Best Practices for Preventing Money Laundering and Terrorist Financing Abuse
Nonprofit organizations traditionally enjoy an elevated level of trust by society at large. Because of this, nonprofits must take precautions to avoid potential money laundering and terrorist financing through abuse of the charitable donation process.
Toward this end, the Financial Action Task Force (FATF), an intergovernmental body which issues internationally endorsed global standards to combat money laundering and terrorist financing, recently revised its recommendation on nonprofit organizations. Though FATF’s recommendations are aimed at member countries, not individual entities, FATF’s Best Practices Paper on Combating the Abuse of Non-profit Organisations may be useful to nonprofits seeking ways to avoid terrorist financing abuse.
Does this impact you?
Though all nonprofits should take precautions to avoid abuse, some nonprofits are generally considered most at risk of unauthorized diversion of funds, the most common method of terrorist abuse. These include organizations that receive large amounts of cash donations, operate internationally or in partnership with international NGOs or other entities, receive a large amount of donations from international sources, or provide the following services:
- Humanitarian aid such as healthcare and poverty relief
- Disaster relief
- Cultural services
- Advancement of education
- Advancement of religion
What you should do:
To prevent diversion of funds and other identified methods of abuse relating to terrorist financing and money-laundering, FATF recommends the following best practices for nonprofits:
- Ensure good governance practices and strong financial management, including robust internal controls and risk management procedures.
- Carry out proper due diligence on individuals and organizations that give money to, receive money from, or work closely with your organization.
- Verify partner reputations through the use of selection criteria and searches of publicly available information, including domestic and UN sanctions lists.
- Enter into written agreements when possible to outline expectations and responsibilities of grantors and grantees, including detailed information as to the application of funds and requirements for regular reporting, audits, and on-site visits.
- Undertake internal risk analysis to help better understand the risks you face in your operations and design appropriate risk mitigation and due diligence measures.
- Establish strong financial controls and procedures and keep adequate and complete financial records of income, expenses, and financial transactions throughout your operations, including the end use of funds.
- Clearly state program goals when collecting funds and ensure funds are applied as intended.
- Ensure information about the activities carried out by grantors and grantees is publicly available.
- Ensure you are informed as to the sources of your income and establish criteria to determine whether donations should be accepted or refused.
Contact us to learn more about how your nonprofit organization can mitigate risk and protect against money laundering and terrorist financing abuse.