Non-profit organisations (NPOs) play an important part in addressing social ills, but are also susceptible to being abused for terrorism and money laundering purposes.
It is therefore important that NPOs are aware of the risks they face and adopt measures to identify and avoid potential criminal exploitation. Non-profit organisations should contact the Financial Intelligence Centre (FIC) if they notice suspicious behaviour or transactions from donors or persons dealing with their organisations.
What is money laundering?
- It is the process where the source of illegally obtained funds is concealed through the disposing or transfer of funds.
- The goal of a criminal to conceal the illegal nature of the source of funds.
What is terrorist financing?
- It is the process where funds are collected, moved and used for terrorist acts, terrorist organisations and individual terrorists.
- The goal of a criminal is to conceal financing and nature of activity being financed.
If they do notice such behaviour or transactions, NPOs can submit a voluntary disclosure report (VDR) with the FIC. If the NPO becomes aware they are being abused for purposes of terrorist financing, this must be reported to the South African Police Service.
As a hypothetical example, a criminal wants to hide the source of funds (i.e. cash made from drug dealing) and donates the money to an NPO. The criminal asks the NPO to pay a large sum of the funds back at a later stage on the pretext that the money was paid to the NPO in error. The return payment from the NPO to the criminal will appear as a valid payment to an NPO beneficiary, which could camouflage the true nature of the funds.
Criminals may misuse non-profit organisations in various ways. It is therefore crucial that NPOs remain vigilant and submit a VDR if they know donations or funds are from illegal sources or are destined for criminal use.
NPOs can also be exploited where funds that are destined for legitimate beneficiaries are diverted to illegal actors. An NPO must file a VDR when it becomes aware of suspicious and unusual payments to companies or persons that are not legitimate beneficiaries.
The person that files the VDR or anyone that knows such a report has been submitted may not disclose the fact to any other person. Filing a VDR is voluntary and is not a defence against taking part in the transaction which aids criminal entities. The FIC cautions NPOs against continuing with a transaction where it knows or suspects the funds are from an illegal source or destined for illegal activity.
VDRs provide valuable information about suspicious flow of funds or activities which the FIC uses to analyse and create intelligence reports. The FIC then shares the intelligence it generates with law enforcement and other competent authorities.
VDRs can only be filed by NPOs that are registered with the FIC. Registration is free and can be done via http://www.fic.gov.za on the FIC’s registration and reporting system goAML. To register select the registration and reporting link on the FIC’s website
The FIC recommends that NPOs:
- Check whether donors and beneficiaries are legitimate.
- Check whether beneficiaries are using funds for legitimate purposes.
- Keep records of all funds received and paid.
- Remain aware to the fact that the NPO sector is vulnerable to abuse.
- Submit a VDR where suspicious and unusual transactions or activities are identified.
For further information, refer to public compliance communication 41 dealing with NPOs on the FIC’s website. Queries can be directed to the FIC’s compliance contact centre on +27 12 641 6000 or log an online compliance query by clicking on: http://www.fic.gov.za/ContactUs/Pages/ComplianceQueries.aspx.
