By Ashleigh Subramanian-Montgomery
On March 1, 2022, the Treasury Department published the 2022 National Terrorist Financing Risk Assessment (NTFRA). This updates the 2018 NTFRA and 2015 NTFRA reports. The risk assessment identifies the groups that constitute the main terrorist financing threats and assesses the vulnerability to terrorist financing abuse of key sectors, including nonprofit organizations (NPOs) and banks. The risk assessment found that “the vast majority of U.S.-based tax-exempt charitable organizations face little or no risk of being abused for TF [terrorist financing]” while recognizing that some groups may face greater risk “based on their activities and geographic profile.” It notes that charities take steps to protect their resources and acknowledges that barriers to accessing financial services can create risk. Treasury commits to “continue to encourage the implementation of proportionate and risk-based AML/CFT [anti-money laundering/countering the financing of terrorism] measures to ensure legitimate humanitarian assistance flows to those most in need.” Treasury’s Press Release stated that recommendations to address risk will be part of the upcoming counterterrorism Strategy document.
The NTFRA is the first step in implementing the risk-based approach (RBA) required by the Financial Action Task Force (FATF), which sets international standards for laws aimed at CFT. FATF’s Recommendation 8 on NPOs requires outreach to NPOs in the risk assessment process and an assessment of how existing laws and measures mitigate risks. The FATF standard states that the measures adopted by governments as a result of the risk assessment process should be proportionate to risk and not disrupt the activities of legitimate NPOs. The standard requires countries to conduct outreach to NPOs as part of the risk assessment process. Treasury held one outreach meeting with NPOs to solicit input ahead of publication. From a historical perspective, Treasury held discussions with NPOs prior to publication of the 2018 NTFRA but not the 2015 NTFRA. Although the NPO community requested an opportunity to review and comment on a draft, Treasury did not take further input.
C&SN Recommendations to Treasury Ahead of the Publication of the ‘2022 National Strategy for Combatting Terrorist and Other Illicit Finance’
On March 3, 2022, C&SN submitted comments and suggestions to Treasury laying out recommendations for Treasury’s ‘2022 National Strategy for Combatting Terrorist and Other Illicit Finance’, scheduled to be released in the coming weeks. The letter encourages Treasury to take the time needed to engage the nonprofit sector on how measures to CFT can be made more proportionate and risk-based prior to finalizing its recommendations. C&SN’s recommendations include three measures that would enhance the proportionality of CFT measures and avoid the kind of operational disruptions that result from the current framework:
- Review CFT measures to improve alignment with international humanitarian, human rights and refugee law, per UN Security Council Resolutions (UNSCR) 2462 and 2482.
- Issue a Global General License to ensure humanitarian aid and peacebuilding activities can be carried out unfettered the moment a crisis breaks out.
- Address financial access barriers for NPOs by making enforcement standards consistent with the RBA.
C&SN hopes these recommendations will be given due consideration and that NPOs will be meaningfully engaged in the development of this Strategy.
Participants and Methodology
The 2022 NTFRA “identifies the TF [terrorist financing] threats, vulnerabilities, and risks that the United States currently faces.” It highlights that because the country’s financial system is so integral to the global economy, and because the United States is the main partner in trade to several nations, these factors make the U.S. highly vulnerable to illicit finance activities and to TF. The 2022 NTFRA incorporated input from the following USG agencies, in addition to the Department of the Treasury, whose Office of Terrorist Financing and Financial Crimes (TFFC) authored the report:
- Department of State
- Department of Homeland Security (DHS)
- Department of Justice (DOJ)
- Federal function regulators staff
- National Counterterrorism Center (NCTC).
The concepts used to approach the 2022 NTFRA include: Threats, Vulnerabilities, and Consequences.
Section I. Threats
The report highlights both international and domestic TF threats to the United States. While “Funds moved from U.S.-based supporters to facilitators outside of the United States working on behalf of ISIS [Islamic State of Iraq and Syria], AQ [al-Qa’ida], and Hizballah remain the most common form of TF in the United States…” they do not constitute the most severe threat. Instead, “Presently, the greatest threat to the homeland arises from U.S.-based individuals acting alone…in carrying out deadly attacks, using firearms, vehicles, or homemade explosives” and noted that “DVEs [domestic violent extremists] pose a serious and evolving threat.”
Section II. Vulnerabilities and Risks
This section discusses banks, money services businesses (MSBs), unlicensed money transmission, cash, virtual assets, and charitable organizations, and the vulnerabilities and risks they face due to TF.
NPOs and Charities
The report credits NPOs with playing “…an important role in countering terrorism, including through their work in preventing radicalization to violence and violent extremism.” However, it also claims that Treasury “worked collaboratively with charitable organizations to strengthen their internal measures and requirements so they are much less likely to be exploited by terrorist groups for fundraising or facilitation activities.” While Treasury has increased its use of General Licenses (GLs) to reduce disruption of NPO operations and has provided guidance on existing restrictions, NPOs have exercised their own agency and expertise to develop sophisticated regulatory and compliance measures that prevent potential exploitation by terrorist groups. In the meantime, NPOs face the risk of being sanctioned by the Treasury Department for inadvertent violations when operating in many of the world’s areas that are most in need of humanitarian and peacebuilding support.
The NTFRA makes a number of key points that highlight its commitment to taking a RBA and incorporating proportionality into its assessment of the NPOs terrorist risk vulnerabilities. It states that while “terrorist groups have misused these organizations to support their activities…these events remain infrequent compared to the overall population of charitable organizations in the United States.” Moreover, it acknowledges that while TF may at times be done in the name of charity, that does not equate to NPOs’ involvement in these activities. NPOs are lauded for enhancing “risk-mitigation measures, including due diligence, governance, transparency, accountability, and other compliance measures, even in crisis situations.” Lastly, Treasury noted the challenges NPOs face, especially in areas deemed “high-risk,” when it comes to financial access and de-risking. This was a welcome addition to the report, as NPOs have been sharing these ongoing and increasing challenges with Treasury for some time, and we appreciate its inclusion.
It is worth mentioning that even when two examples “of how U.S.-based organizations could be abused,” one example was from organizations operating outside of the U.S. that had nothing to do with U.S. NPOs. The other was an older example that involved individuals fraudulently claiming to be fundraising for charity.
Strategy Recommendations for the ‘2022 National Strategy for Combatting Terrorist and Other Illicit Finance’
In addition to the three recommendations above, C&SN recommends the following:
- Engage NPOs in developing recommendations for the upcoming Strategy, and integrate their input to inform the Strategy.
- In accordance with Recommendation 8, when discussing NPO and charities risk levels, give specificity about which organizations pose risk and why, rather than conflating the sector as a whole.
- Develop risk-mitigation measures that are proportionate and do not unduly disrupt the activities of legitimate NPOs, and that are context, country, and conflict-specific, especially in high-risk areas.
- Work in partnership with banks and financial institutions to encourage them to bank NPOs so they can operate in areas most in need, rather than most allowed.
- Provide NPOs the opportunity to comment on a draft of the ‘2022 National Strategy for Combatting Terrorist and Other Illicit Finance’ and other reports and documents that have direct impact on their work.
The 2022 NTFRA showed that NPOs implement risk-mitigation strategies to protect against TF, have strong compliance and regulatory measures in place, and that terrorist groups abuse of the sector overall remains low in comparison to the number of NPOs based in the United States. These findings should encourage Treasury to enhance the proportionality of CFT measures going forward. C&SN is appreciative of Treasury’s continued engagement with NPOs and encourages Treasury to continue this progress in a meaningful and impactful way.