“The non-profit organisation (NPO) sector performs a vital role in the South African society, providing relief and support to groups of the population in need, often in challenging circumstances and regions. NPOs’ efforts complement those of government and business in providing essential, sometimes lifesaving, support, comfort, and hope to those in need.

“Unfortunately, charitable fundraising has also been used to provide cover for the financing of terrorism. The diversion of NPOs’ resources to fund terrorist activities undermines the entire NPO sector’s reputation and the trust of financial institutions and donors. This has a disproportionate impact on NPO operations at the places where they are most needed”.

These are the words of Pieter Smit, Acting Director of the Financial Intelligence Centre, included in the recently published report on the terrorist financing risk assessment on the NPO sector.

Launched on 18 and 19 April, the report is a collaborative effort between government partners — including the Financial Intelligence Centre (FIC), the South African Revenue Service (SARS), and the Department of Social Development (DSD) — public and private sector organisations, NPOs and umbrella organisations.

The sector risk assessment aligns with the Financial Action Task Force (FATF), an intergovernmental body that sets global standards and measures for combating money laundering and terrorist financing. It will result in focused, proportionate, and risk-based measures to mitigate the identified risks to the NPO sector.

As South Africa is a member of the FATF, it is obliged to meet these standards.

Read more in Daily Maverick: SA may have lengthy, perilous road to navigate in order to escape greylisting

The sector risk assessment also aligns with South Africa’s follow-up action plan to address greylisting by the FATF in 2023. The global standards of the FATF necessitate that countries periodically identify and assess the terrorist financing risks to which organisations that raise or disburse funds for good works are exposed.

Understanding terrorist financing 

Terrorist Financing abuse of NPOs refers to the exploitation of NPOs by terrorists and terrorist organisations to raise or move funds, provide logistical support, encourage or facilitate terrorist recruitment, or otherwise support terrorists or terrorist organisations and operations.

The FATF has adopted a functional definition of NPOs, encompassing 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”.

South Africa received technical assistance from the European Union Anti-Money Laundering/Counter Terrorist Financing Global Facility (EU AML/CFT Global Facility) on the development of the NPO terrorist financing sectoral risk assessment. The risk assessment was completed using a methodology provided by Greenacre Group.

“Data used in this risk assessment included a survey of 301 NPOs, data submissions from various institutions (including law enforcement, regulatory and supervisory institutions, intelligence agencies, and financial institutions) listed in the relevant sections, a questionnaire of 11 government agencies, and other relevant literature. A combined qualitative and quantitative assessment was undertaken,” reads the report.

The risk assessment considered:

• The size and nature of the overall terrorist financing threat in South Africa;
• Analysis of terrorist financing  abuse of NPOs in other jurisdictions and of other forms of financial abuse of NPOs in South Africa; and
• Qualitative assessments from law enforcement, supervisory, and NPO officials of the likely nature of the risk.

The risk assessment identified five possible terrorist financing threats to NPOs, including:

• Islamic State (IS) and its affiliates in Africa;
• Al-Shabaab and its affiliates in Africa, including Al-Sunnah Wa Jama’ah;
• Nigerian terrorist groups, including Boko Haram and Mend;
• Domestic right-wing extremists; and
• Al-Qaeda (including al-Qaeda in the Arabian Peninsula (AQAP) and al-Qaeda in the Islamic Maghreb).

The report included possible pointers identified on the nature of the terrorist financing threat to NPOs, including:

• NPOs raising funds or other support for foreign terrorist groups;
• NPOs used as a conduit to channel foreign funds to terrorist groups in Africa;
• NPOs supporting terrorist causes through remittance services; and
•  NPO using multiple bank accounts.

There are some characteristics or activities identified that increase the risk of terrorist financing abuse among NPOs in South Africa, such as NPOs established or operated by individuals with known terrorist sympathies, NPOs with activities in high-risk foreign jurisdictions, NPOs with links to communities sympathetic to terrorist causes (including far-right causes), NPOs receiving funds from and transferring funds to high-risk countries, and NPOs using unverifiable methods for raising or transferring funds.

“Five main threats with 10 related “natures of the threats” were identified. The result of this inherent risk assessment was the identification of seven main vulnerabilities, each of varying levels of significance and prevalence. Ultimately, these different threats and vulnerabilities were considered, resulting in the final assessed inherent risk rating of medium,” read the report.

What does the law say?

The report also includes an analysis of the legal and regulatory framework related directly to FATF-defined NPOs in South Africa.

Some of the laws analysed and discussed included:

• Constitution of the Republic of South Africa Act, 1997;
• Companies Act, 2008;
• Non-Profit Organisations Act, 1997; and
• Protection of Constitutional Democracy Against Terrorist and Related Activities Act, 2004.

The report noted that while there is a “comprehensive regulatory system which provides the fundamental architecture of an effective mechanism for mitigating terrorist financing risk,” the resources for these activities are inadequate.

“The main deficiencies are in ensuring measures are targeted, resources are made available, and NPOs are transparent and open to public scrutiny. The regulatory system is adequate, but the effective implementation thereof could be seen as lacking due to the lack of resources and manual nature of many of the processes,” read the report.

Recommendations provided 

The report makes several recommendations regarding the specific risk factors and the adequacy of the mitigating measures.

General awareness raising for NPOs, funders, donors, and the public should be done consistently at a low level, especially around the time of holidays associated with giving. This can be done using websites, news, and social media platforms.

Financial institutions and government agencies can be given general awareness of the issues, advice on identifying possible terrorist financing, terrorist financing risks, what to do, and feedback on financial institution’s concerns/ observations.

General advice on best practices, advice on identifying possible terrorist financing, and advice on determining whether an NPO is at higher risk should be provided using websites and emails targeting all NPOs.

Higher-risk NPOs can receive detailed explanations of legal duties and best practice guidance on key issues such as finance, due diligence, governance, risk management, and project management.

One of the recommendations included was that NPO supervisory bodies and the tax authority should review the already established systems for identifying and scoring risks, including terrorist financing risks, and for ensuring higher-risk entities face additional scrutiny.

The report states, “The systems should identify the characteristics or activities that place NPOs at higher risk (continuing and building on the work of this sectoral risk assessment report). These NPOs should be flagged, and the system could include some form of enhanced due diligence and supervision over these identified NPOs.”

Assessment welcomed by many 

“Understanding and regularly assessing the particular terrorist financing risks to which South African NPOs are exposed, remains the best measure to effectively combat their abuse and exploitation,” said Pieter Smit, Acting Director of the FIC.

Smit said the assessment will augment their understanding of the risks of terrorist financing faced by NPOs in South Africa and will help formulate measures to prevent or mitigate the abuse of NPOs for terrorist financing purposes.

Edward Kieswetter, SARS Commissioner, said SARS welcomes publishing the country’s first national terrorist financing risk assessment report on the NPO sector.

“We hope that this sets the tone for future work in this sector — where SARS partners with the whole of government strategically to address vulnerabilities — be they at a policy level or in the day-to-day operations of NPOs. We need to identify these vulnerabilities so that we can safeguard the integrity of non-profit organisations that play a pivotal role in South Africa’s socio-economic development,” he said.

Dr Hendrietta Bogopane-Zulu, Deputy Minister of Social Development, commended the team and said the department now had the task of raising awareness among broader stakeholders and NPOs so that they are aware of the vulnerabilities and threats that NPOs face.

“As a department with the expectation to regulate and supervise NPOs, this report will enable us to put in place appropriate NPO supervision measures informed by the scientific process in protecting NPOs,” she said. DM