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• Terrorism and money laundering

Terrorism and money laundering guidance for charities

Updated February 2010

1. Purpose of this guidance

Charities are at risk of being misused by individuals or other organisations to finance or support terrorist activity or assist money laundering.

This Guidance aims to:

• build awareness of the nature of the risk
• outline some principles a charity can use to help reduce this risk
• assist charities to understand and comply with legal requirements in relation to terrorism financing.

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2. How do terrorists and money launderers use charities?

Terrorist activity requires financial support, concealment or opportunities for recruitment, whereas money launderers aim to legitimise money sourced in illegal activities.

Techniques used include:

• raising funds in the name of the charity or charitable purposes and then redirecting the funding with or without the knowledge of the charity
• using the charity as a legitimate front for transporting cash or other financial support from one place to another
• using charity vehicles or premises to transport or hide people, cash, weapons or terrorist propaganda
• using a charity partner who distributes aid or relief as a front to conceal other illegal activities or recruitment for terrorism
• offering large donations in cash or foreign currency with the opportunity to earn interest over a period of time, conditional on returning the principal in New Zealand currency.

Less common techniques include:

• those within the charity "skimming" off money from legitimate collections for terrorist purposes
• the establishment of a sham charity

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3. Why do terrorist organisations or money launderers target charities?

Terrorists or money launderers may target charities because they:

• enjoy high levels of public confidence
• are diverse in nature, providing a broad range of activities and reaching all parts of society
• may depend on one or two individuals who play a key, and often unsupervised role, particularly with smaller charities
• may have a global presence that provides a framework for national and international operations and financial transactions
• often have complex financial operations including multiple donors, investments and currencies, often receiving and using cash, having to account for high volume of small transactions and using informal money transfers
• may regularly work within or near those areas that are most exposed to terrorist activity
• may have complex programmes of operation and pass funds through intermediary partner organisations to deliver their services
• may have unpredictable and unusual income and expenditure streams, so suspicious transactions may be harder to identify.

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4. Why is this issue important to charities?

The consequences of becoming involved in terrorist financing or money laundering are significant, and can include the loss of reputation, status, registration under the Charities Act^[1], ^[2] and donor confidence.

Also, individuals or organisations, including charities, may face criminal charges if they facilitate the funding of, or provide financial support to a terrorist individual, organisation or act or if they engage in money^[3] laundering^[4].

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5. What is the risk of a charity being misused by terrorist organisations or someone engaged in money laundering?

The charitable sector is large and diverse, with as many as 25,000 operating in New Zealand. By comparison, the scale of known terrorist links to charities operating in New Zealand is assessed as being small.

However, when considering risk, it is important to note that:

• there is evidence of charities being misused in other countries
• the terrorist activity may have catastrophic consequences for the very people the charity is trying to help
• some parts of the charity sector are more likely to be misused than others (see 6, below).

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6. A risk-based approach

Charities should identify the specific risks to their organisation (e.g. how a terrorist may be able to infiltrate a charity and/or fraudulently access funds) and, on that basis, form an opinion on the overall level of risk their organisation may be subject to (for example, high, medium or low).

This assessment should inform a charity's decision on the level of compliance required with the principles of good practice (see heading 7).

Charities face a higher risk if they:

• conduct or contribute to aid programs or projects overseas; and/or
• donate funding to other charities, NGOs or projects overseas; and/or
• work with, or provide funding to, other charities that conduct programs or projects overseas.

It is important to note, however, that charities may still be misused even where aid or assistance is directed to beneficiaries within New Zealand.

The risks will increase in situations where charities:

• operate in regions where terrorist activity is known to occur; and/or
• use alternative remittance services or pay for goods or services in cash rather than using formal financial mechanisms (such as electronic funds transfers); and/or
• engage other individuals or organisations to deliver aid without conducting screening processes; and/or
• are not able to provide direct oversight over programs or projects.

It is important that charities regularly review their risks, particularly when there are significant changes to the focus or scope of the activities of a charity.

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7. Principles of good practice

As a starting point, a charity must comply with New Zealand law and the laws of any foreign countries in which they operate.

Non-compliance (whether through ignorance or otherwise) may lead to a charity and its officials being liable to prosecution and criminal penalties (see heading 4).

