auditing the non-profit organizations (npos) aml/ctf...
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Auditing the Non-Profit
Organizations (NPOs) AML/CTF
Framework in Jamaica
Keron Oliver
Burrell
Is there a deficiency in the current legal and regulatory framework for the Jamaican banking sector when compared to the guidance given by the Financial Action Task Force (FATF) for Non-Profit Organizations (NPOs)?
KERON BURRELL
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ABSTRACT
The global economy continues to be plagued by concerns of money laundering (ML), terrorist
financing (TF) and the proliferation of weapons of mass destruction (PWMD). As the global
economy expands and changes so do the various AML/CTF/PWMD typologies. Therefore, these
concerns pose added risks to the global financial system. The various jurisdictions across the world
continue to grapple with this significant threat whether by themselves or through their various
regional bodies. In this regard, the Financial Action Task Force (FATF) has become the standard
bearer and standard setter in this global fight against ML/TF/PWMD. As it concerns
AML/CTF/PWMD, FATF has issued 40recommendations (FATF 40) which are designed to guide
countries as they implement their various frameworks. These methodologies and frameworks are
primarily designed to guide countries, national supervisors, financial intelligence Units (FIUs),
financial institutions (FIs) and designated non-financial business and professionals (DNFBPs) in
identifying, assessing, understanding and mitigating ML/TF risks and PWMD. With respect to non-
profit organizations (NPOs) in particular, FATF has issued specific guidance through the publication
of Recommendation 8 and a plethora of other guidance which further expound on matters relating
to NPOs. The CFATF and a number of other FATF-style regional bodies (FSRBs) have developed and
continue to develop policies and procedures as well as methodologies to adequately treat the issue
of NPOs whilst satisfying the requirements of FATF. The issue of moment, however, for Jamaica and
a number of other countries is how to develop the required legal and regulatory framework needed
to fulfill the requirements of Recommendation 8, its attendant interpretive notes, methodology and
immediate outcomes. This paper contemplates the question as to whether there is a deficiency in
the current legal and regulatory framework for NPOs in the banking sector in Jamaica when
compared to the Guidance given by FATF.
The answer to this question might lead to the contemplation of a way forward and specific
recommendations in order to advise policymakers at the Central Bank (Bank of Jamaica), FIU
(Financial Investigations Division - FID), Ministry of Finance (MOF), Ministry of Justice (MOJ) and
other stakeholders of the gaps in the current AML/CTF architecture in Jamaica and recommending
possible solutions to the issues discovered.
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Table of Contents
ABSTRACT ........................................................................................................................................... 1
ACKNOWLEDGEMENT ......................................................................................................................... 3
ABBREVIATIONS AND ACRONYMS ...................................................................................................... 3
EXECUTIVE SUMMARY ........................................................................................................................ 5
INTRODUCTION AND BACKGROUND................................................................................................... 9
DESCRIPTION OF THE FINANCIAL ACTION TASK FORCE (FATF) 40 RECOMMENDATIONS .................. 10
DESCRIPTION OF FATF RECOMMENDATION 08 - NPOs ..................................................................... 11
DESCRIPTION OF THE CURRENT LEGAL AND REGULATORY FRAMEWORK FOR NPOs IN JAMAICA .... 11
DESCRIPTION OF JAMAICA’S THIRD ROUND MUTUAL EVALUATION/DETAILED ASSESSMENT REPORT
ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM (MER) 2005 ........... 12
OTHER ACTIONS ................................................................................................................................ 18
CONCLUSION..................................................................................................................................... 19
BIBLIOGRAPHY AND REFERENCES ..................................................................................................... 20
Appendix I – Objectives of FATF and Table Listing FATF 40 Recommendations ................................ 23
Appendix II – Recommendation 8 and the Interpretive Note to Recommendation 8 (NPOs)............ 26
Appendix III – Methodology for Assessing Technical Compliance with Recommendation 8 ............. 34
Appendix IV – Immediate Outcome 10 ............................................................................................. 36
Appendix V – Description of the FATF Risk-Based Assessment Methodology ................................... 38
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ACKNOWLEDGEMENT The researcher would like to acknowledge the work done and guidance provided by FATF and
the FATF-style regional body, the Caribbean Financial Action Task Force (CFATF), of which
Jamaica is a member.
