Charitable Donations Masking Illicit Finance Activities: Identifying Them in 2024
In the realm of charitable giving, the importance of transparency and accountability cannot be overstated. Unfortunately, the trust and relative regulatory leniency afforded to charities make them attractive targets for money laundering activities.
Money laundering in charities occurs when illicit funds are funneled through these organisations, often disguised as legitimate donations. Criminals may donate money obtained illegally through shell entities or fake donations, which then route these funds to appear as legitimate donations, thereby "cleaning" the money. Charities can also be used as masks for illegal flows by transferring funds to or receiving funds from high-risk areas or individuals, taking advantage of typically less stringent monitoring and reporting requirements in the charitable sector.
To combat this, charities should adopt several robust measures. Firstly, implement comprehensive Anti-Money Laundering (AML) policies and procedures that define clear operational frameworks and risk management strategies tailored to the charity’s activities.
Secondly, conduct thorough due diligence on donors and donations, screening them to verify the legitimacy of funds and assess risks, especially in higher-risk transactions or geographic areas.
Thirdly, regularly perform risk assessments considering geographic location, donor profiles, and transaction types to identify vulnerabilities and adjust controls accordingly.
Fourthly, train staff and volunteers on AML policies, risk awareness, suspicious activity indicators, and reporting procedures to build a culture of vigilance within the charity.
Fifthly, establish clear internal controls and protocols for accepting, disbursing, and monitoring funds, ensuring transparency and accountability in all financial transactions.
Sixthly, report suspicious activities promptly by filing Suspicious Activity Reports (SARs) with appropriate authorities when potential money laundering or terrorist financing is suspected.
Seventhly, collaborate with financial institutions and stay updated on regulatory requirements to ensure ongoing compliance and adapt to evolving money laundering risks impacting charities.
By following these measures, charities can mitigate the risk of their organisations being misused for money laundering and ensure funds serve their intended altruistic purposes.
In the UK, the issue of money laundering in charities has been a significant concern. In 2019, a UK man was sentenced to 10 years in prison for laundering over £10 million through a charity. Moreover, since the pandemic, 65% of UK charities feel at greater risk of fraud. To address this, charities are advised to appoint a compliance officer to establish a due diligence system and conduct adequate training for staff members to combat money laundering.
Financial institutions also play a crucial role in preventing money laundering. They need to verify the charities they work with to ensure that they are legitimate and not being used for illicit activities.
Money laundering through charities can take various forms, including misuse of funds, misuse of charity resources, imposter charities, and shell charities. It is essential for all parties involved to remain vigilant and proactive in their efforts to combat this issue.
References:
[1] Financial Action Task Force (FATF), 2020. FATF Recommendations. Available at: fatf-gafi.org.
[2] HM Revenue & Customs, 2019. Charities and Money Laundering. Available at: gov.uk.
[3] National Council for Voluntary Organisations (NCVO), 2019. Fraud in the UK Charity Sector. Available at: ncvo.org.uk.
[4] Charity Commission, 2021. Money Laundering. Available at: charitycommission.gov.uk.
[5] Sumsub, 2021. Sumsub Partners with Carefree to Streamline Verification Process for UK-based Charity. Available at: sumsub.com.
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