Breaking New Ground: NPOs and Terrorist Financing Risks
18 April 2024 marked an important date in South Africa’s fight against terrorist financing with the launch of the first country-wide Terrorist Financing Risk Assessment for the NPO Sector in South Africa.
FATF and Greylisting
The Financial Action Task Force (FATF) is a crucial global entity that sets standards aimed at preventing money laundering and terrorist financing. Adhering to FATF’s standards is essential for countries to maintain international financial credibility. After an evaluation, South Africa was placed on FATF’s grey list in 2023, indicating significant areas of improvement needed in its anti-money laundering (AML) and anti-terrorist financing (CTF) strategies. One of the requirements related to a national risk assessment for non-profit organisations (NPO)s on terrorist financing.
The NPO Risk Assessment Process
Before the announcement greylisting of South Africa was announced, the risk assessment of its Non-Profit Organisation (NPO) sector was initiated in December 2022. This project, led by the Financial Intelligence Centre (FIC) involved a dedicated team of experts, including Chartered Institute for Business Accounting (CIBA)’s technical manager, Ms. Eszter Rapanos. CIBA’s involvement in this project was solidified by its strategic alliance with the Alliance of Non Profit Organisations Networks (ANNET). CIBA and ANNET have been working together to support NPOs becoming compliant through initiatives such as NPO Assist.
The goal of the team was to conduct a thorough investigation into how the NPO sector could potentially be exploited for terrorist financing. Following an internationally accepted methodology, the team surveyed 301 NPOs and collaborated closely with the broader oversight group including law enforcement, regulatory agencies, intelligence services, and financial institutions. This extensive data gathering was designed to build a complete picture of the risks within the sector.
Why the NPO sector?
NPOs often manage substantial funding and engage in extensive transactions, which, if not properly overseen, could be manipulated for harmful purposes. The assessment is critical for safeguarding the NPO sector to help identify the threats and vulnerabilities these organisations face and allow for more focused and effective protective measures.
Main Risks of Terrorist Financing
Acknowledging that not all NPOs are at risk, the report highlights the five main threats related to terrorist financing that could affect NPOs. It also details structural and operational vulnerabilities within these organisations that could be targeted for exploitation. Understanding and consideration of these threats is vital in prioritising security efforts and allocating resources efficiently to bolster the sector’s defences against potential threats.
The table below provides a summary of the significance and prevalence of the seven key vulnerabilities assessed in South Africa. Each vulnerability was rated and categorised on a scale from very low to very high. This rating helps to position each vulnerability within the matrix presented below.
Table 12: Significance and prevalence of the assessed potential inherent vulnerabilities, and the adequacy of mitigation measures (page 78 of the report)
What Can We Expect Next?
The report outlines several key recommendations to enhance counter-terrorist financing (CTF) efforts within NPOs in South Africa, focusing on self-regulation, governance, transparency, and collaboration:
1. General Awareness Raising
General awareness raising relating to terrorist financing risks and pointing to where further advice is available.
2. Self-Regulation and Policy Implementation:
NPOs at risk should develop documented policies to prevent illicit activities, including terrorist financing, and train staff on AML and CTF regulations.
3. Governance and Leadership:
NPOs need to elect ethical leaders and clearly define roles to ensure good governance and accountability.
4. Education and Community Engagement:
Umbrella NPOs should host educational workshops in collaboration with local government bodies like the Financial Intelligence Centre (FIC) to spread knowledge on AML and CTF regulations.
5. Risk Assessment and Monitoring:
NPOs should assess their risks to identify and monitor vulnerabilities linked to various donors and projects. Establish protocols for reporting suspicious activities to authorities.
6. Transparency and Information Sharing:
Transparent financial management and information sharing about the organisation’s activities and finances with the public and authorities. Work closely with law enforcement to address potential threats.
7. Recommendations for Authorised Dealers:
Authorised dealers handling NPO transactions should perform thorough background checks, sanctions screening, and implement risk mitigations for high-risk transactions.
These streamlined recommendations aim to create a safer operational environment for NPOs, reducing the risk of exploitation for terrorist financing.
What NPOs need to do now
Understand what terrorist financing risks are and how these risks relate to the South African NPO Sector.
Assess whether your organisation is vulnerable to terrorist financing. Understand what your terrorist financing risks are and what measures you need to implement.
Attend outreach programmes and keep up to date.
Report suspicious activities to relevant authorities, such as the FIC.
Employ good governance practices in terms of ethical management and good financial reporting processes. Monitor financial transactions and donations to identify unusual patterns and large transactions.
Make sure that you update the information on the NPO on the database of the DSD or Master’s Office.
South Africa will have the next mutual evaluation in 2027 which leaves us short timelines to implement the provisions of the report.
Let the work within the NPO sector begin!
Learn all you need to know about NPOs with CIBA’s Treasurer License!
After attending this webinar you will:
Understand the context of the Non-profit Organisation (NPO) in the NPO sector
Understand the different legal forms of an NPO
Identify the role of an NPO treasurer including the record keeping requirements
Understand the fundamentals of governance and ethics
Learn about the registration process and registration requirements for a NPO
Understand the compliance and reporting requirements
Receive an introduction to accounting
Understand the chart of accounts and classify accounts correctly
Implement the accounting cycle for revenue and receipts
Implement the accounting cycle for purchases and payments
Understand fixed assets
Understand payroll
Obtain an overview of non-profit taxation
Obtain an overview of Value Added Tax relating to NPOs
Understand the budget process of a NPO
Learn about drafting management accounts and reports for a NPO
Learn about available technology tools
Obtain insights into communication and fundraising
