FATF Recommendations on NPO Sector

What is FATF?

The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. The inter-governmental body sets international standards that aim to prevent these illegal activities and the harm they cause to society. As a policy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.  More than 200 countries and jurisdictions, including South Africa, are members of FATF.

The FATF has developed the 40 Recommendations, or FATF Standards, which ensure a co-ordinated global response to prevent organised crime, corruption and terrorism.  It reviews money laundering and terrorist financing techniques and continuously strengthens its standards to address new risks, such as the regulation of virtual assets.  The FATF conducts periodic reviews with member countries to ensure that they implement the FATF Standards fully and effectively.

FATF Recommendation 8

The FATF recognises the vital importance of the NPO 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 NPO community to meet such needs.  However, more than a decade after the abuse of NPOs by terrorists and terrorist organisations was formally recognised as a concern, some NPOs in the sector continue to be misused or exploited by terrorists through a variety of means.

The FATF Recommendation 8 focuses on the non-profit organisation (NPOs) sector, and the potential use of the NPOs as vehicles for Money Laundering (ML) and Terrorism Financing (TF).

“Countries should review the adequacy of laws and regulations that relate to Non-Profit 0rganisations 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, including:

(a) by terrorist organisations posing as legitimate entities;

(b) by exploiting legitimate entities as conduits for terrorist financing, including for the

purpose of escaping asset-freezing measures; and

(c) by concealing or obscuring the clandestine diversion of funds intended for legitimate purposes to terrorist organisations.”

The FATF recognises the intent and efforts to date of the NPO community to promote transparency within their operations and to prevent misuse of the sector by those wishing to support terrorist financing and terrorist organisations. The NPO sector in many countries has representational and self-regulatory organisations that have developed standards and initiatives to help individual organisations ensure accountability and transparency in their operations, including strengthened internal controls and risk mitigation measures.

Recommendation 8 does not apply to the NPO sector as a whole.  Countries should take a targeted approach to implementing the measures called for in Recommendation 8, including oversight and regulatory mechanisms, based on an understanding of the diversity of the NPO sector and the terrorism risks faced by the domestic NPO sector. Given the variety of legal forms that NPOs can have, depending on the country, the FATF has adopted a functional definition of NPO. This definition is based on those activities and characteristics of an organisation which put it at risk of terrorist abuse, rather than on the simple fact that it is operating on a non-profit basis. Recommendation 8 only applies to those NPOs which fall within the FATF definition of a non-profit organisation: “A legal person or arrangement or organisation that primarily engages in raising or disbursing funds for purposes such as charitable, religious, cultural, educational, social or fraternal purposes, or for the carrying out of other types of “good works”.

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