Background
10. Within the context of graded emergencies, de-risking may include measures that the official financial/banking system could apply individually or in combination, depending on the specific nature of the graded emergency and the likelihood and impact of the collapse of the financial/banking system. Some of the measures that can be applied include, among others, the following:
- Limiting the international movements of funds;
- Suspending withdrawals of both USD/Euro and national currency from the bank accounts;
- Scaling down the presence of commercial bank branches locally; and
- Suspending regular banking activities on a time-bound basis.
20. When de-risking takes place, the ability of the incident management team (IMT) and its implementing partners to arrange straight-line, direct bank-to-bank transfers via international and national bank networks is affected. As a result, payments to local suppliers are impacted; further, operating and programmatic costs can increase. All these factors, combined, can lead to the suspension of emergency operations, resulting in adverse effects on WHO's capacity to respond to the graded emergency needs and priorities in a timely and effective way.
Financial service providers (FSPs)
30. When financial/banking system disruptions occur in graded emergencies, the IMT and its implementing partners can operate with other types of FSPs on a time-bound and case-by-case basis, contingent on the application of terms and conditions preventing fiduciary risks, aid loss and aid diversion. FSPs other than commercial banks include formal and informal Money or Value Transfer Services (MVTS)[3], e.g. e-voucher companies, financial institutions (such as microfinance institutions, forex bureaus), mobile network operators and other providers working in the form of informal value transfer system (IVTS, such as hawalas). Please, consult the note on hawalas at the end of this SOP).
40. Other FSPs include Trust and Company service providers (FSP's) whose portfolio of services may include investment funds, insurance and accountancy.
50. Building on lessons learned from the interagency cash and market working groups, contracting FSPs features comparative advantages and limitations that change as emergencies evolve.
60. FSPs have some advantages that allow them to constitute a feasible financial alternative for transferring cash for operational purposes. Through networks of agents and/or branches, FSPs can cater to large areas, including remote areas and those with limited access due to conflict and insecurity. They can also manage high caseloads of clients/users and deliver financial services for multiple types of humanitarian needs.
70. Based on a case-by-case analysis, the IMT and its implementing partners may use FSPs contingent upon the application of the following safeguarding and risk management measures:
- Have in place a risk-informed vetting process informing the selection and contracting of FSPs. It is essential to ensure the FSPs operate with the following in place: reliable, safe and secure mechanisms for coverage, liquidity, data protection safeguards, codes of conduct, insurance mechanisms for risk mitigation, accounting and reconciliation, and reporting mechanisms.
- Have regular monitoring of the FSPs' performance in place, using internal monitoring and evaluation capacity and external third-party monitoring for activity quality assurance and/or Administration and Finance capacity available in the IMT.
- Confirm the contracting of FSPs is done in compliance with Anti-Money Laundering/Counter-Terrorism Financing (AML/CFT) regulatory requirements, e.g. sanction screening against United Nations Security Council (UNSC) sanctions list (mandatory) and other sanction lists, e.g., OFAC, HMT, EU (at the discretion of WHO) based on applicability to a specific graded emergency.
80. It is also recommended that the IMT and it's implementing partners:
- Engage with the available UN cash and market working group to promote harmonized approaches (such as FSPs' fees and overheads).
- Enhance information and knowledge sharing.
- Have access to additional emergency-specific guidance on the locally available FSPs.
90. Should the need to contract FSPs arise, the IMT can use existing long-term agreements, if available; alternatively, the contract should follow the guidance for procuring services in emergencies.
Additional note on hawalas
100. A hawala agent is an individual business person or a business entity that brokers money transfers. Hawala agents can offer the service to carry money physically over short distances. Alternatively, for long-distance transfers, hawala agents operate through networks. They make exchanges with other agents with whom they have previous work experience and have built a trust relationship.
110. In practice, the network is used as a debt and accounting system that allows them to make money available in one location without physically moving money from another location. For the end user, this is, in practice, most similar to wired transfers in a banking system. However, it is an informal value transfer system (IVTS) in that the money transfer is not under the authority of a central bank and, as such, happens outside of the international banking system.
120. This does not mean that hawala agents operate entirely independently from legislation and formal financial institutions. As with any legal business, hawala agents typically must be registered and have their own bank accounts (under international financial regulations and Know Your Customer (KYC) control).[4]
130. The use of hawala has often raised concerns about their role in money laundering in economically fragile settings. Nevertheless, in several complex environments, such as Afghanistan, Somalia, Syria and Yemen, the hawala system has been recognized by UN agencies and other humanitarian partners as a possible mechanism to support cash programming and other financial services, contingent upon the availability and application of strict due diligence, risk management and performance monitoring.[5] [6]
Note: While FSPs promote financial inclusion in unbanked populations and accessibility to hard-to-reach or conflict-affected areas, they are also associated with high risk for money laundering/terrorist financing (ML/TF). However, some steps can be taken to mitigate the risk of ML/TF in the selection, engagement and exit of FSPs. For some of the steps, WHO is currently developing and testing tools on how to conduct enhanced due diligence (EDD) of the FSPs. Tools will be available on the eManual upon completion of the testing and validation.
[1] Directorate-General for European Civil Protection and Humanitarian Aid Operations. DG ECHO Thematic Policy Document No. 3 on Cash Transfer. Luxembourg: European Union; 2022. (https://ec.europa.eu/echo/files/policies/sectoral/thematic_policy_document_no_3_cash_transfers_en.pdf, accessed 20 February 2023).
[2] UNHCR-Cash Working Group. The current status of financial service providers: Hawalas in Afghanistan; 2021.
[3] MVTS refers to financial services that involve the acceptance of cash, cheques and other monetary instruments or other stores of value and the payment of a corresponding sum in cash or other forms to a beneficiary using a myriad of communication methods (FATF, 2015)
[4] Cash Working Group (CWG) North-West Syria. Cash feasibility assessment; 2020.
[5] REACH Initiative & Cash and Market Working Group (CMWG) Yemen. Financial Service Providers Assessment; 2019 & 2021.
[6] Directorate-General for European Civil Protection and Humanitarian Aid Operations. DG ECHO Thematic Policy Document No. 3 on Cash Transfer. Luxembourg: European Union; 2022.
