Australian charities are vigilant, but the fight against terrorist exploitation can never stop, says ACNC

It’s a risk that the ACNC takes very seriously, especially as part of its wider work alongside other government agencies, including the Financial Action Task Force (FATF).

“FATF is an independent inter-governmental body first created in 1989 by the G7 with the simple idea that criminals [engaging in money laundering] don’t respect international borders, and the aim of the FATF was to create a response … that would drive international cooperation against money laundering,” an ACNC spokesperson explained.

“Forty member jurisdictions and more than 200 countries and jurisdictions have committed to implement FATF’s Standards as part of a coordinated global response to organised crime, corruption, and terrorism,” they said. “FATF has 40 recommendations it asks countries to implement. Together, the recommendations represent a global plan for reducing the risks of money laundering, terrorism financing, and proliferation financing.”

As part of this work, the ACNC has recently held face-to-face meetings with charities potentially at risk of financial exploitation by global terrorists and has asked charities to complete a self-audit.

“Our reviews focused on the governance of small charities operating overseas, which also included some newly established charities, to assess how they meet their obligations under the ACNC Act and Regulations,” the ACNC spokesperson said.

“We looked at how charities operating overseas ensure funds and assets are being used for their intended purposes, and how they consider and mitigate terrorism financing risks through governance practices.”

The ACNC said this included looking at:

• how the charity identifies and manages its risks of terrorism financing

• financial management and oversight, and the controls in place to adequately monitor funds and assets sent or used overseas
• how the charity transfers funds overseas, how it works with overseas partners and how it ensures that its funds are used solely for the intended purpose
• due diligence undertaken on partners overseas, and the steps charities take to ensure partner agencies and their people have the right skills and experience
• compliance with relevant laws when operating overseas, including laws that relate to international sanctions and terrorism financing
• record-keeping.

ACNC commissioner Sue Woodward said the results were encouraging, as most charities reviewed had governance measures in place to manage the risks of terrorism financing.

“The majority understood the seriousness of the issue and demonstrated a willingness to comply with Australian and international laws,” she said, in releasing the findings. “Importantly, they supported their board and staff to develop strong financial literacy skills and had strong risk management procedures in place.”

The ACNC said that best practice, from the viewpoint of the commission and FATF, would include such measures as:

• having a specific counter-terrorism policy or embedding counter-terrorism measures within a financial management policy

• checking all partners and personnel against the listed terrorist organisations under the criminal code, and the Department of Foreign Affairs and Trade's consolidated list of all individuals and entities subject to Australian sanctions, including targeted financial sanctions and travel bans
• conducting due diligence before working with overseas partners
• having documented agreements in place with overseas partners and monitoring service delivery against agreed expectations
• identifying risks related to their activities and the countries they operate in
• maintaining a risk register and undertaking periodic risk assessments of all projects
• having a skilled board and employees or volunteers with financial expertise
• transferring funds from the charity account via bank-to-bank transfers or using established remittance service providers
• keeping records, including project reports, to acquit the use of transferred funds
• being aware of relevant legal obligations.

A charity could be in danger of exploitation if it failed to follow important policies or hold key documentation, such as formal financial management or counter-terrorism policies, formal agreements with overseas partners, or an established incident response plan, the spokesperson said.

Some small charities might not fully understand the relevant laws, particularly relating to terrorism financing, money laundering or other criminal activities, or might think it was enough to rely on trust or personal relationships with international partners.

Even worse, a charity might transfer funds via personal bank accounts or using cash.

The ACNC said formal vetting and documentation procedures were non-negotiable to guard against exploitation.

Happily, the ACNC review seemed to suggest that most Australian charities were aware of the risks and were actively working to avoid exploitation.

FATF has requirements specific to the NFP sector to stop exploitation.

It says abuse can happen by terrorist groups posing as not-for-profit organisations, using real NFPs as conduits or diverting funds meant for legitimate purposes.

FATF says:

“Non profit organisations (NPOs) may be at risk of abuse by terrorists for a variety of reasons:

• NPOs enjoy public trust, so can often be subject to less scrutiny than other organisations.
• NPOs can raise funds, and get access to resources, and in some contexts can be cash-intensive.
• Some NPOs have a global presence that provides a framework for national and international operations and financial transactions, which may be within or near those areas that are most exposed to terrorist activity.”

“Terrorist organisations have been found to exploit some NPOs, taking advantage of or infiltrating NPOs and misusing funds and operations to cover for, or support, terrorist activity:

• to raise and move funds
• to provide logistical support
• to encourage terrorist recruitment, or
• to support terrorist organisations and operations.”

In 2018, Australia was subject to a FATF assessment that checked charities’ governance and risk against 40 established recommendations designed to guard against terrorist exploitation, money laundering and other crimes.

Back then, Australia was rated as only “partially compliant”.

Another review is set for later this year, which is why the ACNC is trying to get ahead of the process.

“The ACNC undertook the reviews to better understand the nature of the risks in the sector, to help us ensure we are providing appropriate support to help charities protect against misuse by terrorists without impeding delivery of charitable purposes,” the spokesperson said.