Developments in the non-profit sector, safeguarding the sector and supporting the removal of South Africa from the grey list.
South Africa has taken a series of steps to help safeguard non-profit organisations (NPOs) from being exploited for money laundering and terrorist financing purposes.
These steps are not only geared towards cracking down on financial crime in the sector, but also play an important part in addressing deficiencies noted during South Africa’s mutual evaluation, and in turn helping South Africa exit the Financial Action Task Force’s (FATF) grey list.
The global money laundering and terrorist financing watchdog has found that terrorist entities exploit NPOs to raise and move funds, encourage terrorist recruitment, or otherwise support terrorist organisations and operations.
The sector is at a heightened risk of being abused for terrorist financing due to the ease with which NPOs can be established, generate income, and distribute funding to beneficiaries.
As a member country, South Africa must adhere to the FATF Recommendations, also known as the global standards for combating money laundering and terrorist financing.
FATF requires that countries “review the adequacy of laws and regulations that relate to non-profit organisations, which the country has identified as being vulnerable to terrorist financing abuse”.
South Africa has made a concerted effort over the last few years to meet this requirement and strengthen the country’s anti-money laundering and counter-terrorist financing (AML and CTF) framework as it pertains to NPOs. These measures include:
- Amending the Nonprofit Organisations Act (Act 71 of 1997) which now requires all NPOs that provide cross-border relief to register with the Department of Social Development.
- Publishing a terrorist financing risk assessment report on the NPO sector in April 2024.
- Raising awareness on the money laundering, terrorist financing and proliferation financing (ML, TF and PF) risks in the NPO sector through webinars, media articles and guidance.
Terrorist Financing National Risk Assessment on the Non-Profit Sector
The terrorist financing national risk assessment highlights certain inherent vulnerabilities that may potentially put NPOs at risk of TF abuse. These vulnerabilities include NPOs established or operated by individuals with known terrorist sympathies, NPOs with activities in high-risk foreign areas, and NPOs using unverifiable methods for raising or transferring funds.
Potential TF threats in South Africa includes NPOs raising funds for foreign terrorist groups or domestic terrorist activity, the use of NPOs for recruitment and propaganda, the use of NPOs for remittance and bank accounts, as well as payments for ransom to terrorist groups.
NPOs should understand the ML, TF and PF risks they face and take measures to adequately mitigate identified risks.
TF occurs where funds are raised from either legal (e.g. donations to NPOs) or illegal sources, with the intention of using the funds to support terrorist acts, terrorist organisations or individual terrorists. The criminals involved will try to conceal the financing and the nature of the activity being financed.
Targeted financial sanctions
No person may provide or make available economic support or any financial or other service to persons or entities designated on the targeted financial sanctions (TFS) list. The targeted financial sanctions list can be found on the Financial Intelligence Centre’s (FIC) website. Importantly, TFS obligations must be met without delay. The FIC has issued detailed guidance that should be consulted; namely PCC 44A and the TFS list manual for guidance on TFS.
NPOs are urged to screen all their donors and beneficiaries’ information against the TFS list, and where a name is found on the list, the NPO may not provide any resources including funding to those designated persons.
Voluntary disclosure reports
Where an NPO suspects that it is being abused for ML, TF or PF, that NPO should file a voluntary disclosure report (VDR) with the FIC, within a reasonable period. VDRs are submitted electronically via the FIC’s registration and reporting portal, and the NPO would have to register as a voluntary reporter. The FIC has issued PCC 41 which provides for more information on VDRs.
Good governance
NPOs should apply good governance measures in its operations, which include checking whether beneficiaries are using funds for the right reasons, whether donors are legitimate, keeping record of funds received or spent, and conducting banking with a recognised financial institution. This measure could also aid in combating the financing of terrorism.
For more information and guidance refer to the FIC website for various guidance notes and public compliance communications. Alternatively, contact the FIC’s compliance contact centre on +27 12 641 6000 or log an online compliance query on the FIC website.
