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Protecting your charity from abuse through terrorist financing and money laundering

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Terrorist financing and money laundering might not be top of your list in terms of risks facing your charity. Indeed, the evidence from the National Risk Assessment of Money Laundering and Terrorist financing (2017) published by HM Treasury and the Home Office is that the risk across the non-profit sector in the UK is low. However, it is still a real risk, and if a charity were to unintentionally be used for terrorist financing or money laundering purposes, it would have a disproportionate impact on the trust and confidence that the public has in the charity and, potentially, in the charity sector overall.

The use and abuse of charities might be to do with exploiting charity funding, or making use of charity assets. It might be to do with simply missing a charity name and status. At the intentional end of the spectrum, it may even include setting up a charity for terrorist financing purposes.

So, what can be done to help protect your charity against these risks?

At a fundamental level, controlling against terrorist financing and money laundering is about good governance. As a charity trustee you have a duty to act in the interest of your charity. As a trustee board, you have a responsibility to make sure you are looking after the total assets of the charity, making sure they are only used for charitable purposes. So having the appropriate governance and processes in place is fundamental to protecting your charity from abuse. This starts at the crucial level of making sure that the trustees are engaged, that they understand their function and responsibilities, and that they have a good analysis of the risks their organisations might face.

Not surprisingly, an essential part of protecting your charity will be making sure that your financial controls are strong and appropriate for your type of charity. The duties that trustees have to follow include the duty of care and diligence when managing the affairs of the charity. This means that you must act with a higher level of care than you do with your own finances - consider, for instance, the level of care that you would apply if you were dealing with the finances of another person. Good financial controls are fundamental tools for making sure that you manage the charity effectively and protect the charity's assets from risks of theft, fraud, loss, conflicts of interest and terrorist financing.

One overarching control is making sure that charity trustees understand the accounts and financial position of their charity, and that these are reviewed frequently. No individual trustee is more responsible for the financial management of a charity than any other. There is a collective responsibility across the trustee board. This shared review of accounts takes away the inherent weakness of having the power over financial management in the hands of one individual which would tend to heighten the possibility of making mistakes or (worse) the individual being open to corruption.

Each charity will be different, but there are some things you need to consider as you think how best to protect your charity. Might you need a finance committee? This would be a committee that has more time to devote to overseeing financial matters and making sure that the necessary information is getting to the whole board. Are you sure that you have sufficient separation of duties within your charity? If one individual has the power of money without any checking, this will create an inherent weakness in the system. How are your procedures written down and communicated to the necessary people (trustees, staff, volunteers)? Have you got appropriate controls over use of cash? (Cash is an inherently risky proposition and needs to have tight procedures and controls around its use). Do you have the appropriate banking arrangements for your organisation (and are you making sure you are using the regulated banking system)? And have you got the appropriate procedures in place for writing cheques, setting up direct debits or standing orders?

That may seem like a lot of questions. But getting this bit right will make sure that your organisation is protected and will make sure it is not an easy target for abuse by those seeking to finance terrorism or launder money through a charity.