In 2012, in the midst of a famine that ultimately claimed more than 250,000 lives, Somalis sounded the alarm about an impending financial disaster in the United States that would exponentially worsen the crisis. They warned that U.S. banks had closed the accounts of Somali-American remittance companies, or money transfer operators (MTOs). The banks claimed that they could not manage the risk of transferring money to Somalia given the presence of US-designated foreign terrorist organizations and weak governance of the financial sector in the country. As a result of this phenomenon, known as “de-risking,” Somali-Americans would soon be without a safe or reliable way to send urgently needed money to their friends and family for basics like food, water, shelter, and education. Remittances are the largest and most important flow of money into Somalia; any constraint would be a matter of life or death for the most vulnerable Somalis.

Treasury rightly responded to these requests by pointing out that the government lacks the authority to compel banks to open or maintain relationships with particular customers. Further, it reassured the Somali-American community that no government agency mandated – or even desired – the account closures. Still, the closures went forward, and many Somali-Americans were not reassured by what they viewed as a passive approach to a life-threatening problem. Today, after years of bank account openings and closings, Somali-American MTOs now rely principally on cash couriers to keep money flowing.

The difficulties experienced by Somali-American MTOs – and the impacts on and fears of Somalis who rely on them – are just one particularly disturbing example of banks’ ending or restricting relationships with customers instead of managing the risk of maintaining them. MTOs, nonprofit organizations (NPOs), and foreign financial institutions have been among the most affected. This shift arguably began in response to the 9/11 terrorist attacks and the 2008 financial crisis, as Treasury took an aggressive approach to anti-money laundering and combating the financing of terrorism (AML/CFT) and addressing other threats to the safety and surety of the banking system overall. While sympathetic to those pushed to the margins of the banking system, Treasury officials did not want to take action that would create – or appear to create – loopholes that could be exploited by financial criminals.

Treasury officials sometimes cast doubt that the wave of account closures and restrictions constituted a meaningful trend. To the extent Treasury believed banks were withdrawing services, it maintained that their decisions were a response to normal, cyclical market forces and could be solved only by those banks and their customers. For years, Treasury’s only policy response to these concerns was to reiterate its commitment to a risk-based approach to regulating the financial sector. In turn, banks directed inquiries back to Treasury, creating a cycle of finger-pointing in place of a constructive dialogue to keep critical money flows safe, legal, and transparent.

Against this backdrop, Treasury’s recently released 2023 De-risking Strategy, mandated by Congress in 2020, is a landmark document that represents a page turned from its largely passive and skeptical approach over most of the past decade. While the Strategy’s definition of de-risking and proposed solutions leave open some important questions, there are reasons for optimism. If Treasury fulfills the commitments it makes in the strategy and takes the additional steps outlined in this article in the same spirit of openness and creativity, some of the world’s most vulnerable people stand to benefit.

What is the Problem

In 2015, a World Bank study found that approximately 28% of remittance companies and 45% of remittance company agents lacked access to banking services, severely impeding a flow of money integral to fighting poverty and, sometimes, to saving lives. In 2020, 62.5% of nonprofit organizations (NPOs) faced obstacles accessing financial services, including organizations implementing U.S. government-funded programs. And U.S. banks have steadily curbed their relationships with foreign correspondent banks, increasing the time and cost of sending money abroad and leaving some small and higher-risk countries without easy access to the U.S. financial system – creating further obstacles to remittances and other key financial flows. This is having direct consequences for some of the world’s most vulnerable and underbanked people.

What’s more, it forces them to rely on less transparent, under-regulated channels through which to move money. No public interest is served by a system that forces companies and organizations conducting legitimate, and sometimes life-saving, business to settle their transactions by moving suitcases full of cash. While appropriately highlighting some gaps in the data, the de-risking strategy uplifts this evidence and underscores the urgency of the situation.

