to the responses we received to our semi-structured interview questions,  which probed into similar aspects of financial access. We reviewed  documentation and interviewed the officials responsible for the survey  and determined that they had used a reasonable methodology to conduct  the survey. We also interviewed several NPOs and NPO groups that were  not part of our sample to obtain their views on banking access challenges  affecting those delivering humanitarian assistance.

For our second objective, to examine USAID implementing partners’  reporting on banking access challenges, we reviewed the fiscal year 2017  progress reports, including quarterly, semi-annual, and annual reports,  that USAID provided for our selected projects to determine if banking  access challenges the implementing partners told us about in the  interviews had been reported in accordance with requirements in the  individual award agreements. In total, we reviewed 26 reports from these  partners. We also interviewed USAID agreement officers for the projects  that stated they had experienced banking access challenges about  implementing partners’ reporting of those banking access challenges. To  obtain a broader context, we also reviewed over 1300 USAID  implementing partner reports for fiscal years 2016 and 2017 from a wider  selection of high-risk countries to determine the extent to which banking  access challenges are being reported to USAID.

To identify the relevant USAID progress reports, we searched USAID’s  Development Experience Clearinghouse (DEC) for all periodic progress  reports filed for fiscal years 2016 and 2017 by implementing partners  working in selected 19 high-risk countries for instances of reporting on  financial access challenges. Using these criteria, we identified 1,369  reports from fiscal years 2016-2017 from our selected 19 high-risk  countries. The reports included annual reports, final contractor / grantee  reports, final evaluation reports, and periodical and periodic reports (such  as quarterly or semi-annual reports). The 1,369 reports constituted our  universe of reports for which we used a textual analysis program to  automatically scan and search for words and phrases that we identified in  a lexicon of financial access terms. We developed this lexicon of financial  access terms based on a review of relevant research, interviews with  industry organizations, and a manual review of USAID progress reports.  Using the lexicon, our textual analysis program identified all mentions of  identified terms in the universe of reports. Next, two analysts  independently reviewed the mentions identified through our textual  analysis software program to determine whether the mentions actually  constituted a reporting of a financial access challenge. The analysts then  reconciled any differences in their reviews. For the purposes of this  review, we considered a relevant financial access challenge to be any  challenge encountered by the implementing partner in obtaining U.S.  banking services, or in transferring funds from the United States to the  destination country. We did not conduct a similar review of State partner  reporting because we only had a sample of three State projects and one of the projects did not require direct written reporting to State. In addition,  State does not have a central depository for partner reports that we could  search, such as USAID’s DEC.

For our third objective, to examine actions relevant U.S. agencies have  taken to help address banking access challenges encountered by NPOs,  we conducted interviews with and reviewed documentation from State,  USAID, and Treasury on actions they have taken to help address these  challenges. We also discussed U.S. agency involvement in efforts to help  address these challenges with relevant organizations that represent  NPOs. In addition, we reviewed relevant documentation published by the  World Bank and the Financial Action Task Force on actions they have  taken to help address banking access challenges encountered by NPOs,  and interviewed relevant staff at the World Bank on efforts undertaken to  address banking access challenges.

To examine the extent to which State and USAID encountered banking  access challenges in providing assistance in high-risk countries, we  interviewed State officials responsible for conducting overseas transfers  of funds for both State and USAID to determine if any banking access  challenges exist that are specific to our case study countries as well as  for U.S. assistance worldwide. We also interviewed State and USAID  officials with responsibility for overseeing programs in our four selected  countries to determine if they had seen any effects of banking access  challenges. We focused primarily on these agencies’ ability to access  banking services in the United States and on the transfer of funds to the  ultimate destination.

We conducted this performance audit from July 2017 to September 2018  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Appendix IV: State and USAID Are the Primary Providers of U.S. Humanitarian Assistance

The United States provides humanitarian assistance primarily through  offices and bureaus within the Department of State (State) and the U.S.  Agency for International Development (USAID). The primary humanitarian  offices and bureau are:

State’s Bureau of Population, Refugees, and Migration (PRM).  PRM’s stated mission is to provide protection, ease suffering, and  resolve the plight of persecuted and uprooted people around the  world by providing life-sustaining assistance, working through  multilateral systems to build global partnerships, promoting best  practices in humanitarian response, and ensuring that  humanitarian principles are integrated into U.S. foreign and  national security policy. PRM does not operate refugee camps or  give aid directly to refugees, but rather works with entities that  operate these programs, including the United Nations, other  international organizations, and nonprofit organizations.

USAID’s Office of U.S. Foreign Disaster Assistance (OFDA).  OFDA states that it helps countries prepare for, respond to, and  recover from humanitarian crises. According to USAID, OFDA  works with the international humanitarian community to give  vulnerable populations resources to build resilience and  strengthen their ability to respond to emergencies. Assistance  includes provision of emergency relief supplies, establishing early  warning systems, and training on search and rescue efforts, as  well as programs to help victims of disasters recover.

USAID’s Office of Food For Peace (FFP). FFP’s stated mission  is to partner with others to reduce hunger and malnutrition, and  help ensure that all individuals have adequate, safe, and nutritious  food to support a healthy and productive life. According to FFP, it  works to mobilize resources to predict, prevent, and respond to  hunger overseas. FFP’s emergency activities include food  assistance to help reduce suffering and support the early recovery  of people affected by conflict and natural disaster emergencies.

Appendix V: Prevalence of Delays and Denials of Funds Transfers Experienced by Selected Implementing Partners

Appendix VI: Comments from the U.S. Agency for International Development

Appendix VII: GAO Contact and Staff Acknowledgments

In addition to the individual named above, Mona Sehgal (Assistant  Director), Michael Maslowski (Analyst in Charge), Ming Chen, Debbie  Chung, Martin de Alteriis, Leia Dickerson, Mark Dowling, Erin Guinn- Villareal, Chris Keblitis, and Benjamin L. Sponholtz made key  contributions to this report.

U.S. agencies partner with nonprofit organizations to deliver humanitarian assistance around the world.

Unstable or high-conflict areas, where aid is often needed, have a higher risk of financial crimes such as money laundering and terrorism financing. Banks may limit risk by limiting services to those areas—which we found can reduce agency partners' ability to deliver assistance.

The U.S. Agency for International Development—a major source of aid—should address its partners' banking access challenges to ensure the agency can meet its humanitarian objectives. We recommended collecting and sharing information to help mitigate the challenges.