In the absence of robust and airtight protocols for charitable organizations, there exists a potential threat of funds being improperly utilized for terrorism financing. This contravenes the law, specifically Division 103 of the Criminal Code Act 1995 (Cth), which prohibits the intentional collection or provision of money with reckless disregard for its application in a terrorist act. Not-for-profits (NFPs) can enhance risk management through good governance, internal controls, and accountability.
How Charities Can be Used for Terrorism Financing?
While businesses or companies may fall victim to terrorism financing, charities are also susceptible, given their role as primary hubs for the collection and distribution of funds. Vulnerabilities lie in frail organizational structures and oversight, limited resources of small charities, and dependence on informal fund transfers, such as using cash, or digital currency. For example, different legal company structures, or even an absence of a legal structure, may require different reporting requirements to different bodies (like the ASIC or ACNC), creating disparity and spaces without oversight.
Finances can be misused in various ways, as outlined in the Australian Institute of Criminology report (AIC report) on Money Laundering and Terrorism Financing Risks to Australian Non-Profit Organizations. Exploitation may encompass infiltrating a legitimate charity and diverting funds from within the organisation for illicit purposes, through complex financial maneuvers among various entities. Other methods may involve establishing fake charities to channel funds for unlawful purposes, or using an unwitting, legitimate charity as the conduit for movement of funds. Warning signs, such as substantial cash deposits or frequent transactions, indicate potential criminal activities. Formal charitable donations can serve as a method for financing terrorism, often involving wire transfers to overseas accounts associated with suspected terrorist connections.
What safeguards have been put in place?
Numerous Australian entities, including the ACNC, AIC, AUSTRAC (responsible for monitoring fund movements), the Attorney General’s and Home Affairs’ departments, and Parliament, have issued reports on the subject. Many official enquiries have been enacted to investigate this issue, too. The Parliament has enacted statutes like the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), the Criminal Code Act 1995 (Cth), and the Financial Transactions Reporting Act 1988 (Cth). In April 2023, the Albanese Government commenced consultation on reforms to Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime.
International regulations have also been introduced, such as the Charter of the United Nations Act 1945 and the Charter of the United Nations (Terrorism and Dealing with Assets) Regulations 2008, as well as the international standards set by the Financial Action Task Force (FATF), the global financial crime watchdog.
The ACNC’s governance and external conduct standards offer guidance for establishing a robust charity framework, mandatory for all charities (with external standards applicable when operating internationally). These standards encompass maintaining charity records and notifying the ACNC of specific matters. The ACNC’s Annual Information Statements are part of this regulatory framework. Additionally, the ASIC, Consumer Affairs Victoria (CAV) and other regulatory institutions play roles in overseeing compliance and regulations.
How do we combat this?
Good governance and financial transparency is key to maintaining legitimate activity. This involves maintaining records of activities, ownership, and expenditures, maintaining and publishing financial records and statements, implementing fund controls, and conducting transactions through regulated and formal channels. Knowing your donor, and knowing your beneficiary charities, may also help.
The Australian Government has set out the best practice principles for safeguarding your organisation against terrorism:
- Overarching principle
- Ensure funds are not directed towards terrorism activities.
- Legal obligations
- Comply with laws in Australia and foreign countries
- Risk awareness
- Understand and mitigate terrorism financing risks.
- Due diligence
- NFPs must know their beneficiaries and third parties that they work with
- Transparency and accountability
- Conducting transactions through regulated channels, like banks, investment firms, online payment platforms, etc
- Conduct background checks on all involved in organisation, especially third parties
- Maintain detailed records of transactions, donors, donations
- Conduct follow-up checks to ensure that assistance was delivered as intended.
- Report suspicious activity to AFP
In summary, a comprehensive approach involving regulatory diligence and legal and financial cooperation is crucial to safeguarding charities from terrorism financing.
For additional information on safeguarding your charitable organization, please reach out to Warlows Legal at: info@warlowslegal.com.au