Interestingly, the Strategy defines “de-risking” more narrowly than the Act of Congress that required its publication. The Anti-Money Laundering Act (AMLA) of 2020 defines de-risking as “actions taken by a financial institution to terminate, fail to initiate, or restrict a business relationship with a customer, or a category of customers, rather than manage risk associated with that relationship consistent with risk-based supervisory or regulatory requirements.” Treasury notes AMLA’s definition and then adds: “Treasury is concerned primarily with the phenomenon of financial institutions making wholesale, indiscriminate decisions about broad categories of customers, rather than assessing and mitigating risk in a targeted way.” In explaining this decision, Treasury actually conflates two distinct rationales. It properly states – as Treasury has long maintained – that banks are within their rights to pull back from customers when they’ve properly and carefully assessed the risk. But in focusing on “broad categories of customers,” Treasury excludes from its focus decisions that banks make about individual customers based on superficial and arbitrary risk assessments.

Even more significant than the distinction between customers and classes of customers is the issue of how Treasury will approach acute financial exclusion. Some customers, like Somali-American MTOs, are simply unable to adequately access financial services at all.  And some countries have few, if any, official correspondent banking links to the United States, making it difficult or impossible to transfer money there. While Treasury appropriately reinforces that banks may pull back when they cannot manage the risk, when nearly all banks reach the same conclusion about the same customers or jurisdictions – as they did for Somali-American MTOs – this presents a public policy challenge arguably more serious than the de-risking activities the strategy focuses on. To address it, the U.S. government will need to adopt novel approaches to share risk with banks and excluded customers. The government has done this in isolated instances – for example, by sending funds from the Federal Reserve to North Korea to support nuclear diplomacy and launching the ill-fated Swiss Humanitarian Trade Arrangement – but did not discuss them in the de-risking strategy.

Drivers of De-risking

The strategy demonstrates a clear shift in Treasury’s view of what causes de-risking, most importantly related to the role of the government. Historically, Treasury maintained that de-risking is being driven not by anti-money laundering (“AML”) risk, but by a set of factors and market forces that are mostly unrelated to the government’s policy choices. Profitability, in particular, was often cited as a consideration by banks independent of policy choices – shifting the burden of addressing de-risking from government to the private sector.

The strategy cites profitability as a principal driver of de-risking, but acknowledges that government policy plays a significant role in determining profitability. It reinforces the role that sanctions compliance and due diligence plays in making costs untenable for some customers and in some places. On the other side of the ledger, Treasury addresses the fact that the revenue potential – even more than costs – tends to determine access to financial services. Large MTOs and foreign banks serving wealthy countries tend to maintain their bank accounts, while small MTOs, NPOs, and banks in smaller and poorer countries are more vulnerable to de-risking. This acknowledges the uncomfortable reality that we all know to be true: a small MTO demonstrating impeccable transparency may struggle to find a bank account while large-scale financial criminals may enjoy intense competition for their lucrative banking business.

The Strategy also puts an exclamation point on Treasury’s recent consideration of bank examination procedures as a driver of de-risking. For years, Treasury backed Federal Banking Agencies’ claims that their bank examiners did not play a role in de-risking. Banks disagreed on two grounds. First, many banks have alleged that examiners sometimes explicitly discourage the maintenance of MTO, NPO, and correspondent bank accounts. This is inappropriate and runs counter to the risk-based approach, but it is very much consistent with the incentives of the individual examiner, who face negative consequences when banks facilitate illicit conduct, but none when they restrict or terminate services. Second, examiners often focus their questions on MTO, NPO, and correspondent bank accounts. The banking agencies acknowledge this practice, and while it doesn’t explicitly encourage de-banking those customers, banks say it highlights the potential downsides of maintaining or opening their accounts. Therefore, even when examiners proceed by the book, de-risking sometimes ensues.

