The Financial Action Task Force and relevant provisions of the laws and regulations on money laundering and countering terrorism financing were designed to help identify the source, volume and movement of currency and other monetary instruments transported or transmitted into or out of a country, or deposited in financial institutions in the country.
The objective of the FATF Recommendation 8 (otherwise known as R8) is to ensure that nonprofits are not misused by terrorist organisations and the impact of the revision of Recommendation 8 has far-reaching influence on national governments’ regulation of the charitable sector.
Recommendation 8 focuses on the nonprofit sector’s supposed vulnerability to being misused for terrorist financing. This was further elaborated on its 2014 typologies report titled, Risk of Terrorist Abuse in the Non-Profit Organisations. According to the FATF’s R8, at the time, nonprofits “possess characteristics that make them particularly attractive to terrorists or vulnerable to misuse of terrorist financing”.This resulted in over-restrictive laws, national legislation and practices being enacted to curb the activities of nonprofits.
The FATF recognises the vital importance of the nonprofits community in providing charitable services around the world, as well as the difficulty of providing assistance to those in need, often in remote regions, and applauds the efforts of the nonprofits community to meet such needs. The FATF revised its best practices in 2015 with an objective to facilitate nonprofits’ efforts and protect the integrity of the nonprofit sector by providing examples of additional ways that governments and the nonprofit sector can work towards protecting the third sector from terrorist abuse.
In June 2016, the new R8 was presented as a result of the misinterpretations by national regulators. Changes included the removal of the characterisation of nonprofits as “particularly vulnerable” to terrorist abuse from R8, and various changes to the Interpretative Note, which accompanies this Recommendation.
Recommendation 8 now states that: “Countries should review the adequacy of laws and regulations that relate to nonprofit 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…”
The unsubstantiated news that money launderers partner nonprofits to steal; and serve as conduits through which corrupt individuals launder money is no longer new. What is new is that nonprofits must themselves lead the process of using the laws of the land to facilitate investigation and prosecution of money laundering and terrorism financing offences amongst its members if brought to their attention. This includes reporting, record keeping, client identification and compliance regime requirements for individuals and entities.
The failure to distinguish between organisations legitimately at risk of being used for money laundering and organisations with no links to organised crime must be accounted for by regulators. Any law around money laundering or terrorism financing should guide nonprofits in their operation and not rigidly constrain or discourage legitimate nonprofit activities; which could threaten the civic space.
Measures adopted by Nigeria to protect the nonprofit sector from terrorist abuse should not disrupt or discourage legitimate charitable activities. Rather, such measures should promote transparency and engender greater confidence in the sector, across the donor community and with the general public, that charitable funds and services reach intended legitimate beneficiaries. Systems that promote achieving a high degree of transparency, integrity and public confidence in the management and functioning of all nonprofits are integral to ensuring the sector cannot be misused for terrorist financing.