Since those two aeroplanes crashed into the sides of the World Trade Centre buildings just over two years ago, the hunt for terrorists and the money they use to finance their activities has intensified.
In the UK, banks and financial institutions face tough anti-money laundering requirements, as laid out by the Financial Services Authority.
But it is not just finance houses that are vulnerable. Charities and other not-for-profit organisations have long been viewed as an easy way for terrorists to finance their bloody campaigns.
The OECD-sponsored Financial Action Task Force, the global anti-money laundering campaigner, called the misuse of non-profit organisations for the financing of terrorism ‘a crucial weak point in the global struggle to stop such funding at its source’.
But just how sound are the finances of the UK’s 185,000 charities, and is enough being done to ensure monies earmarked for benevolent causes are not falling into the wrong hands?
To date there have been a handful of cases. In November last year, the independent charity watchdog, the Charity Commission, froze the assets of the Benevolence International Foundation (UK) for allegedly ‘being extensively involved in funding international terrorism’.
And last month, the Palestinian Relief and Development Fund’s assets were frozen over alleged links to terrorism. This culminated in the Bank of England freezing funds and assets belonging to and earmarked for militant Palestinian group Hamas.
At the same time a study by top 10 firm PKF has found that UK charities are beginning to incorporate risk management into the day-to-day running of their organisations, although there is still work to be done and gaps exist.
Worryingly, of the more than 300 charities surveyed, only 14% of the smaller charities and 35% of the larger charities had a fraud response plan, indicating that potential for abuse is still ever present, the survey revealed.
Charles Cox, head of charities at PKF, says a concern in relation to risk management is that a lot of the risk level is being set by managers of charities, with no trustee involvement.
But he says that financial reporting is ‘getting much better’, with the sector becoming more professional and the Charity Commission visiting large charities on a regular basis, with the result that oversight has improved.
John Stoker, the chief charity commissioner, believes the number of UK charities potentially involved with terrorism is small, and says the evidence suggests that charities are not widely subject to terrorist infiltration.
In terms of financial control and governance, the regulations appear sound. Charities with an income or expenditure of more than £10,000 a year must submit annual accounts to the commission. Stoker says charities must account for their expenditure fully and clearly: ‘They must spend their funds exclusively on achieving the aim set out in their constitutions.’
Francis Ingham, policy and campaigns manager at the Charity Finance Directors’ Group, says its members are advised to keep good and accurate financial records. ‘With regard to monies coming in and going out there are sufficient safeguards,’ he adds.
Indeed, the regulatory environment in the UK closely follows the guidelines for charities to prevent money laundering, as set out by the Financial Action Task Force.
FATF, in its report last October, recommended an annual independent review of the finances and accounts of charities to ensure controls are in place. FATF also recommended increased transparency, better self-regulation and a more flexible and proportional government approach.
FATF said directors of non-profit organisations should act with ‘due diligence and a concern that the organisation operates ethically’, and should ‘exercise care, taking proactive verification measures’ to ensure that partner organisations and those that provide funding or services are not being ‘penetrated or manipulated by terrorists’.
Stoker says where there is reasonable suspicion of terrorist links, the commission will look at what positive evidence exists to establish a connection.
But it will also look at ‘negative forms of assurance’, that is, can the charity account for whether monies have been spent on legitimate activity.
‘Failure to do this may in itself provide reason enough for us to act,’ says Stoker. ‘We have a number of options available, including freezing assets.’
Such is the standing of the Charity Commission, that eight countries have requested consultation visits. It should also be seen as a sign that the independent governance of the UK charity sector is in good hands.
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