The Financial Action Task Force (FATF) have identified non-profit organisations (NPOs) as entities which are vulnerable to abuse by criminals for terrorist financing and money laundering. In light of this, the Financial Intelligence Centre (FIC) recently published the draft Public Compliance Communication 103 (draft PCC 103) which provides guidance to the NPO sector, NPO Regulators and third parties dealing with NPOs, regarding measures that could be implemented in order to combat terrorist financing and money laundering risks within the NPO sector. The draft PCC 103 also provides guidance on the Voluntary Disclosure Reporting, including the process of submitting Voluntary Disclosure Reports by an NPO, NPO Regulator and/or third parties to the FIC.
Third parties dealing with NPOs
Third parties that deal with NPOs include accountable institutions (such as financial services providers), reporting institutions (such as motor vehicle dealers), donors, service providers, and partners.
Recommendations specifically aimed at third parties dealing with NPOs
The draft PCC 103 sets out guidance on the measures that could be implemented in order to combat terrorist financing and money laundering risks such as:
- Third parties must exercise care to determine whether the NPO is legitimate and registered.
- Third parties should request adequate information from the NPO regarding the NPOs founders, trustees, members, employees and authorised representatives and information on the operations and beneficiary information. Adequate information should include but is not limited to:
– NPO founder identification information;
– Member identification information;
– Where available, beneficiary identification information; and
– Information on the NPO operations including but not limited to, information on how funding will be spent and where the funding will be dispersed by the NPO.
Risk Rating NPOs
The FIC cautions third parties not to adopt a blanket negative approach to dealing with NPOs as this would negatively impact the combating of terrorist financing and money laundering. The FIC recommends that third parties, inter alia, that deal with NPOs should apply a risk rating to NPOs to determine the level of risk present from a terrorist financing and money laundering perspective as not all NPOs present the same level of risk. Draft PCC 103 sets out various factors which can be considered when risk-rating NPOs and includes several questions to answer in conducting appropriate due diligence.
FSPs dealing with NPOs need to be cautious and ensure that they apply appropriate due diligence measures in order to establish and mitigate any money laundering and terrorist financing risks. The FIC advises that accountable institutions must comply with all the requirements as set out in the FIC Act, and the accountable institutions Risk Management and Compliance Programme (RMCP). FSPs are therefore advised to take the information in draft PCC 103 into consideration albeit in draft format and where necessary, identify processes in your RMCP that may need to be updated or reviewed.
Comments on the draft PCC 103 are invited from NPOs and other persons, to reach the FIC by no later than 7 November 2019 via e-mail on Consult@fic.gov.za.
To read the FIC’s Web Notice, click here.