New Zealand law, under S. 43 of the Terrorism Suppression Act, states that all entities must submit a Suspicious Property Report (SPR) to the New Zealand Police Financial Intelligence Unit if they deal with property that is suspected to be owned or controlled by a designated terrorist entity^[5].

Beyond that, recommended principles of good practice are that the charity should:

• make all reasonable efforts to ensure that funds are not being directed to terrorist activities
• understand the level of risk their organisation may be exposed to in relation to terrorism financing, and where risk is evident, take necessary precautions
• educate management, staff and volunteers on the level of risk and the nature and rationale of precautions in place
• know their beneficiaries and any third parties they work with
• check that beneficiaries and third parties are not police listed terrorist individuals or organisations in New Zealand^[6]
• make financial transactions where possible through regulated financial institutions, such as banks or building societies
• carry out background or reference checks of management, staff and volunteers
• keep records of assistance provided, who to, and the details of any third parties involved
• carry out follow-up checks where possible to make sure that any assistance to beneficiaries was delivered as intended. For example, can you verify that
  • the project was carried out
  • the beneficiaries are real
  • the funds sent were received by the intended beneficiaries
  • all funds, assets and premises are accounted for.
• report suspicious activity to the New Zealand Police^[7]
• where funds are provided to a third party, take all reasonable efforts to make the third party aware of your expectations about the principles of good practice

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8. New Zealand's international obligations

As well as being strongly committed to international efforts to counter terrorism, New Zealand has obligations under international law to carry out United Nations resolutions against terrorism. This includes taking steps to prevent terrorist financing, recruiting or other forms of support.

New Zealand is required to apply these measures against specific entities listed by the United Nations Security Council.

It also has an obligation to prevent terrorist activities more broadly.

The Terrorism Suppression Act 2002^[8] provides for a list of terrorist entities to be established and maintained in New Zealand. All terrorist entities listed by the United Nations are automatically listed by New Zealand, and our Prime Minister is able to designate entities beyond the United Nations list.

New Zealand has also been a member of the Financial Action Task Force since 1991. This is an inter-governmental body that develops and promotes policies to combat money laundering and terrorism financing.

A special recommendation of the task force requires its members to 'combat the misuse of not-for-profit organisations for the purpose of terrorism financing'.

The task force has published useful material on international best practice to prevent money laundering and terrorist financing in the context of charities. (Financial Action Task Force on Money Laundering: Combating the abuse of non-profit organisations - 11 October 2002)^[9].

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References

1. ⇑ S13 (5) of the Charities Act 2005 states that an entity does not qualify for registration as a charitable entity if—
   • the entity is a designated terrorist entity as defined in section 4(1) of the Terrorism Suppression Act 2002; or
   • the entity has been convicted of any offence under sections 6A to 13E of the Terrorism Suppression Act 2002.

2. ⇑ S 32(1) (e) of the Charities Act 2005 states that Charities Services may remove an entity from the register if the entity has engaged in serious wrongdoing or any person has engaged in serious wrongdoing in connection with the entity

   S 4(1) defines serious wrongdoing as including:

   • an unlawful or a corrupt use of the funds or resources of the entity; or
   • an act, omission, or course of conduct that constitutes a serious risk to the public interest in the orderly and appropriate conduct of the affairs of the entity; or
   • an act, omission, or course of conduct that constitutes an offence; or
   • an act, omission, or course of conduct by a person that is oppressive, improperly discriminatory, or grossly negligent, or that constitutes gross mismanagement
3. ⇑ S.8 of the Terrorism Suppression Act 2002 states that a person could face up to 14 years imprisonment if they provide funds to an entity known to carry out terrorist acts.
4. ⇑ S. 243 of the Crimes Act 1961 states that a person could face up to 7 years imprisonment for engaging in a money laundering transaction.
5. ⇑   http://www.police.govt.nz/service/financial/simpletextguidelinesJan09%5B1%5D.pdf (PDF)
6. ⇑ http://www.police.govt.nz/service/counterterrorism/designated-terrorists.html
7. ⇑ http://www.police.govt.nz/faqs-terrorist-designations
8. ⇑ http://www.legislation.govt.nz/
9. ⇑   http://www.fatfgafi.org/dataoecd/39/19/34033761.pdf (PDF)

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