Terror Financing and Safeguarding NPOs

The Financial Action Task Force (FATF) is going to revise its current recommendations aimed at safeguarding non-profit organisations (NPOs) from being abused for terrorist financing.

• The FATF Recommendations are recognized as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standards.

About the update:

• The FATF will take up proposals to revise the FATF Standards’ Recommendation 8 on non-profits, its interpretive note, and also adopt an updated best practices paper.
• As per the FATF’s draft proposal, countries should develop an understanding of the different degrees of terrorist-financing risk posed to non-profit organizations and the corresponding levels of mitigating measures they require.
• Considering negative impact on NPOs: The revisions also seek to address the problem of over-application of preventive measures to the NPO sector in some countries.

FATF’s ‘Special recommendation 8’:

• The objective of Recommendation 8 is to ensure that NPOs are not misused by terrorist organisations including:
  • To pose as legitimate entities;
  • To exploit legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset freezing measures; or
  • To conceal or obscure the clandestine diversion of funds intended for legitimate purposes, but diverted for terrorist purposes.
• FATF gave a variety of legal forms that NPOs can have, depending on the country, the FATF has 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 FATF definition of a non-profit organisation.
• Countries should take a targeted approach to implementing the measures called for in Recommendation 8, including oversight and regulatory mechanisms, based on an understanding of the diversity of the NPO sector and the terrorism risks faced by the domestic NPO sector.

FATF definition of a ‘Non-profit organization’:

• 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 term NPO refers only to those NPOs falling within the FATF definition.

Need of the initiative:

• To tackle the linkage with Terror financing: One of the ways in which terrorist organisations raise and transfer funds, are by using non-profit organisations (NPOs).
  • In many important ways however, the work of NPOs deal with the conditions conducive to the spread of terrorism, so it is essential that in trying to address one aspect of the terrorist threat.
• Self-regulation must be ensured: Moreover the sector’s own stake in being “clean” and being so regarded by others should be acknowledged, thus making them an indispensable partner in drawing up such policies.

Benefits:

• Tracking source of funding: The ultimate objective is to enhance the transparency of the sector- the people in charge of NPOs, their sources of funds and particularly the way those funds are spent.
• Ensures good governance: The aim serves a much wider purpose than just countering terrorism financing and touches on many aspects of civil society good governance that the sector itself and others have been debating for a long time.

India’s Steps against Terror financing:

• International steps: India along with other BRICS members underlined their resolve to make the international financial system entirely hostile to terrorist financing.
  • They condemned terrorist attacks in all forms and manifestations and reaffirmed their commitment to tackle all sources, techniques and channels of terrorist financing.
  • Members urged concerted efforts and a comprehensive approach to counter terrorism under the UN auspices on a firm international legal basis.
• Domestic steps: Strengthening the provisions in the Unlawful Activities (Prevention) Act, 1967 to combat terror financing by criminalizing the production or smuggling or circulation of high quality counterfeit Indian currency as a terrorist act and enlarge the scope of proceeds of terrorism to include any property intended to be used for terrorism.
• A Terror Funding and Fake Currency (TFFC) Cell has been constituted in National Investigation Agency (NIA) to conduct focused investigation of terror funding and fake currency cases.
• Fake Indian Currency Notes (FICN) network is one of the channels of terror financing in India.
  • FICN Coordination Group (FCORD) has been formed by the Ministry of Home Affairs to share intelligence/information among the security agencies of the states/centre to counter the problem of circulation of fake currency notes.