Terrorism financing

Charities are vulnerable to the risk of having their funds misused for the purpose of terrorism financing. This risk may be elevated when charities look to send money overseas, even if the charity is working in line with its charitable purposes.

It is important that charities conduct due diligence, and have proper processes in place, to ensure their charitable funds are protected from misuse and are being used towards their charitable purpose.

Charities are less likely to be misused for terrorism financing if they:

• have strong governance arrangements (including financial controls, risk management policies and procedures and appropriate due diligence)
• keep appropriate records and report annually to the ACNC, and
• regularly and continuously review and strengthen their internal controls (for example, policies, procedures, delegations of decision-making powers, record management systems, financial management systems and tools).

Charities have ongoing obligations to the ACNC, including the requirement to meet our Governance Standards and, if operating overseas, our External Conduct Standards.

Governance Standards

All charities (aside from Basic Religious Charities) are required to meet the ACNC Governance Standards.

• Governance Standard 1: Not-for-profit and working towards charitable purpose
• Governance Standard 2: Accountability to members
• Governance Standard 3: Compliance with Australian laws
• Governance Standard 4: Suitability of Responsible People
• Governance Standard 5: Duties of Responsible People
• Governance Standard 6: Maintaining and enhancing public trust and confidence in the Australian not-for-profit sector

External Conduct Standards

Charities that operate overseas (including sending funds overseas) are required to meet the ACNC External Conduct Standards.

• External Conduct Standard 1: Activities and control of resources
• External Conduct Standard 2: Annual review of overseas activities and record-keeping
• External Conduct Standard 3: Anti-fraud and anti-corruption
• External Conduct Standard 4: Protection of vulnerable individuals

Other obligations

Charities have ongoing obligations to the ACNC they must meet, including to:

• keep charity records – this includes financial and operational records, as well as records from third parties
• notify the ACNC of certain things – this includes notifying the ACNC of breaches of the Governance Standards or External Conduct Standards.

Protecting your charity from the risk of terrorism financing

Charities can be potential channels for raising and distributing funds for terrorism financing.

Because of this, charities must take all reasonable precautions and exercise due diligence (research and action to reduce the risk, particularly when working with other people and organisations) to ensure funds are not inadvertently directed towards terrorism.

This includes putting in appropriate governance structures.

There may be serious consequences – including criminal penalties – for charities if they are used for terrorism financing (even if the charity is unaware of the situation).

How terrorists can abuse charities to finance terrorism

There are a number of ways that terrorists can misuse charities to raise funds then used to finance or support their activities. This can happen with or without the charity’s knowledge. Some examples include:

• using charity funding – for example, a local organisation that has a relationship with the charity to conduct a project or activities overseas (a ‘partner organisation’) using all or part of the charity’s money to fund acts of terrorism
• using charity assets – for example, the charity’s vehicles or premises being used to transport or store weapons
• using the charity’s name and status – for example, fundraising being conducted in the name of the charity by a terrorist organisation, without the charity’s knowledge or consent
• committing financial abuse within a charity – for example, members of a terrorist group may infiltrate the charity and pose as employees, then skim money from fundraising to fund terrorist purposes
• setting up a charity for illegal or improper purposes – for example, a terrorist group registering a charity, but instead of it then working towards its stated charitable purpose, the organisation uses all of the charity’s funds for terrorism financing.

Factors that increase the risk of terrorism financing

Some characteristics of charities – which also allow them to achieve outcomes and earn respect from the public – can make them vulnerable to being misused to fund terrorism.

Operating locations

• Charities may have a global presence that provides a framework for national and international operations and financial transactions.
• Many charities work within or near areas that are most exposed to terrorist activity.
• Charities may operate in emergencies or provide humanitarian responses in locations where there are no banks or financial infrastructure, and they may have to deal in cash or use alternative remittance systems.

Financial operations

• Charities often have complex financial operations which are not always accounted for in detail. This can include having:
  • multiple donors and investments, which may be in a variety of currencies
  • a high volume of small transactions
  • informal money transfers.
• Charities may also have unpredictable and unusual income and expenditure streams, so suspicious transactions may be hard to identify.

Organisational structure and programs

• Charities may be run by one or two key individuals, often in unsupervised roles, which makes it easy to quickly move money and assets around.
• Often there are complex programs of operation and charities pass funds through intermediary partner organisations to deliver their services.

High level of public trust

• Charitable activities may not be scrutinised as consistently as other sectors.