NFPs At Risk of Money Laundering and Terrorism Financing

Not for profits are at risk of being exploited by money launderers and supporters of terrorism, according to Australia’s first risk assessment of charities.

Australia’s financial intelligence agency, AUSTRAC, and the Australian Charities and Not-for-profits Commission (ACNC) released a joint report on Monday identifying the main criminal, money laundering and terrorism financing threats facing not for profits.

After evaluating around 257,000 registered not-for-profit organisations in Australia, researchers found there was a “medium” risk level for both money laundering and terrorism financing.

ACNC commissioner Susan Pascoe AM said charities needed to understand the risks.

“Charities are crucial in getting funds into conflict zones and other unstable regions, and this is not without heightened risk,” Pascoe said.

“All charities, whether they operate domestically or internationally, must understand money laundering and terrorism financing (ML/TF) risks, and ensure they have robust risk-based governance practices to prevent criminal misuse.”

The joint report, Australia’s Non-Profit Organisation Sector: Money Laundering and Terrorism Financing Risk Assessment, is the first of its kind in Australia to focus on the charity sector, and marks the fifth risk assessment of financial and other sectors conducted by AUSTRAC.

It highlighted key vulnerabilities that were exploited for criminal misuse, or to support or promote terrorism and its financing, as well as addressing an international requirement to identify the subset of not for profits at high-risk of terrorism financing misuse.

According to the report between 2012 and 2016, 249 Suspicious Matter Reports (SMRs) were submitted for suspected money laundering or criminal misuse with a total value of $57.8 million.

There were also 28 SMRs related to terrorism financing involving not for profits with a total value of $5.6 million.

The report said while proven instances of money laundering and terrorism financing in the sector remained low, “this illicit activity could severely damage public trust and confidence” in not for profits, and “harm the communities they are working to assist”.

The report recommended Australian not for profits could better manage money laundering and terrorism financing risks through good governance, an understanding of risks, strong internal controls, and good accountability.

Acting AUSTRAC CEO, Peter Clark, said it was vital that government, industry and the not-for-profit sector continued working together to keep the sector safe from criminal abuse and terrorism financing misuse.

“This risk assessment will assist our reporting entities who deal with NPOs to assess their level of vulnerability, strengthen their controls, and report suspicious activity to AUSTRAC,” Clark said.

Speaking at the release of the report, Minister for Justice Michael Keenan said the report highlighted the extreme lengths organised crime groups and terrorists, who he described as “shameless criminals”,  were prepared to go.   

“The fact that criminals are seeking to target a sector founded on helping our most vulnerable just shows that they are the lowest of the low,” Keenan said.

He said it showed not for profits had the “capacity to quickly raise and camouflage the movement of large amounts of funds offshore to support individuals or groups engaged in foreign conflict”.

Assistant Minister to the Treasurer Michael Sukkar said the risk assessment would allow not for profits to assess their level of vulnerability, strengthen their controls, and report suspicious and criminal activity to relevant regulators or law enforcement agencies.

“The NPO sector is large and diverse,” Sukkar said.

“Registered charities with ACNC, which account for 54,000 of our NPOs, have combined revenue equivalent to 8.3 per cent of Australia’s GDP.

“While the vast majority of NPOs are run by honest, well-intentioned individuals, some NPOs have been exploited for criminal activity, particularly if the charity does not have strong financial and governance controls.

“This report not only presents opportunities for the NPO sector to better protect themselves, but also for government agencies to improve their engagement and mitigate risks.”

Sukkar said the review of the ACNC Act later this year would provide further opportunity to “examine the regulatory framework for the charity sector”.