Overview

NGO X, an international humanitarian aid organization was established to provide assistance to war-torn regions, including food, medical supplies, and educational support. It received substantial donations from private individuals, corporations, and governments.

Investigation

The organization set up multiple branches in various conflict zones. Some of these branches were compromised due to the involvement of a terrorist group.

Funds collected under the guise of humanitarian aid were transferred to support the terrorist group's activities, including purchasing weapons and funding operations.

During a routine internal audit, alarming financial discrepancies were uncovered, prompting a comprehensive investigation.

Compliance Insight

It is crucial for charitable organizations to acknowledge the dynamic nature of risk across different jurisdictions. When operating in higher-risk areas—such as conflict zones, sanctioned territories, or jurisdictions flagged by FATF for enhanced monitoring—implementing robust risk mitigation measures is critical. Charitable entities must clearly demonstrate the effectiveness of their risk management protocols and align them with country-specific guidance and international standards such as FATF Recommendation 8. In particular, they should establish robust standards of governance and accountability to manage and reduce the risk of terrorism financing, fraud, and other forms of abuse. It is important for charitable organizations to conduct risk assessments based on the following:

Risk Variation by Country:

Understanding Different Risk Levels: Countries vary in risk and are influenced by political stability, regulatory environment, and the prevalence of criminal activities.

Conducting Thorough Risk Assessments: Organizations should carry out comprehensive risk assessments to identify and understand the risks associated with each country they operate in.

Proper Risk Mitigation:

Implementing Mitigation Measures: Effective risk mitigation strategies are crucial when operating in higher-risk jurisdictions.

Justifying Control Measures: Organizations should be able to clearly justify the controls they have implemented to mitigate these risks, ensuring compliance with international standards such as FATF Recommendation 8 and country-specific requirements and guidance.

Governance and Accountability for Charities:

Establishing Robust Standards: Charities must adopt strong governance and accountability standards to manage and reduce risks such as terrorism financing, fraud, and other abuses.

Maintaining Donor Trust: Good governance practices are crucial for maintaining donor trust and ensuring funds are used appropriately for their intended purposes.

Country-Specific Requirements and Guidance:

FATF Recommendation 8:

The FATF Best Practices Paper on Combating the Terrorist Financing Abuse of Non-Profit Organisations (Recommendation 8) provides comprehensive guidelines for managing risks associated with non-profit organisations.

FATF Best Practices Paper

Canada: Risk Assessment Guidance:

In Canada, registered charities and non-profit organisations operating overseas are most vulnerable as funds or goods may be abused at the point of distribution by the charity or partner organisation.

FINTRAC Risk Assessment Guidance

UK: Managing Risks When Working Internationally:

The UK government provides guidance for charities on how to manage risks when working internationally.

UK Government Guidance

US: Voluntary Best Practices for U.S.-Based Charities:

The U.S. Department of the Treasury provides anti-terrorist financing guidelines and voluntary best practices for U.S.-based charities.

US Treasury Guidance

Australia: Risk Management:

The Australian Charities and Not-for-profits Commission (ACNC) provides tools and guidelines for risk management.

Australian Government Guidance

Malaysia: AML/CFT/CPF and TFS for DNFBPs and NBFIs:

Malaysia's guidelines on Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing, and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions (DNFBPs) and Non-Bank Financial Institutions (NBFIs) provide a comprehensive framework for managing these risks.

Malaysia: AML/CFT/CPF and TFS for DNFBPs and NBFIs

By understanding and following the recommended guidelines, organisations can effectively manage risks, maintain donor trust, and ensure their operations contribute positively to their mission without falling prey to misuse or abuse.