Non-profit organisations (NPOs) are at risk of being abused for terrorist financing, it is therefore important that NPOs understand their vulnerabilities and implement governance processes aimed at combating terrorist financing and safeguarding their operations.
The Financial Action Task Force (FATF), 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.
It is a criminal offence for any person, including NPOs to provide funds for the use of a terrorist activity or for a person or entity that is designated on a targeted financial sanctions list. ‘Terrorist activity’ is defined in the Protection of Constitutional Democracy Against Terrorist and Related Activities Act (POCDATARA Act).
A targeted financial sanctions list includes persons or entities that are subject to targeted financial sanctions because of their involvement in terrorism or other atrocities, as identified by the United Nations Security Council. The targeted financial sanctions list is published on the Financial Intelligence Centre’s (FIC) website.
The FIC is South Africa’s financial intelligence unit tasked with identifying the proceeds of crime, and assisting in combating money laundering, terrorist financing and proliferation financing.
As part of their governance controls NPOs should:
- Obtain information on donors, beneficiaries and members’ identification
- Screen all donor, beneficiary and member identification information against the targeted financial sanctions list on the FIC website.
- Understand the stated nature and objectives of the beneficiary and donor activities
- Assess whether the beneficiary uses the funds for the stated objectives
- Assess the risk of the geographic area in which beneficiaries are based as certain geographic areas pose a heightened risk from a terrorism perspective
- File voluntary disclosure reports with the FIC where they know or suspect that a person or entity is designated on a targeted financial sanctions list or funds/activities are linked to terrorist financing.
Voluntary disclosure reports
There is no Financial Intelligence Centre Act (FIC Act) reporting obligation imposed on NPOs in terms of the FIC Act, as they are not regarded to be commercial businesses. However, the FIC strongly urges NPOs to report any suspicion or knowledge of terrorist activities or dealings with persons or entities that appear on a targeted financial sanctions list, by submitting a voluntary disclosure report (VDR).
The NPO can file a VDR as soon as it becomes aware that the transaction or activity is related to the proceeds of crime, terrorist financing or the possible evasion of targeted financial sanctions. VDRs can be based either on knowledge or even a suspicion.
Filing a VDR is not mandatory and is done voluntarily. A person who knows or suspects a VDR has been submitted to the FIC should not disclose the contents of that report to any other person. To register as a voluntary reporter, visit the FIC website and click on register or report.
No person, including NPOs must continue with transactions in instances where the persons/NPO knows that the transaction is linked to terrorist financing or a designated person/entity. Filing a VDR is not a defence against prosecution for criminal activity.
In addition, section 12 of POCDATARA Act requires an NPO to report to the South African Police Service when they become aware or have a suspicion that they are being abused for purposes of terrorist financing.
The FIC’s public compliance communication 41 offers guidance on combating the financing of terrorism and anti-money laundering measures relating to NPOs.
For more information go to the FIC website for guidance notes and public compliance communications on the topic. Alternatively, contact the FIC’s compliance contact centre on +27 12 641 6000 or log an online compliance query on the FIC website.
