The Financial Action Task Force (FATF) has launched a quick public consultation on the Interpretative Note for Recommendation 8 which deals with non-profits and the risk of money laundering (ML) and terrorist financing (TF).  It is a very positive step that the FATF is allowing anyone who is interested to make comments.  Comments can be provided until Friday 27 November 2015

Most people are not familiar with the FATF although it is one of the most powerful international organizations.  As an aside the FATF does peer assessments and currently Canada is being assessed in terms of the ML and TF system.   I had the privilege of meeting with 6 of the assessors about 10 days ago to discuss non-profit and charity regulation as well as regulation of the legal profession.  The Finance Department in an email to me noted: “The purpose of this assessment is to demonstrate that Canada’s AML/ATF system is generally effective and technically compliant with FATF standards. As part of this assessment, the team would like to meet with private sector representatives to obtain their views on the regime.”

Finance noted: “As the Head of the regime, Finance Canada is in the process of organizing the program for this visit, and ensuring that all relevant areas of focus will be covered by meetings with stakeholders from private and public sectors. Consequently, we would like to invite you to a meeting with the assessors. This meeting will be held in confidence, and the views expressed by participants will not be attributed to them – it is simply an opportunity to share your views as a participant in the AML/ATF regime.”

I was expecting to be part of a number of private sector people providing short speeches to the FATF.  I was rather pleasantly when I arrived to meet the 6 assessors that I was the only person invited during that hour to talk to them!

Here are some to the topics we discussed without going into details:

  • size and scope of charity sector
  • how should nonprofit under Recommendation 8 be defined
  • any charity with correct objects can conduct foreign activities
  • limited transparency for charities (especially inability of CRA to advise public of malfeasance by charity prior to revocation)
  • non-existent NGO transparency (compared to registered charities)
  • capacity building required especially for charities that have a higher risk of ML and TF
  • where is Canada effective 
  • where not –concern re: election – Niquab – alienating Muslims and others
  • long time to remove terrorist organizations from charity rolls  
  • problem with shelf charities 
  • Ontario's lack of a public corporate registry for non-profit corporations 
  • misuse of anti–terrorism by some countries.
  • lawyers and self-regulation
  • misuse of ‘money laundering’ by previous government to attack charities for receiving legitimate funds from US foundations for political activities
  • lack of prosecutions for terrorist financing. 
  • perception of risk
  • problem of derisking by banks for NGO sector 

This meeting took place 2 days before the attack in Paris.  

Here is the link to the consultation:

Here is the text from the FATF website:

Public Consultation on the Revision of the Interpretive Note to Recommendation 8 (Non-profit organisations)

6 November 2015 – The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money laundering and counter-terrorist financing standard.

The FATF recognises the vital importance of the non-profit organisation (NPO) community in providing charitable services around the world, as well as the difficulty of providing assistance to those in need, often in remote regions, and applauds the efforts of the NPO community to meet such needs. However, terrorists and terrorist organisations may also abuse some legitimate NPOs, often without the knowledge of their donors, management, or staff, or may create sham charities to funnel money to terrorists. The FATF Typologies Report on Risk of Terrorist Abuse in Non-Profit Organisations published in June 2014 identifies that service NPOs which operate in close proximity to an active terrorist threat present the most desirable targets for terrorist entities because of the types of resources involved in their operations, the geographic breadth of their operations, and their access to vulnerable populations. The Typologies Report has led to a comprehensive revision of the Best Practices Paper on Combating the Abuse of Non-Profit Organisations (Recommendation 8), which was completed in June 2015. The updated Best Practices Paper aims to bring the Typologies Report into line with the revised FATF Recommendations and highlight the importance of ensuring that the implementation of Recommendation 8 and its Interpretive Note does not disrupt or discourage legitimate charitable activities.

The FATF is now undertaking work to rationalise the FATF Standard on NPOs together with the results of the Typologies Report and the recently updated Best Practices Paper. The current FATF Recommendation 8 and its Interpretive Note require countries to review the activities, size and other relevant features of their NPO sector as well as the adequacy of applicable laws and regulations. Given the variety of legal forms that NPOs can have, depending on the country, from the outset the FATF adopted a functional definition of NPO. This definition is based on those activities and characteristics of an organisation which put it at risk of terrorist abuse, rather than on the simple fact that it is operating on a non-profit basis. Recommendation 8 only applies to those NPOs which fall within the following FATF definition of a non-profit organisation:

FATF definition of a non-profit organisation

A legal person or arrangement or organisation that primarily engages in raising or disbursing funds for purposes such as charitable, religious, cultural, educational, social or fraternal purposes, or for the carrying out of other types of “good works”.

The NPO sector and the threat environment in which it operates have evolved, governments’ experiences in implementing Recommendation 8 have advanced, and self-regulatory mechanisms have also evolved. The FATF therefore sees the need to revise the Interpretive Note to Recommendation 8, as a matter of priority, to align with the results of the Typologies Report and the recently updated Best Practices Paper, specifically seeking to incorporate the focus on the subset of NPOs that are intended to be addressed by Recommendation 8, clarify how the risk-based approach relates to the Recommendation 8 requirements, and further refine the terminology to distinguish between non-profit organisations as that term is defined by FATF and the NPO sector as a whole. In particular, we wish to clarify that Recommendation 8 only applies to those NPOs which fall within the FATF functional definition of a non-profit organisation, and not a country’s entire universe of NPOs. We also wish to highlight the importance of understanding the domestic non-profit sector, the ability to identify which organisations meet the FATF definition, and using a targeted risk-based approach in implementing the measures called for in Recommendation 8. Please note that this exercise is intended to be a focused revision ofthe Interpretive Note to Recommendation 8 and the FATF currently has no plan to re-open the revision of the FATF Standard as a whole.

The FATF is committed to conducting this revision in an open and transparent manner, and is keen to involve the NPO sector in order to ensure that practical knowledge and experience, in particular from service NPOs, can be properly reflected in the Interpretive Note to Recommendation 8. The FATF wishes to receive your views and specific proposals to the text of the Interpretive Note to Recommendation 8, in English or French, to no later than Friday 27 November 2015 at 18:00 CET.

You and/or your organisation are strongly advised to read the Typologies Report and Best Practices Paper beforehand. All the comments received will be shared with the FATF delegations. Please note that the fields indicating countries in which you or your organisation is based and primarily operates and the entities which you represent are mandatory as we are particularly interested in hearing the views of those NPOs which fall within the FATF definition.

To facilitate the analysis, input which is not submitted according to the instructions and following the template, and/or is submitted after the above deadline, will not be considered.

Download the public consultation template ‌

At its next meeting in February 2016, the FATF will discuss the input received through this consultation process and will determine the next steps towards finalising the Interpretive Note to Recommendation 8 later in 2016.