Going under the radar is one of the main tactics used by money launderers and terrorist financers as they aim to deposit and transfer funds without being detected and deterred.
With heightened regulatory requirements for financial institutions to conduct customer due diligence and sanction screen customers against the sanction list prior to establishing a relationship or concluding a transaction with a prospective customer, criminals are constantly trying to identify any loopholes in order to launder money and/or finance criminal activities.
Some of these tactics manifest through misuse of non-profit organisations (NPOs). NPOs are defined by their purpose and reliance on contributions and donors from supporters and followers or other businesses as part of corporate social responsibility (CSR) strategies and the trust placed in them by the wider community. Given the nature of NPOs, they are often cash-intensive organisations and regularly transmit funds between jurisdictions. Moreover, the Financial Action Task Force (FATF) states: “NPOs traditionally operate under less formal regulatory control and generally a less rigorous form of administrative and financial management. Therefore, this combination of these factors exposes the sector to an elevated risk of criminal and terrorist abuse.”
All these factors in addition to the fact that most NPOs rely on donors for funding, make them even more vulnerable to criminals and are easy targets. Criminals have adopted these tactics for targeting NPOs:
- Legal entity registered by criminals: This is whereby criminals/terrorists register an NPO in the name of charity that meets all the regulatory requirements. The entity is registered with the aim of orchestrating the collection of funds/donations and distributing them in line with their profile of charitable giving while in reality it is just a front entity for money launderers and terrorist financers to enable them to ‘clean’ money and/or support terrorist activities.
- Misuse of a reputable NPO by criminals: Criminals may partner with a well known, established and reputable NPO that provides financial support and humanitarian aid in order to raise funds and request that their donation (criminals’ donation) be channelled somewhere else to support a terrorist activity. Another tactic involves the NPO raising funds for a good cause, then transmitting the funds to a terrorist group to support its mission of terrorist activities.
- Funds being misused for criminal activities: this entails legitimately generated funds by an NPO, which funds are then used to fund terrorist activities. Alternatively, the NPO is used to launder money and aid transmission of the funds between different locations or the recipients of the funds transmitted by the NPO are misused by them. Some NPOs may or may not be complicit in this or be aware of the abuse being committed.
- Misuse of the NPO’s assets by criminals: Assets like cars and properties may be used by criminals to transport or aid as a house operation for money and weapons and provide relatively safe places where criminals or members of terrorist groups can meet.
It is very important that when financial institutions onboard NPOs, they conduct an enhanced due diligence. This may be done by obtaining information of understanding of the donation collection operations of the NPO, the purpose of the establishment of the NPO, the determination of the classes of beneficiaries, the countries that stand to benefit and the NPO’s objectives.
In addition, the regulatory authority responsible for registration of NPOs plays a key role in ensuring that all beneficiaries and operators of the NPO are not sanctioned or that NPOs disclose their annual returns on annually basis without fail. All NPOs that fail to comply should be sanctioned and their registration revoked.
By Lesego Kgalemang
Financial Crime Risk Analyst – FNBB