More than 300 UK-based charities have had their bank accounts closed in the last two years after being caught up in a global crackdown on illegal money flows, forcing the government to explore how to allow them easier access to the financial system.
Thousands more charities have had operations disrupted by delayed payments causing financial losses and risks to employees, Britain's Charity Finance Group, that helps to organise charity financing, told Reuters. Major charities Oxfam and Save the Children say they were among those hit.
The government is setting up a panel of charity executives, bankers and officials to meet in the coming months to "drive new policy thinking" to allow legitimate charities to operate unhindered, an official told Reuters.
The government is setting up a panel to "drive new policy thinking" to allow legitimate charities to operate unhindered
The decision to assemble the working group comes ahead of a review by the inter-governmental Financial Action Task Force (FATF) next March of Britain's efforts to tackle money-laundering and financing of militant groups.
At the FATF meeting, Britain could face criticism of its failure to tackle the problem of charities losing access to the banking system, charity sector analysts said.
The FATF has recorded over 100 cases worldwide of alleged abuse of charities for terrorist finance. In one example in the city of Birmingham in 2011, three people were convicted of impersonating Muslim Aid charity workers to fund a bomb attack.
But legitimate charities say they have been cut off from the financial system because banks have been alarmed by billion-dollar fines meted out for breaching sanctions, anti-terror financing and anti-money laundering rules.
Charity officials say the clamp-down on charities by banks is causing government-backed aid efforts to fail, humanitarian workers to be put at risk and potential recipients to suffer.
"Save the Children believes a more aligned approach between governments, regulators, and NGOs will help to reduce financial crime, whilst ensuring critical and life-saving humanitarian work continues," the group said in a statement for this article.
Aid workers say the consequences of losing access to banking are getting worse
HSBC and Co-Operative Bank closed the most charity bank accounts in the last two years, according to a Reuters survey of more than 30 case studies. Both banks, along with other big institutions, said they were taking action to better understand the needs and internal governance of charity clients.
A problem that hit mainly smaller Muslim-related charities after September 11, 2001 attacks in America accelerated in the last few years to involve thousands of charities.
Around 20% or nearly $1 billion a year of the government's bilateral assistance funds distributed by the Department for International Development are channelled through charities, according to government data.
While Britain's government, banks, and charity officials take steps to tackle the problem, aid workers say the consequences of losing access to banking are getting worse.
"I've been talking to banks for over a year and still don't have an account, so I'm having to send money for life-saving care through Western Union which is expensive and time-consuming," said the head of one medical aid organisation operating in Syria who did not wish to be named.
Other aid organisations without bank accounts are resorting to more primitive, risky methods.
"A number of organisations I know are back to throwing bags of cash over the border into Syria," said Lisa Reilly, executive coordinator at the European Interagency Security Forum which works to improve the safety of aid workers.