Why should non-profit organisations know the basics of anti-money laundering and counter-terrorist financing (AML/CFT)?

By Gabriela Pellón, Expert in AML/CFT matters certified by GAFILAT & Member of the Expert Hub of the Global NPO Coalition on FATF*.

Has your organisation experienced difficulties in receiving or sending charitable funds through banking institutions? Do banks require extensive and thorough documentation of the donations your organisation manages? Is your entity required to register with the Financial Intelligence Unit (FIU) to monitor and report donations/grants that may be suspected of money laundering and/or terrorist financing?

Very often NGO representatives have to deal with numerous obstacles posed by banks and government agencies as they try to raise and/or execute funds essential to carry out their charitable missions. Such obstacles continually jeopardize the implementation of programmes or the relationship with the donor community. However, very few know the reasons behind the many obligations and requirements placed on non-profit organisations (NPOs).

This article will address essential notions that will facilitate NPOs’ awareness of this problem with a view to suggest alternatives and solutions. The first thing that those who manage NGOs and seek to influence their government authorities should know is that, in this matter, the international standard is on their side. Therefore, in order to ensure that the regulatory agencies implement it correctly, they must know this standard in depth. Next, the article with present ongoing initiatives at the global, regional and local levels that can be replicated and inspire stakeholders to work synergistically.

Back to the Start

A little over 30 years ago, in 1989, the Group of Seven (G7) met in Paris and agreed to create the Financial Action Task Force (FATF) to prevent the use of the banking system for the purpose of laundering money derived primarily from drug trafficking. In October 2001, the FATF expanded its mandate to incorporate efforts to combat the financing of terrorism.

This intergovernmental body which sets out the international standards known as the 40 Recommendations [1] is committed to monitoring effective implementation by member countries [2]. The rounds of evaluations of the FATF and its FATF-style regional bodies are a matter of great interest to states as the public ratings directly affect their relations with the international financial system.

The FATF’s global power and influence lies in the formation of lists that group together countries assessed based on the robustness/fragility of their national anti-money laundering and counter-terrorist financing regimes.

Non-Profit Organisations (NPOs) under the FATF’s radar

Since September 11, 2001, the FATF has deepened its focus on the regulation of financial services and charities. To this end, it created Recommendation 8 in which it warned countries about the “particular vulnerability” of NPOs to being misused to raise, move funds or provide support to terrorist organisations. In addition, the FATF encouraged countries to implement measures directed at the sector—including supervisory and regulatory mechanisms—with the clear objective of addressing identified risks, if any.

To improve the understanding of the terrorist threat in the NPO environment, the FATF collected evidence from 102 cases of misused charities, and published two reports. The first one, on typologies in 2014 [3] and the second, a good practices guidance in 2015 [4]. The creation of sham charities to channel money to terrorists, including the abuse of legitimate NPOs on the back of the donors and/or directors, has been a major concern for the FATF.

Since then, many jurisdictions have taken the easy path of adopting highly restrictive legislation for all NPOs, without a risk-based approach, under the guise of compliance with Recommendation 8 [5]. For their part, banks have begun to discriminate NPOs from their client portfolios, refusing to open new accounts, hindering transactions with stringent documentation requirements, and even closing bank accounts abruptly and for no apparent reason. This phenomenon—better known as bank de-risking—was evident early on in some European countries and later reached NPOs on all five continents, seriously limiting their access to financial services.

However, it was not until the attacks in Paris at the end of 2015 that the fight against terrorist financing became a priority for the FATF. Thereafter, the FATF urged its Global Network of over 200 jurisdictions to provide concrete responses to the terrorist threat [6]. In that framework, NPOs could no longer avoid going under the radar.

2016. Achievements and opportunities in civic space

As States intensified anti-terrorism measures and regulations in response to FATF requests, NPOs faced serious and growing obstacles in raising funds and implementing their programmes. In most cases, their leaders did not link this new wave of regulations and financial restrictions with the commitments made by their governments to the FATF.

