The exploitation of the non-profit sector for money laundering and, in particular, the financing of terrorism, is understood to have been a long-established practice. However, the methods and sources used by terrorist organisations to finance their activities became a key policy focal point after the terrorist attacks of 11 September 2001 and subsequent (predominantly government) examinations of terrorism funding substantiated the position that non-profit organisations were at an elevated risk of criminal exploitation. The vulnerability of non-profit organisations was related to their social purpose, the cash-intensive nature of their activities and the generally minimal form of regulatory oversight applied to their operations. Adding to this risk was the provision of services that relied on financial contributions and the good will of its supporters, the often regular transmission of funds between jurisdictions and less rigorous forms of administrative and financial management.
Chief among the policy responses was the inclusion of non-profit organisations in the Financial Action Task Force series of special recommendations to combat terrorism financing, to be observed by governments alongside the 40 Recommendations on the prevention of money laundering. Special Recommendation VIII (SR VIII) advised countries to review their laws and regulations regarding non-profit organisations to protect the sector from misuse by terrorist organisations posing as legitimate entities; through the exploitation of legitimate entities as conduits for terrorism financing and by concealing or masking the diversion of funds for legitimate purposes to terrorist activities. The Recommendation advocated increased transparency within the non-profit sector and the implementation of a regulatory scheme that included sector outreach, sector monitoring and effective intelligence and information gathering.
Abuse of the non-profit sector is evidently occurring at the international level but evidence from publicly available material assessed for this report indicated that the level of abuse of Australian non-profit organisations was comparatively low. Those organisations considered at greatest risk were charities, unincorporated organisations (ie those outside any type of formal regulatory control) and/or organisations that regularly used informal methods of funds transfer (such as alternative remittance services). These characteristics, however, did not necessarily match the handful of known (publically available) cases of Australian non-profit abuse, nor the greater spectrum of reported cases from the United States, United Kingdom and Canada, where the non-profit organisation was usually registered or otherwise known to a regulatory or tax authority and was built into a complex network of funds transfer that used, at some point, registered financial channels. This inconsistency in findings may demonstrate that criminal/terrorist elements were deliberately choosing to form or infiltrate registered non-profit organisations to instil a veil of legitimacy to the organisation’s purpose and operation. Conversely, it may also show that detection is only practicable with formal or routine monitoring and hence non-profits sitting outside regulatory scrutiny are being exploited more than the case studies imply.
At present, the ‘protection’ of the Australian non-profit sector from exploitation combines elements of government- and self-regulation, along with education initiatives such as the Australian government-prepared guidelines Safeguarding Your Organisations Against Terrorism: A Guidance for Non-profit Organisations and peak body-generated codes of conduct. Protection is also afforded through the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). Any designated service used or provided by the non-profit entity is subject to reporting obligations as prescribed in the Act, including the submission of specified transactions to the Australian Transaction Reports and Analysis Centre, Australia’s anti-money laundering and counter-terrorism financing regulator.
One of the mandates of anti-money laundering and counter-terrorism financing efforts is the implementation of measures that balance response with risk. To successfully mitigate the risk of abuse, the targeted sector must remain vigilant about potential vulnerabilities but the response should be both appropriate and proportionate to risk, and not produce undue burden. The regulation of Australia’s non-profit sector has received numerous reviews and while it has not undertaken to examine risks as described here, the reviews have described a system that could benefit from reform. One option that has been proposed by the Australian Government is the implementation of a national regulator, alongside the soon-to-be-established Australian Charities and Not-for-profits Commission. The regulator, if modelled on regulators such as the Charity Commission of England and Wales, might provide the unified oversight currently absent in Australia. This report provides material on which policymakers, regulators, law enforcement agencies and the non-profit sector can base decisions regarding the potential and actual nature of risks to non-profit organisations and, if additional measures are deemed warranted, the application of responses that minimise risk without handicapping the sector’s ability to perform its range of functions.