How churches can avoid accidental financial crime

Misunderstandings and compliance issues have strained the relationship between churches and banks.

Let's delve into the most critical concerns: financial crime exposure and the need for better understanding and communication.

Financial crime exposure

Churches often engage in transactions that can raise alarms for banks, especially when sending funds to high-risk jurisdictions. Without understanding the implications, churches might inadvertently trigger suspicions of money laundering or terrorism financing. Banks are legally obliged to report such activities and may close accounts to mitigate risks.

Our fictional church from our previous article, Emmanuel Church, has a mission partner in the Yemen, where they send money on an ad hoc basis. When the bank rejected the payment, they tried to find a workaround. The church identified a Yemen based money-transfer agency which appeared to have positive online reviews from number of well-known UK charities. Once the church had the IBAN number and the agency name, they thought they might just be able to process the payment online, perhaps without the bank even noticing. Unwittingly, with the best of gospel proclamation intentions, Emmanuel just funded terrorists.

Sending funds overseas, especially to a High-Risk Jurisdiction hits the jackpot for making banks nervous: cash transactions they don’t understand, recipients they can’t check out, in countries known to be actively involved in financing terrorism and money laundering.

Poor financial controls combined with overseas transactions are by far the most likely reasons for a UK bank to have concerns about a customer. And, unfortunately, some churches are right up there on both counts: financial control done amateurishly and a presumption that it’s their right to be able to wire money to some of the most high-risk overseas jurisdictions.

Over the past 20 years, there has been wave after wave of legislation in the UK (and worldwide) to combat financial crime, especially money laundering and terrorist financing. It’s worth churches being aware that it’s now a criminal offence for a bank employee who should have a suspicion about a transaction not to report it formally through the bank’s money laundering processes. And the bank must then follow that up and complete a Suspicious Activity Report (SAR) to the UK National Crime Agency where appropriate. Almost a colossal one million SARs were filed in each of the past two years.

Furthermore, the bank must take the utmost care not to alert the customer that they have any suspicion – to do so would constitute a criminal offence of ‘tipping off’ under the Proceeds of Crime Act 2002. The bank is also at liberty to close the account if they suspect fraud.

To put it more starkly: a church attempting to make unexpected or unexplained funds transfers to a country on the High-Risk Jurisdiction list may well be triggering actions within their bank which result in the transactions being declined, the closure of their account, and a Suspicious Activity Report to the National Crime Agency. And the bank is legally prevented from explaining any of this to the church.

Almost certainly there will have been UK churches reported to the National Crime Agency in the past year. What’s more, it’s very likely that some churches will unwittingly have been involved in money laundering or funding terrorism.

Education: a relationship of understanding

I hope that laying these things out in the open has shown what lies behind this critical misunderstanding in the relationship between churches and banks.

It’s crucial for churches to educate themselves about the regulatory environment and the risks associated with financial crime. Understanding the mandatory due diligence processes and the legal obligations of banks can help demystify account closures and suspensions.

It’s the ‘weak financial control’ and especially ‘financial crime exposure’ issues which, in reality, are the biggest problems in the bank-church relationship. These are where to focus to avoid a church account being suspended or closed without warning. Demonstrating a good attitude to the regulatory authorities’ requirements, and instigating a conversation with your bank if you are contemplating overseas transactions to a High Risk Jurisdiction may well avoid you being de-banked.

Churches should also engage in open communication with their banks, especially when planning overseas transactions to high-risk areas. Proactively addressing concerns can prevent misunderstandings and account issues.

Fostering mutual understanding and trust

Even more positively, let’s work to ensure that churches and banks can forge better relationships of trust. That said, I realise that the 2024 relationship with many banks is now purely electronic and virtual. Perhaps that’s a good point at which to note that, at Kingdom Bank, we have great personal relationships with our valued church customers. We can’t yet offer your church a current account, but we’re passionate about gaining a good mutual understanding and a great sense of gospel partnership - we’d love to be able to serve you with mortgages, savings and deposit accounts, and church and charity insurance.