Misunderstanding Nonprofits

Despite a pronounced shift in its approach to de-risking, one unfortunate feature of the De-risking Strategy is it demonstrates that Treasury still needs to improve in its discussion of NPO-related issues. First, while it correctly notes that most NPOs present a low level of ML/TF risk, the Strategy casually mentions “certain cases” and “examples” of NPOs being abused for the financing of terrorism. In doing so, Treasury is reinforcing a trope – the charity scam – which is now widely understood to be unfounded.

Second, Treasury utterly misstates the views of NPOs on sanctions, alleging that NPOs “acknowledged that financial sanctions remain an essential foreign policy tool…” and “…had not argued for fewer uses of sanctions.” This characterization is both reductive and inaccurate. It ignores the immense diversity of the NPO sector and suggests that the views of humanitarian organizations, which were consulted on this Strategy, are representative of universities, hospitals, and organizations that promote cultural exchange. And it misstates the humanitarian organizations consulted who did not, and would not, agree that sanctions remain an essential tool. Humanitarian organizations have raised concerns about the impact of sanctions on civilians on many occasions; on some rare occasions, some groups (my own included) opposed sanctions on the basis of the disproportionate harm they would cause. A more accurate characterization would be that humanitarian organizations appreciate that sanctions will continue to be deployed by the US government and have not requested that sanctions programs be dramatically scaled back in order to enable greater NPO access to financial services.

 Commitments in the Strategy

The De-risking Strategy contains a number of steps that Treasury is currently taking or will soon take, many of which involve uncontroversial but welcome improvements in dialogue, communication, and deployment of technology to reduce de-risking through improved application of the risk-based approach. The Strategy is notable, however, for some policy approaches that represent a break from the past:

Examination procedures

The strategy’s acknowledgement of bank examination procedures as a driver of de-risking is significant, and its recommendations reflect that. In addition to revising the Federal Financial Institution Examination Council (FFIEC) examination manual on the basis of a new FinCEN review, Treasury proposes greater FinCEN involvement in the governance of FFIEC programs and practices. It also aims to review the consistency of examination practices and strengthen examiner training on de-risking.

Notice procedure analysis

NPOs and MTOs, in particular, have consistently complained that when banks de-risk, they close accounts with little to no advance notice and without offering reasons, leaving the de-banked customers facing disruptions to their operations. Treasury’s offer to study account termination procedures, though it may not directly combat de-risking, could nonetheless help to soften de-risking’s harsh consequences.

Regulatory review

In addition to signaling a general openness for regulatory review, Treasury identifies two key potential areas for revision in particular. First, Treasury is already preparing a new rule to require that banks’ AML/CFT programs be “risk-based.”  FinCEN is considering whether and how financial inclusion might be incorporated into the requirement. It is promising that this rule could have impact outside of Treasury’s stated focus, positively affecting banks’ decisions about individual customers as opposed to the entire classes of customers Treasury says it is concerned about. Second, Treasury is considering whether some MTOs and other money services businesses should be directly regulated under the Bank Secrecy Act; an additional layer of transparency and accountability to the federal government could increase banks’ confidence in their operations.

Consolidating respondent banking

Treasury identifies the promise of consolidating regional financial flows that are currently managed by multiple small banks into a single entity. Though this wouldn’t reduce the risk associated with these flows, it would create a single respondent banking customer with the potential to generate significant revenue in place of multiple small banks that are currently viewed as unprofitable. While noting the obstacles and further research needed, Treasury is demonstrating a laudable degree of creativity and political risk-taking by stating its openness to this idea.

Sanctions modernization

Treasury rightly identifies an important shift already underway: sanctions modernization. Following the U.S. government’s leadership in adopting a global humanitarian exemption from sanctions at the UN Security Council, Treasury was quick to adopt a global general license for a variety of activities and commodities necessary for humanitarian response, peace building, democracy promotion, and other public interests. While sanctions are not the principal driver of de-risking and licenses will not on their own ensure access to financial services for NPOs, the general licenses will be useful as NPOs make their case to banks and ratchet down the level of illicit finance risk that banks may associate with humanitarian assistance in high-risk areas.

