Transfer of funds outside the formal banking system

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I have seen an increasing number of customers asking about overseas payments. Recently, this has been driven by a number of particularly difficult situations that have made using the formal banking system either difficult or impossible. Often, decisions must be made at short notice in the context of very challenging operating environments. These challenging environments may require charities to consider the viability of moving money outside of the formal banking system.

When necessary, I’ve seen charities consider a range of options from established money transfer businesses to cash couriers. The Charity Commission issued an updated alert on the use of cash couriers in early May 2022. It specifically warns against the use of cash couriers in all but exceptional circumstances. There are many reasons for this, including the use of cash couriers by terrorist and criminal organizations.

When a charity is considering using methods outside of the formal banking system, it is necessary to step back and consider the potential risks of the arrangement. Trustees of charities have a legal duty to safeguard charitable funds and to ensure that these funds are used effectively. Using money transfer methods outside of the formal banking system will often expose charitable funds to increased risk.

A key consideration for trustees is whether the proposed arrangement exposes charitable funds or the staff and volunteers of charities to undue risk. The level of risk will vary considerably depending on the arrangements offered. For example, one would generally expect an established money transfer business, which is registered and regulated in the UK, to be significantly lower risk than using a courier to physically transfer money. silver.

The potential speed of transactions is an important factor to consider. In case of pressing need, for example in the case of a humanitarian crisis, the use of an intermediary can be a means of facilitating rapid transfers of funds. When the need is less pressing, the justification for using an intermediary may be less convincing.

Decision files
When a decision is made to transfer funds outside the formal banking system, there should be a clear record of how the decision was made. This should include a record of the administrator’s involvement in the decision-making process. The documentation should also record the reasons for the decision, including why the formal banking system was not used.

There should be a clear due diligence process for all service providers used, and it is important that a record of checks is kept. Due diligence checks should include understanding the regulatory status of the service provider and whether there are any legal issues with the proposed arrangements.

There are particular challenges when money is moved outside the UK. Many countries have legal restrictions on the amount of cash that can be brought into (or taken out of) the country. Charity Commission guidelines strongly recommend that carrying cash be kept to a minimum. Charities must also ensure they comply with their legal responsibilities, such as declaring cash over £10,000 when transporting to destinations outside the UK.

If cash couriers are used, the Charity Commission suggests that appropriate risk mitigation measures are put in place. These mitigations include obtaining specialist insurance and ensuring that the cash courier carries documentation evidencing the source and destination of the funds and their association with the charity.

It is also important that appropriate financial controls are maintained. Spending should be subject to the same financial controls and processes as spending within the formal banking system. There should be a proper record and audit trail of all transactions covering all stages of the transaction chain. There should also be appropriate checks to ensure funds are received by the intended recipient and, where possible, future transfers should be avoided until it can be confirmed that a previous transfer was received safely.

Where these areas are relevant, I would strongly recommend reviewing Chapter Four of the Compliance Toolkit published by the Charity Commission. This contains useful guidance, including a risk management checklist for using intermediaries and a financial controls checklist. Using these tools is one way trustees can demonstrate that they have taken appropriate steps to protect charitable funds. If you are in any doubt as to the adequacy of the action taken, I strongly recommend that you seek appropriate professional advice or contact the Charity Commission proactively.

Steve Harper is Associate and Head of International Charities at haysmacintyre

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About Ruben V. Albin

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