In Oct. 2022, in response to a call for input, the Charity & Security Network (C&SN) submitted comments to the Financial Action Task Force (FATF) as part of FATF’s “project to review and update the Best Practices Paper on Combating the Abuse of NPOs (Recommendation 8), to effectively apply and implement risk-based measures to protect NPOs [non-profit organizations] most vulnerable for potential (terrorist financing) TF.” The FATF states that “The project may also identify potential targeted amendments to R.8 [Recommendation 8] / INR.8 [Interpretive Note to Recommendation 8].” This project developed from the FATF Plenary in June 2022.
In addition to seeking NPO input, this call extended to both financial institutions and Member States. The stated purpose of the NPO call for input is for FATF “to collect examples from NPOs regarding measures to protect them from potential TF abuse.” Input provided by NPOs has the potential to be included in the forthcoming updates to the Best Practices Paper on Combatting the Abuse of NPOs (R.8), in the “NPOs’ examples” (Annex II) section and in the “Access to financial services examples” (Annex III) section.
Under Examples for Annex II in the call, there were three opportunities to provide input:
1) Adopting a risk-based approach
C&SN’s input in this section focused on the key findings from the United States (U.S.) Treasury Department’s March 2022 National Terrorist Financing Risk Assessment (NTFRA) and May 2022 National Strategy for Combatting Terrorist and Other Illicit Financing (2022 Strategy). It highlighted the Treasury Department’s outreach and engagement, or lack thereof, ahead of the 2022 NTFRA and the 2022 Strategy, in addition to the Treasury Department’s commitment to implementing a risk-based approach (RBA) when carrying out assessments on NPO’s terrorist risk vulnerabilities. The need for improvements in the proportionality of countering the financing of terrorism (CFT) measures was also addressed. Lastly, it highlighted the Treasury Department’s overall outreach and engagement with the U.S. NPO sector.
2) Participating in self-regulatory initiatives by representational organisations
This section highlighted how U.S. NPO’s function, their oversight mechanisms, and what measures are undertaken to ensure accountability and transparency in their operations. It provided a list of NPO umbrella organizations and associations that work to provide the NPO sector with resources, good governance measures, and support for NPO’s Boards of Directors (BOD). The section concluded with a list of organizations offering International Program Support, including services provided.
3) Implementing good governance measures
Input in this section focused on an overview of C&SN, the organization’s fiscal sponsorship model, funding structure and reporting practices, and organizational due diligence measures, as well as the roles of the Advisory Board and Executive Committee. It also included the services, Working Groups, and transparency and accountability mechanisms afforded to C&SN Members.
The section then discussed overall NPO due diligence and compliance measures, including resources and specific risk mitigation measures NPO’s utilize, and highlighted how these measures go beyond the anti-money laundering (AML)/CFT regulatory compliance required by banks and financial institutions (FIs). Finally, the input showed how NPOs and banks/FIs alike are negatively impacted by examiners and regulators lack of clarity regarding requirements and expectations for conducting due diligence.
Under Examples for Annex III in the call, there were two opportunities to provide input:
4) Measures to ensure access to financial services of legitimate NPOs
This section covered a number of opportunities in the U.S. context for enhancing financial access services and inclusion of legitimate NPOs. The first opportunity provided was the U.S. Multi-stakeholder Working Group (MSWG) on Financial Access, which brought together actors from the U.S. government (USG), the financial sector, and the NPO sector. The aim of the MSWG was to develop mutual understanding on financial access and inclusion impacts and challenges, and on de-risking, and to work together to develop joint solutions and policy proposals.
The second was NPO support to Congressional offices on a Banking Discrimination Letter addressed to the heads of U.S. banking regulators that requests updates to anti-money laundering/financial crimes compliance (AML/FCC) obligations and policies on sanctions, with the aim of promoting and safeguarding banking access in an equitable manner, especially for immigrant populations and for Muslim Americans. One of the key messages highlighted how a banking sector that is free from illicit actors and abuse is not at odds with – but complementary to – an inclusive and accessible financial system.
The third was the Anti-Money Laundering Act (AMLA) of 2020, touted as “the most consequential anti-money laundering legislation passed by Congress in decades” and as “the most comprehensive update to banking regulation since the passage of the PATRIOT Act”. Amongst other requirements, AMLA obliges the Treasury Department to create a De-risking Strategy, due to Congress in December 2022. C&SN drafted Sense of Congress language that was included in Section 6215(a) of AMLA.
The fourth was de-risking, and the Treasury Department’s approach to outreach and engagement ahead of its forthcoming De-risking Strategy. This section noted that one of the most important de-risking challenges in the U.S. context is the discrepancy between banks/FIs/regulators and the USG’s views of the root causes of de-risking. Banks/FIs/regulators, in addition to AML/CFT experts, identify the U.S. AML/CFT regime, with its supervisory overreach, compliance risk and scrutiny, and strict liability standards, as the root cause of de-risking, while the Treasury Department claims that “profitability concerns are usually the main reason for de-risking.” This discrepancy has not been resolved as of yet.
The fifth was the C&SN-led Financial Access Working Group (FAWG) that brings together a variety of actors who experience firsthand and/or work to address financial access and exclusion, and de-risking challenges. The FAWG gathers and disseminates resources on topics most relevant to its Members, and creates a space for Members to share challenges, approaches, impacts, and strategies.
The sixth was C&SN’s continued advocacy efforts, including facilitating stakeholder input, especially when there are no official channels afforded for NPO input and engagement.
The seventh was NPO development of cross-coalition coordination efforts and unified policy proposals across multiple processes, with the aim of providing solutions to address financial access and de-risking challenges, that have the input, backing, and support of a wide array of NPO stakeholders.
5) Any Other Issue
In this final section, C&SN laid out the significant difference in changes to guidance versus changes to law and policy, and the resulting impacts therein. For instance, despite the important updates made in the 2021 Bank Secrecy Act (BSA)/AML Bank Examination Manual (BEM), which emphasized risk mitigation, took into account the self-regulatory and due diligence measures that NPOs stringently apply, and reminded examiners that the NPO sector writ large is not seen as high risk by the USG, key financial stakeholders have reiterated that the Manual itself is only guidance and instructions, and bears no legal binding. Given that guidance and instructions alone are not sufficient to change financial sector actions towards banking NPOs, it is the U.S. AML/CFT regime itself that needs to be updated for meaningful and sustainable change to occur.