Consolidating respondent banking

One reason that some countries find it difficult to access the U.S. financial system is that their banks are too small – and generate too little revenue – to justify the costs of maintaining their accounts. It follows that bundling flows to a number of small countries could be attractive to banks. Treasury is therefore considering the establishment of publicly chartered corporations that could act as conduits for small countries in the same region. There are a number of potential pitfalls, but if they can be properly addressed, consolidation could substantially strengthen links to small and low-income countries.


The steps Treasury is taking and plans to take are promising ones, but no strategy limited to addressing de-risking practices can adequately tackle the broader challenge of ensuring financial access, particularly in high-risk areas. In addition to its commitments in the strategy, Treasury should lead a whole-of-government effort, taking steps including:

Risk-sharing and incentives in threatened financial corridors

Some of the countries that are most excluded from the U.S. financial system are also countries in which the U.S. government has a strong, stated interest in facilitating remittances and humanitarian assistance flows – including its own funds through USAID and the Department of State. The U.S. government should not stand on the sidelines lamenting the fact that banks are unwilling to manage the risk of critical funds, including government funds, when many of the costs and risks are imposed by the government’s policy, regulation, and enforcement. Whether acute financial exclusion results from de-risking or from carefully considered assessments by banks that they cannot manage the risks – which falls outside of Treasury’s definition of de-risking – the governmental equities and responsibilities are the same. Arguably, government’s responsibility is greatest where banks decide the risks are unmanageable.

The U.S. government has shared the risk of these transfers under exceptional circumstances before, but has not warmed to the notion that risk-sharing ought to be a more formal part of its policy toolkit. That should change. Executive branch agencies should experiment with a wide-range of risk-sharing and incentive-laden approaches, including making payments to U.S. government implementers through embassies, increasing the use of “comfort” and “no-action” letters, and creating more explicit rule-based compliance systems, as it did under the Swiss Humanitarian Trade Arrangement.

Transfer Delay Analysis

Treasury’s willingness to collect data on and analyze account closure procedures is laudable, particularly since any potential solution derived from that analysis would tackle a problem outside of Treasury’s narrow definition of de-risking. With its definition not serving as a hard constraint, Treasury should look farther. Rather than examine only account closures, it should examine delays in international fund transfers – which, for NPOs, are a more common problem than account closures. A systemic approach to learning when and why banks delay transfers could greatly inform both policy and the ways NPOs interact with their banks.

Looking Forward

Once again in 2023, parts of Somalia are on the brink of famine. Global hunger has reached unprecedented levels. A bank account closure for remittance providers or humanitarian organizations or an unnecessary delay in the transfer of humanitarian assistance funds would have profound implications. When money can’t be moved quickly through transparent, regulated channels, the effects ripple across the world’s most marginalized communities.

Treasury’s De-risking Strategy puts the Department on the front foot, ready to collaborate in good faith with the private and nonprofit sectors to expand financial access without compromising its AML/CFT agenda. Treasury maintains, as it long has, that public-private cooperation will be far more productive in combating de-risking than government action on its own – a fundamentally true statement that nonetheless landed badly with banks and their customers when the government adamantly refused to take a proactive approach. Greater transparency, communication, and improvements in due diligence on the part of banks, MTOs, and NPOs must play a substantial part in solving de-risking.

Given the scope of the Strategy, though, even solving de-risking, as narrowly defined, could mean leaving entire countries out of the formal financial system. This kind of systemic financial exclusion is life-threatening, whether it constitutes de-risking or not. If Treasury is prepared to share the risk of facilitating funds transfers to excluded jurisdictions in the same proactive, creative spirit that is manifested in the strategy, there is every reason to expect further progress and life-saving impact.

IMAGE: The US Treasury Building located in Washington, DC.