According to ‘The State of the World’s Cash 2018’ report, the biggest barrier to the more effective and extensive use of cash and voucher assistance (CVA) is the perceived risk that cash represents, mainly due to concerns about the misappropriation or leakage of cash. The report notes an example of a double standard, in that donors may tolerate the diversion of a modest proportion of in-kind aid but may be much more sensitive when it comes to cash since it is viewed as posing a greater risk, specifically in relation to money laundering and the financing of terrorism.
Global Objective 2 of the Cash Learning Partnership’s (CaLP’s) Global Framework for Action seeks to ensure that cash is routinely considered, alongside other modality tools. While, in recent years, CVA has been considered more regularly, there remain barriers and constraints to the systematic adoption of CVA, particularly unconditional and unrestricted modalities.
Although the evidence shows that cash is no riskier than any other form of aid,1 there is often increased scrutiny from some donors of implementing partners’ risk management policies and procedures. This is exacerbated by the fact that some humanitarian organisations lack the guidance and capacity to confidently manage compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations (also referred to as AML/CTF regulations).
Furthermore, there is a lack of defined standards from donors on what constitutes adequate mitigation measures, a lack of influence within government humanitarian offices to ensure that AML/ CTF regulations do not negatively impact humanitarian action, and an unwillingness by donors to share risk with humanitarian organisations. Finally, financial service providers (FSPs) often have limited experience in humanitarian response and in working directly with vulnerable and marginalised populations, who may also be regarded as high risk by FSPs and by regulators.
With the aim of creating some clarity, CaLP commissioned a scoping study on CVA and risk in financial management and compliance, which considered three specific challenges facing humanitarian organisations related to AML/ CTF regulations:
Transferring funds to the country of operations – challenges in identifying competent and willing banking providers and other FSPs to transfer funds to a country of operations
Identifying in-country service providers – challenges related to ‘Know Your Customer’ (KYC) regulations and financial sector identity checks by in-country FSPs, including mobile network operators (MNOs)
Beneficiary identification and data security – challenges relating to AML/CTF regulations and international sanctions regulations regarding CVA recipients
The approach taken by the study was to consider each challenge and to identify the relevant regulations and policy statements, the risks that these presented, how these had been managed and mitigated, and possible solutions for CaLP members for planning future responses. While the study itself was more extensive, this briefing note summarizes the key findings for each of the challenges and is targeted at CVA practitioners.
This briefing note does not aim to provide operational guidance. This is largely available in existing tools and guidance, including those found in CaLP’s Programme Quality Toolbox2 and the Consortium for Financial Access’ guidance for NGOs on improving access to financial services.3