The Financial Action Task Force (FATF) released a “limited update” of its Best Practices paper (BPP) for governments to “combat the abuse of nonprofit organizations” (NPOs) by terrorists on June 25, 2013 that incorporates suggestions provided by a civil society working group. The document is a “limited update to reflect the…need to protect NPOs’ legitimate activities.” In a letter to participants in a FATF consultation with civil so ciety, FATF President Bjorn Aamo said, “It is without doubt that the work of the FATF on this paper has benefitted extensively from the April 2013 Consultation meeting and the written comments that we received from the NPO sector after the Consultation meeting. The next step will be typologies research to gain a better understanding of the vulnerabilities and risks currently facing NPOs.” After that research is complete the specifics of the Best Practices Paper will be updated. The Transnational Civil Society Working Group on FATF will continue to provide input and engage in dialog with FATF on these issues.
The changes are a significant improvement over the previous document and will hopefully avoid the misuse or misinterpretation of FATF anti-terrorist financing standards that has contributed to unnecessary and harmful infringements on the rights of freedom of association and expression in some countries. The paragraph titled Respect for the Legitimate Activities of NGOs on page 5 notes that FATF’s Recommendation 8 on NPOs may be misused, and then “NPOs have problems in fulfilling their tasks.” It goes on to describe charities as a “vital component of the world economy” that can “play an important role in preventing the causes of radical ideology from taking root and are, therefore, potential allies in the fight against terrorism.”
Key changes made by FATF include:
- Clear language on the need to safeguard freedom of association and expression, citing the Universal Declaration of Human Rights and the International Covenant on Civil and Political Rights;
- Specific language that Recommendation 8 (the FATF document specifically addressing civil society) should not be misused to suppress nonprofits. For example:
o Page 3 item 4: “The measures to protect NPOs from misuse should not disrupt or discourage charitable or other legitimate activities of NPOs…”
o Page 4 item 9: “…measures to protect NPOs from misue should not disrupt or discourage legitimate activities….”
o Page 5 item 11: “…it is important that regulations and actions in this area do not harm the legitimate activities of non-profit organizations.”
- A proportional and cooperative perspective. The first paragraph states that “FATF recognizes the intent of the NPO community to promote transparency in NPO operations and to prevent misuse of the sector for terrorist financing.” FATF also removed the word “numerous” when describing instances of terrorist financing of nonprofits, at the request of the working group, which said the number of actual cases of diversion of nonprofit funds to terrorist activities are limited.
- Clarification of the definition of NPOs: FATF uses two definitions of NPOs, one general and one specific to a subset of international NPOs with significant financial resources. Each definition is supposed to be applied in a different context. The subset of international NPO definition, taken from the Interpretive Note on Nonprofits at paragraph 5(b), calls for closer regulation and monitoring of these groups. In the past, apparent confusion over the when this definition applies has led to overregulation, as in the case of the British Virgin Islands.
The new BPP provides guidance on how the general definition and sub-set definition of international NPOs should be used, emphasizing that a risk-based approach should be taken and that the sub-set of international NPOs with significant funding may require supervision and monitoring that is not applied to all NPOs.
In the Guiding Principles section (p. 5-6) FATF notes that:
- “Government oversight and the measures taken by financial institutions should be flexible, effective and proportional to the risk of abuse.”
- Nonprofit self-regulatory organizations can play a role in protecting the sector and measure to strengthen self-regulation should be encouraged.