In Israel, more than in most countries, foreign currency is an integral part of every facet of the country’s daily economic enterprises – private, business, and public sectors, alike.

A recent released study showed that 53% of financial support to Israeli charities came from abroad. Thus, making foreign exchange exchange fees, rates, and processing times of the utmost importance to Israeli charities.

(N.B. While this post is most relevant for charities operating in Israel, its underlying principles are true regardless of location.)

WHY USE A MONEY CHANGER?

Cost

When using traditional financial institutions to process foreign currency, fees tend to be higher. This impression holds both for foreign currency transfers (wires) and checks — this is of course, assuming that many individuals and charities aren’t using banks that specialize in foreign currency (i.e. bankers unlike me).

The belief — and not necessarily correct — is that money changers offer better exchange rates, as well. Again, this is not always the case (see previous parentheses).

Speed

Turnaround is always an important factor when receiving money from abroad. One, because of exposure to currency fluctuation. Two, because of cash flow.

While money changers may have a shorter turnaround than banks vis-a-vis transfers, they definitely have a shorter turnaround than banks vis-a-vis foreign currency checks. (Though, everything comes at a price.)

Wow, seems pretty good. Why in the world shouldn’t a nonprofit organization use a money changer!?

After all, doesn’t the charity have an obligation to its constituents to make sure that the money it raises arrives at its destination as quickly and as cheaply as possible?

NO.

The mission of the charity is to show its donors and relevant governmental agencies transparency, control, and accountability for ever cent, agurah, peso, and shilling raised.

With respect to this charge, money changers are a danger to proper book keeping and the transparency everyone is demanding:

1. Lack of Control and Transparency

Whenever an organization uses a money changer it is voluntarily relinquishing control and permitting a third party to handle its money. While receipts can be issued and paper-trails followed, a small but unavoidable black hole is created.

Instead of having a bank statement that clearly shows where the donation originated from, the bank page will simply show an generic “incoming wire” (from the money changer) or even worse, an ambiguous “cash deposit.”

True Story: I have seen nonprofits arrive at a bank to deposit tens of thousands of shekel IN CASH. Now is this really the kind of impression an organization wants to make to its bank, donor or oversight body? Somehow, a wad of bills in a paper bag just doesn’t scream “trust me.”

2. Blurred Beneficiaries

When money is given to a money changer, the intended recipient is not the one either directly receiving the money nor cashing the check.

This is especially problematic with foreign currency checks, where the intended beneficiary never even deposits the check into the bank — an issue that effects the donor perhaps even more than the charity.

True story: Charities have no way of knowing where its money changer might redeem its check. Some money changers use Arab Banks to clear their checks. Putting politics aside, donors (and sometimes even the IRS) get mighty curious when a check earmarked for an Israeli cause has either “Bank of Cairo” or “Bank of Jordan” stamped on the back.

3. Cost is Now a Secondary Concern

In a previous post I quoted documentation that specifically mentions that cost is an irrelevant factor when the IRS examines a charity for effectiveness:

The Treasury Department is standing by its suggestions, thus, signaling to all that “life is simply more expensive and inconvenient as a result of global terrorism, and everyone is expected to bear a share of the new costs of doing business.”

And the IRS isn’t the only one using similar logic.

AND SPEAKING OF COST…

Did I mention that money changers might not even be cheaper than banks? If you’re looking for proof, contact me. I’ll make you a believer.

Tizku Lemitzvot,

Shuey

Disclaimer: This blog houses my personal opinions and is for informational purposes only — not advice. As charity laws can be quite complex, please refer all questions to qualified and licensed professional. Read the full disclaimer.

Even before the dust settles in the States, Israel and her charities will already start to feel the effects from last week’s scandal.

First, we can expect that donors’ skepticism of Israeli charities will increase, which is understandable. The current proliferation of nonprofits already casts doubt on their authenticity: Israeli charity-representatives hound communities weekly; American Friend organizations exist in abundance; internet and email advertisements appear on every Jewish website broadcasting Israel’s fight for its physical and spiritual survival. In short, this scandal has cast a shadow on a situation already wrought with suspicion, doubt, and misconception.

Second, we can expect the relationship that exists between Israeli amutot [nonprofits] and money changers to come under fire. Charities need their donation-checks to clear as soon as possible. As opposed to banks, “cash houses,” or money changers, can exchange cash for checks (for a one to two percent fee) with a wait time of zero to two days. Thus, Israeli charities regularly deposit large sums of cash received from money changers into their bank accounts.

Depositing cash in a bank account (or not even reporting it) is not a good idea. It has never been a good idea. Recently, with the changes in American and Israeli oversight, it is an even worse idea yet, plenty of organizations still do it. Due to recent events, those charities that continue to do this are essentially taping a “kick me” sign to their backs. Don’t be surprised when the Rasham Ha’amutot [Israeli Registrar of Charities] comes a knocking to inquire about the large deposits of cash. Also, banks are required to report out-of-the-ordinary transactions to the Bank of Israel. An organization can bet that some or all of those below-the-radar cash deposits have been reported.

Third, we can expect that the Israeli police will become involved. Maybe not this week. Maybe not next month. But it is only a matter of time. For those who are not aware of it yet, the world is a small place and the United States has a very big reach. Just ask the banks in Switzerland, which until recently were known for their very discreet and private banking. That is until the US government came along and asked them nicely to give over the names of those American citizens who are hiding their assets from the IRS. Either due to U.S. initiative or common sense, it is only a matter of time before the Israeli authorities pick up where their American counterparts have left off.

Fourth, as mentioned above, we can expect that the Israeli Registrar of Charities will take a microscope to charities that receive money from abroad, specifically, in cash. In my experience I have seen nonprofit banking procedures boil down to one thing: convenience (not compliance). In addition to cash deposits, many nonprofit directors and employees use their own private bank accounts instead of opening/using an account under the organization’s name. In Israel, nonprofits are checked about once in every five years. The chance for an Israeli nonprofit to pull one over the governmental oversight committee is slim and only getting slimmer.

Fifth, we can expect that Israeli banks will introduce internal regulations to alert themselves of charity wrongdoing in accounts they manage. Israel was relatively late in getting approved as a country free of money laundering. Like any latecomer, the banks make up for lost time in their zealousness in adhering to the law.

Tizku LeMitzvot [May you continue to merit doing good deeds],

Shuey

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Related Posts:

The New Jersey Scandal, Pt. 1: The Facts

The New Jersey Scandal, Pt. 3: The IRS Expected Response