Money Laundering, Terrorism Financing and the Proliferation of Weapons of Mass Destruction and other organised crime violate human rights and undermine the rule of law, and they can be a threat to the stability of the operations of companies (especially financial institutions) and national economies as a whole.
Criminals use complex means to conceal dirty/ illegal funds, move these funds across borders and inject them into the legitimate economy. Non-profit organisations (NPOs), Non-Governmental Organisations (NGOs), Charity Organisations, Civil Society Organisations (CSO) are particularly vulnerable to these criminal abuses due to their organisational characteristics, status and cross-border ties.
The main aim of this article is to protect the integrity of the NPO/ NGO sector from criminals and terrorist groups by throwing light on additional ways that the government, the NPO/ NGO sector and the financial institutions can work towards protecting the NPO/ NGO sector from terrorist abuse.
NGOs/NPOs – Who they are
NGOs/ NPOs are private non-profit organizations that pursue activities intended to serve the public good. They provide basic social services, work to relieve suffering, promote the interests of the poor, children and/or women, bring citizen concerns to governments, encourage political participation, protect the environment and wildlife, or undertake community development to serve the needs of citizens, organizations, or groups in one or more of the communities that they operate. The NPOS National Non-Profit Organisation Policy (Ghana) defines a Non-Profit Organisation (NPO) as a not-for-profit, non-governmental legal person or association or organisation voluntarily established, that primarily engages in mobilising and use resources for purposes such as charitable, religious, cultural, educational, social or communal purposes or for carrying out of other types of not for profit purposes and public good in the public interest. The words NGO and NPO are used interchangeably but the difference between the two is that NGO is a subset of NPO. NGOs can range from large regional, national, or international charities to community-based self-help groups. NPOs can also include research institutes, churches, professional/ school associations, and lobby groups. These entities typically depend, in whole or in part, on charitable donations and voluntary service for support. The alternative terms used in addition to “NGO” include private voluntary organizations, civil society, independent sector, self-help organizations, grassroots organizations, volunteer sector, and transnational social movement organizations.
By alleviating poverty and strengthening cohesion within the local communities, the NGOs/ NPOs also help to prevent radicalisation. Yet, some of their organisational features and structures put them at risk of being exploited to fund terrorism and launder money. In the aftermath of the 9/11 incident, it came out that there were several international networks of charitable organisations with connections to al Qaeda.
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Money Laundering and NGOs – How it happens
NGOs/NPO are vulnerable to money laundering and terrorist financing activities because they often process large amounts of cash and regularly transmit funds between jurisdictions. Also, they have traditionally operated under less formal regulatory control and generally, a less rigorous form of administrative and financial management. It is argued that the combination of these factors exposes them to an elevated risk of criminal and terrorist abuse.
One way that NGOs are used by criminals and terrorist groups is fronting. Throughout history, paramilitaries and terrorists have often exploited or used charity organisations as a front for building support and advancing the act of terrorism. They used these organisations to collect funds for their operations. Some even divert the funds for their personal gains (charity fraud). In the 1970s, Irish republican terrorists openly raised funds in the USA through a charitable organisation that provided a veneer of respectability and a source of cash for their cause. Also in 1999, the Police Survivors Fund was set up in the USA with the aim to aid widows and children of police officers killed on the job. Out of the US$441,000, only US$14,500 was actually given to the survivors of slain police officers.
Another way through which criminals launder their ill-gotten money is when they invest their dirty money into the NGO/ NPOs and pay themselves huge salaries and allowances for working for the NGO/ NPOs. They also use their NGO/ NPOs to get access to politicians, other government appointees and also the community people, particularly those in conflict areas and/or diasporas. The trust of the community and these politicians are won over with the supposed good deeds they are executing in these communities. They take advantage of the situation at hand to recruit people to further advance their criminal activities.
NGOs/ NPOs with global presence or reach have or are contributing to money laundering as these organisations are able to launder dirty money from one country to the other. With such a global presence, the criminals are able to decentralise their operations (communication and management) and diversify their logistical, financial, and recruitment networks. The legitimacy and breadth of NPO/ NGO activities, combined with this overlap in operational needs, can present a tempting target for terrorists and money launderers looking to realise the advantages inherent in a globalised environment.
The public trust these NGOs/ NPOs enjoy has made their activities attractive to criminals and terrorist organisations. Because NGOs/ NPOs have generally enjoyed high public trust, scrutiny of their activities has often been less consistent and robust than in other sectors, making it a suitable sector for terrorist organisations and criminals, looking to minimise risk to their own operations and logistical networks, to hide behind the attractive solutions that legitimate NPOs/ NGOs presents.
These vulnerabilities and threats identified with the operations of NGOs/ NPOs can be reduced, if not eliminated, by ensuring the following measures are adhered to. These measures will make the NPO sector less attractive to criminals and terrorist organisations.
Money Laundering and NGOs – The Way forward
Mention can be made of policy, guidelines and laws formulation and implementation as one of the measures that need to be put in place to ward off criminals and terrorist organisations. The registration of NPOs/ NGOs as companies limited by guarantee under the new Company Act, 2019 (Act 992) is a directive in the right direction. At least the people behind the NGO/ NPO will be known and proper documentation done. In trying to protect NPOs/ NGOs activities from criminals and terrorist organisations, the country (Ghana) has established the Non- Profit Organisation Secretariat (NPOS) to regulate (including the issuance and renewal of licence) the activities within the sector. The drafting of the NPOs National Non-Profit Organisation Policy is laudable and will go a long way to make the sector unattractive to criminals. The policy requires Community Base Organisations (CBOs) and Grass Root Organisations be registered with the MMDAs within their jurisdiction and pay the approved fees and charges as authorized by the assembly. All MMDAs should therefore keep a register of all registered CBOs and Grass Root Organization in their jurisdiction and submit an annual report to the NPOS. This measure will only achieve the desired results if all and sundry come on board for its implementation.
Another measure that can be instituted to ward off criminals is for the financial institutions to perform risk assessments on NPO/ NGO customers they onboard. This will help in the monitoring of the transactions these customers perform. The risk assessment should take into consideration the size, type, and scope of the NPO/ NGO, membership composition/ donor base, their activities, cross-border activity and financing, movement of funds, means of payments, type and location of activities engaged in, services provided. The resultant risk rating, either high, medium or low, will enable the financial institution to take additional measures such as performing Enhanced Due Diligence (EDD) and getting senior management approval before onboarding the NPO/NGO classified as high risk. Transactions performed by the NPOs/ NGOs should be monitored and any suspicious activity reported to the Financial Intelligence Centre.
NGOs/ NPOs having a more transparent shareholding structure so as to easily identify the beneficial owner, presenting a true and fair balance sheet and ensuring transparent traceability of their operations is another way to make the sector less attractive to criminals and terrorists organisations. The NPOs National Non-Profit Organisation Policy requiring all NPOs/NGOs to submit annual audited financial statements will help ensure transparency in their operations.
Training and awareness creation should also be one of the measures to make the NPO sector less attractive to the activities of criminals. There should be continuous awareness creation about the vulnerabilities and threats the sector is exposed to and the responsibilities of industry players on how to fight the menace.
NGOs/ NPOs are doing very well in national development especially in rural areas but the next time you decide to support a charitable cause, try to do some background check on the organisation, the people behind the organisation and the value they are adding to people’s lives.
Would you mind doing me a favour? Share this article with someone so that the awareness of money laundering and terrorist financing could be spread to avoid being used as a conduit by criminals.
Author: By Richieson Gyeni-Boateng, CAMS
