Risk of Money Laundering and Terrorism Financing in the Australian Not-for-Profit Sector

The charity sector is the second-largest employer in Australia, employing over 1.2 million staff. And Australia’s 54,000 charities have a combined income of $134 billion. Over 8,000 of these charities are engaged in charitable work overseas, sending $1.5 billion in donations and grants overseas each year. With such a large workforce in this area and such a large bottom line there is, of course, potential for the misuse of funds, the most concerning being misuse that could result in criminal activity or even terrorist activity.

With these risks in mind, the ACNC and AUSTRAC (the financial intelligence agency) published Australia’s charities and not-for-profit sector: Money laundering and terrorism financing, which is the national risk assessment report of the Australian charities and not-for-profit sector.

Charities often work in areas of conflict as it is these locations in which it is most likely to find people who are suffering and in need of assistance. There are of course risks in engaging in areas of conflict, not least of which is the safety of their volunteers and employees. As important as the risks to service delivery are, the focus of the risk report conducted by the ACNC and AUSTRAC is on the financial risks charities and not-for-profits could encounter and unknowingly fall prey too, particularly money laundering and the financing of terrorism. It is the hope of the ACNC that knowledge of such risks will help charities and not-for-profits manage the risks and protect their organisations from such activity.

The report finds that there are a number of factors that increase a charity’s vulnerability to money laundering or the financing of terrorism, including:

• Inadequate due diligence on key personnel (including volunteers and beneficiaries);
• Lack of transparency regarding fundraising and the use of funds;
• Beneficiaries or work in regions of conflict or recent conflict;
• Beneficiaries or work in dispersed ethnic communities with strong links to high-risk countries

As one might expect, the recommendations of the report regarding the steps not-for-profits can take to mitigate risk relate directly to the markers of vulnerability and the need for transparency in the entire funding cycle. From the collection of funds to its storage, transfer, use and the final delivery of a charity’s program, the report argues that each step along the way should be clearly accounted for. These recommendations include but are not limited to:

• Staff training and due diligence
• Regular audits of all organisational practices regarding funds
• Suspicious matter reports (SMR reporting) of suspicious cash activity
• Research and use of best practices
• Due diligence on all partners and third parties
• Thorough record keeping at all stages of the funding cycle

The full report can be found on the ACNC website. The ACNC also provides a checklist of governance standards created to help charities and not-for-profits reduce the risk of being misused for terrorism financing, which can be found here.

If you have questions regarding your charity and its fundraising practices or use of funds, please contact %85%BC%94%AE%C1%B8Av%E6%CB%CD%83.