Representing the demands of a group of NGOs based in Europe and the United States, the Global NPO Coalition on FATF was created in 2015 [7]. This alliance of NGOs has managed to build a regular bond with the FATF Executive Secretariat ensuring that civil society is effectively engaged in the debate on anti-money laundering and counter-terrorist financing [8].

The following are the most notable achievements for the benefit of NPOs:

  • Review of Recommendation 8 and its Interpretive Note At the request of the Global Coalition, the FATF discussed with its members the wording of the standard that applies to NPOs and withdraws the claim that the NPO sector is “particularly vulnerable” to terrorist abuse and instead states: “Countries should review the adequacy of laws and regulations that relate to non-profit organisations which the country has identified as being vulnerable to terrorist financing abuse. Countries should apply focused and proportionate measures, in line with the risk-based approach, to such non-profit organisations to protect them from terrorist financing abuse…” [9]

This amendment to the standard has resulted in substantial progress in favour of NPOs. In its latest wording, the FATF has recognised that not all NPOs are vulnerable, even making it clear that in some countries there may be little or no risk at all for NPOs. Consequently, it requires government authorities to apply a risk-based approach and no longer accepts one-size-fits-all regulations that unnecessarily overburden the sector.

  • Participation in the FATF Private Sector Consultative Forum- The Forum- provides a regular platform for the FATF to learn more about the views and concerns of the private sector in relation to the implementation of the standards. Beginning in 2016, the Global Coalition occupies four seats at the annual forum where it draws the attention of FATF member governments to the importance of involving NPOs in the processes of mutual evaluations and national risk assessments, as well as in the discussion of regulations and measures that apply to the sector. In addition, these instances are used to provide feedback on studies and guidelines promoted by the FATF that affect civil society organisations [10].
  • G20 Advocacy Efforts

Members of the Global NPO Coalition on FATF, led by ICNL, ECNL and HSC, have convened government officials and international experts to various meetings to discuss regulatory restrictions and financial consequences that negatively affect the NPO sector and actions that the G20 should take to address the problems. As a result, the FATF pointed out in its report to the G20 leaders at the Buenos Aires Summit that the loss of access to banking services suffered by NPOs is a key concern for the global community. In the same report, it urged governments and the business sector to improve their financial inclusion efforts [11].

The FATF has been active in clarifying international standards to avoid misunderstandings that could contribute to bank de-risking, has published guidance documents on financial inclusion, and has promoted better implementation of risk-based measures by financial institutions, national authorities and supervisors [12]. In turn, the advocacy efforts of Global Coalition members to highlight the problem of financial access difficulties for non-profit organisations have been on the agendas of two of the G20 working groups: International Financial Architecture (IFA) and Local2Global during 2019.

  • Advocacy Actions in Latin America with GAFILAT [13].

At the beginning of 2018, the AML/CFT Expert Hub was created by the leaders of the Global Coalition and it is comprised of 16 experts linked to the non-profit sector representing different regions of the world. Experts from Argentina, Brazil and Mexico participated in the Expert Hub.

The outreach efforts with the Executive Secretariat of the Latin America Financial Action Task Force (GAFILAT), based in Buenos Aires, have facilitated the building of a bond of cooperation and trust. Members of the Expert Hub from Argentina, Mexico and leaders of the Global Coalition have participated in numerous events organized by GAFILAT—plenary and working group meetings—in the last 2 years with the objective of conveying the message of civil society to this forum made up of the governments of 17 Latin American countries [14]. The sustained presence of members of the Global NPO Coalition in activities conducted by GAFILAT has made it possible for the concerns and demands of the NPOs in the region to be included in the agenda of this organisation. At the same time, the level of awareness of government authorities regarding the restrictions and obstacles faced by the sector has been raised and avenues for joint solutions have been explored.

What can we NPOs do to protect our interests and make our demands heard?

