FATF trying to prevent overuse of counter-terror financing rules in non-profit sector

The way that some countries are implementing FATF regulations against terror financing is hurting the legitimate activities of non-profits; amendment proposals to be considered in October plenary

Updated - August 06, 2023 08:18 pm IST

Published - August 06, 2023 06:11 pm IST - NEW DELHI

The Financial Action Task Force (FATF) is looking to revise its current recommendations aimed at safeguarding non-profit organisations (NPO) from being abused for terrorist financing,

The Financial Action Task Force (FATF) is looking to revise its current recommendations aimed at safeguarding non-profit organisations (NPO) from being abused for terrorist financing, | Photo Credit: AP

The Financial Action Task Force (FATF) is looking to revise its current recommendations aimed at safeguarding non-profit organisations (NPO) from being abused for terrorist financing, to ensure that they do not hurt these organisations’ legitimate activities instead.

At its October plenary, the FATF will take up proposals to revise the FATF Standards’ Recommendation 8 on non-profits, and its interpretive note, and also adopt an updated best practices paper on this issue. The deadline for public comments on these proposals is August 18.

In June 2022, the plenary had agreed to consider amending the recommendation and established a project team for this purpose. Subsequently, a draft amendment was prepared.

Negative impact

“The draft amendment text... proposed for public consultation reflects the work and discussion of the project team. The revisions seek to address the problem of over-application of preventive measures to the NPO sector in some countries, recognising the negative impact this can have on legitimate NPO activities,” it says.

The international anti-money laundering and anti-terror funding watchdog says that “7(b)(iii) of the Interpretative Note to Recommendation 8 lists examples of measures that countries can apply to NPOs according to their terrorist financing risks exposure. However, in view of their inclusion in the body of the Interpretative Note 8, these examples may have been perceived by some countries or jurisdictions as compulsory.”

As per the FATF’s draft proposal, countries should develop an understanding of the different degrees of terrorist-financing risk posed to non-profits and the corresponding levels of mitigating measures they require. “Many NPOs may face low TF [Terrorist Financing] risk exposure, may have adequate self-regulatory measures to mitigate such risks, and/or may already be subject to adequate level of legal and regulatory requirements, such that there may be no need for additional measures,” it says.

‘Overly burdensome’

The draft text adds that countries should be mindful of the potential impact of measures on legitimate non-profit activities, and apply them where they are necessary to mitigate the assessed terrorist-financing risks, without “unduly disrupting or discouraging legitimate NPO activities”.

“It is outside the scope of Recommendation 8 to apply measures to organisations to protect them from TF abuse when they do not fall within the FATF’s functional definition of NPOs. It is not in line with Recommendation 8 to implement any CFT measures [to combat the financing of terrorism] that are not commensurate to the assessed TF risks, and are therefore overly burdensome and restrictive,” states the draft.

Proportionate measures needed

The FATF suggests that countries should have in place focused, proportionate and risk-based measures to address terror-financing risks, in line with the risk-based approach. “For NPOs identified to be at low risk of TF abuse, countries may focus only on the undertaking outreach concerning terrorist financing issues, and may decide to refrain from taking additional mitigating measures,” it adds.

Stating that there is a diverse range of approaches to identifying, preventing and combating the abuse of non-profits, without unduly disrupting or discouraging their legitimate activities, the FATF suggests that countries should have clear policies to promote accountability, integrity and public confidence in the administration and management of these organisations; undertake outreach and educational programmes for stakeholders; and work with non-profits to develop and refine best practices.

Countries should also encourage non-profits to conduct transactions via regulated financial and payment channels wherever feasible, keeping in mind the varying capacities of financial sectors in different countries and in different areas and the risks of using cash, it says.

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