The Financial Action Task Force (FATF) released the results of its Mutual Evaluation of the United States on Dec. 1, 2016, assessing compliance with its 40 anti-terrorist financing and anti-money laundering standards, including Recommendation 8 (R8) on nonprofit organizations (NPOs). Key comments are below. For a summary and analysis that identifies the major issues relevant to NPOs click here:
While the evaluation found the U.S. to be “largely compliant” with R8, it noted that R8 was revised in June 2016. The evaluation is based on the prior version. Key elements of the new R8, including the proportionality of rules to risk, were not addressed. However, FATF said, “The revised version will be taken into account during the follow-up process.” Problems NPOs experience with banking services were also discussed. The last evaluation was in 2006.
Some key comments on the evaluation:
NPOs should be encouraged that FATF has updated its analysis of NPO risk to reflect what research and experience over the last decade demonstrates: that NPOs are not a significant source of terrorist financing. The growing threat from fraudulent fundraising is of concern to all stakeholders. This must be addressed in a manner that does not restrict or disrupt the work of legitimate NPOs.
In the follow up to this evaluation, FATF should address the issue of how the risk-based approach in the updated R8 is (or is not) reflected in laws and rules that impact NPO’s ability to carry out their work.
FATF’s recognition that the U.S. anti-terrorist financing rules are “strict liability” is helpful, but there is no discussion of how such “zero tolerance” rules measure up to a risk-based approach. This may reflect the fact that the evaluation was conducted under the old R8, which did not include the risk-based approach.
The new R8 requires a risk-based approach. In its Best Practices Paper for R8 implementation, FATF spells out the steps this entails. The review of existing laws and measures in light of the risk assessment is a crucial step. As FATF notes, the U.S. has not undergone this process since 2003. Things have changed substantially since then. FATF should look into the need for a review that includes outreach to and input from the NPO sector as part of the follow up to this evaluation. Otherwise, the new R8 may not be effectively implemented in the U.S. for a long time, as the next evaluation will be years from now.