The FATF currently recognises the efforts of the NPO community to promote transparency within their operations and to prevent misuse of the sector, including the prevention of Terrorist Financing. It is also aware that many governments need to improve compliance with Recommendation 8 and work collaboratively with NPOs and banks to address issues of access to financial services.

A smart strategy to address the challenges that NPOs face must flow and reinforce each other at two levels.

At the national level, NPOs should form a core of referents with the capacity to:

I. Conduct their own TF risk self-assessment with a view to identifying both good internal governance and financial management practices and activities, and/or types of organisations with low or no exposure to this type of risk [15].

II. Gather evidence about regulatory restrictions and/or bank de-risking practices affecting the sector.

III. Plan and execute evidence-based advocacy efforts aimed at achieving and maintaining regular and constructive channels of dialogue with regulatory authorities and representatives of banking associations.

At the regional and global level, NPO network referents should establish mechanisms for articulation and mutual support with members of the Global Coalition’s Expert Hub in Latin America to:

IV. Create awareness and strengthen capacities needed to promote favourable demands on the sector. Share knowledge, especially by capitalising on the experiences of other groups in the region and globally.

V. Cooperate and enhance joint advocacy efforts towards FATF, CFATF and other bodies based in the Americas.

In summary, a high degree of commitment is required from NPO groups and networks to prevent governments from attempting to comply with FATF international standards at the expense of limiting and/or hindering the activities of civil society organisations. A growing number of NPO referents, local government officials and representatives of international bodies have begun to see the advantages of aligning interests and have given the first steps to work in a complementary manner to achieve their objectives.

What approach will you take?

* The opinions expressed in this article belong solely to the author. They do not represent the opinions or views of the Global NPO Coalition on FATF or the Expert Hub on AML/CFT.

[1] https://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html

[2] There are currently over 200 countries and jurisdictions that have adhered to the FATF standards. https://www.fatf-gafi.org/about/membersandobservers/

[3] https://www.fatf-gafi.org/media/fatf/documents/reports/Risk-of-terrorist-abuse-in-non-profit-organisations.pdf

[4] https://www.fatf-gafi.org/media/fatf/documents/reports/BPP-combating-abuse-non-profit-organisations.pdf

[5] Refer to http://fatfplatform.org/wp-content/uploads/2015/10/Catalogue-of-government-overregulation-July- 2015_final-.pdf

[6] Refer to the speech of David Lewis, FATF Executive Secretary http://www.fatf- gafi.org/publications/fatfgeneral/documents/speech-cft-conference-nov-2018.html

[7] For more information http://fatfplatform.org/

[8] For the purposes of this article, initiatives linked exclusively to the FATF—including the G20—are highlighted, not to mention others undertaken with the World Bank, Acams, the United Nations, etc.

[9] Recommendation 8 y Interpretive Note: http://www.fatf- gafi.org/publications/fatfrecommendations/documents/fatf- recommendations.html

[10] Last newsletter: https://www.fatf-gafi.org/publications/fatfgeneral/documents/private-sector-may-2019.html

[11] See report page 6, paragraphs 32 and 33 http://www.fatf-gafi.org/media/fatf/documents/reports/Report-G20- Leaders- Summit-Nov-2018.pdf

[12] http://www.fatf-gafi.org/publications/fatfgeneral/documents/financial-inclusion-cdd-2017.html

[13] http://www.gafilat.org/index.php/es/

[14] http://fatfplatform.org/announcement/aml-cft-expert-hub/ 14 Some lectures in events organized by GAFILAT: https://www.gabrielapellon.com/actividades

[15] Examples of initiatives led by members of the Expert Hub: http://derechososc.org.mx/wp- content/uploads/2019/12/two-pager.pdf http://fatfplatform.org/announcement/multistakeholder-dialogue-on-bank-derisking-in-argentina/ http://fatfplatform.org/uncategorized/npocoalition-on-fatf-%e2%80%8f-fatfplatform-3m-3-minutes-ago-more- guia-de- recomendaciones-practicas-practical-guide-on-addressing-the-impact-of-cft-regulations-on-npos/ 5

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