In particular, the FATF Guidance on Non-Profit Organizations (Recommendations 8), as well as FATF
Recommendations (the International standards on combating money laundering and the financing of
terrorism and proliferation 2012) and Methodology (for assessing compliance the FATF
Recommendations and the effectiveness of the AML/CTF systems 2013) were extensively used to
compare the Jamaican legal and regulatory framework. In addition, in order to advise the discussion as
to whether the legal framework had any deficiencies, the Jamaica Third Round Mutual
Evaluation/Detailed Assessment Report – Anti-Money Laundering and Combating the Financing of
Terrorism (MER) of the Caribbean Financial Action Task Force was used. In addition, the follow-up
reports subsequent to the final report were also consulted. The ensuing discussion draws heavily from
the research conducted on the Mutual Evaluation Report and its attendant findings.
Finally, I would also like to thank the various authors of the aforementioned works including,
the CFATF Secretariat (and its attendant assessors/authors of the MER).
ABBREVIATIONS AND ACRONYMS
AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism (and
the Proliferation of Weapons of Mass Destruction)
BOJ Bank of Jamaica
CFATF Caribbean Financial Action Task Force
DNFBPs Designated Non-Financial Businesses and Professions
FATF Financial Action Task Force
FATF 40 FATF Forty Recommendations on Money Laundering, Terrorism Financing
and the Proliferation of Weapons of Mass Destruction
FID Financial Investigatory Division
FIU Financial Intelligence Unit
FSC Financial Services Commission
FSRB FATF-Style Regional Body
IBRD International Bank for Reconstruction and Development/World Bank
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IMF International Monetary Fund
MLP Money Laundering Prevention Regulations
ML Money Laundering
MOF Ministry of Finance
MER Mutual Evaluation/Detailed Assessment Report – Anti-Money Laundering
and Combatting the Financing of Terrorism
NAMLAC National Anti-Money Laundering Committee
NPOs Non-Profit Organizations
NRA National AML/CFT Risk Assessment
NPOs Non-Profit Organizations
POCA Proceeds of Crime Act (2007)
PWMD Proliferation of Weapons of Mass Destruction
RBA Risk Based Approach
SRBs Self-Regulatory Bodies
TF Terrorist Financing
TPA Terrorism Prevention Act (2010)
WMD Weapons of Mass Destruction
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EXECUTIVE SUMMARY
Money laundering (ML), terrorism financing (TF) and the proliferation of weapons of mass
destruction (PWMD) continue to threaten the global financial system. As various jurisdictions
grapple with these issues, each country continues to contemplate the various policies and
processes which need to be implemented to mitigate the risk of ML/TF and PWMD. The Paris-
based Financial Action Task Force (FATF), through the issuing of its 40 Recommendations and
other guidance, continues to drive the global effort against ML/TF and PWMD. In particular,
these 40 recommendations have been issued three times with current iteration absorbing the 9
special recommendations which were issued subsequent to the events of 9/11. Each iteration
representing enhanced guidance over the previous one.
This white paper seeks to provide solutions to advise policymakers at the Central Bank,
Financial Investigations Division (FID) of the Ministry of Finance (MOF), Ministry of Justice
(MOJ) and other stakeholders. As it concerns non-profit organizations (NPOs) in particular, the
FATF has sought to provide guidance on how NPOs1 should be assessed and regulated through
Recommendation 8, previously Special Recommendation VIII and the publication and issuance
of several different pieces of guidance to further expound on matters relating to NPOs. Jamaica,
as well as other jurisdictions, continue to contemplate the required legal and regulatory
framework needed to satisfy the requirements of this recommendation and its attendant
methodology and guidance.
1 Non-profit organization or NPO refers to a legal person or arrangement or organization 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”.
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Jamaica’s Application of Special Recommendation VIII now Recommendation 8
In the third Round, CFATF Mutual Evaluation of Report (MER) of Jamaica, issued in October
2005, Jamaica’s technical compliance with Special Recommendation (SR) VIII was rated as
noncompliant. The assessors stated the reason for the rating was that the, “Terrorism
legislation does not cover non-profit organisation and inadequate system for regulating the
Non-Profit Organizations.2”
Jamaica has sought to rectify this deficiency in SR VIII in the AML/CTF framework by
implementing a legal and regulatory structure to comply with Special Recommendation VIII by
enacting the Charities Act:
As it pertains to the banking sector,3 the assessors stated in the MER, that there were certain
gaps in the Jamaican legal and regulatory framework—one of which was that neither the
Proceeds of Crime Act (POCA) nor Terrorism Prevention Act (TPA) included sections which
substantially deals with the issue of NPOs.
Under the new FATF recommendation and methodology, Jamaica is one such jurisdiction that
has endeavored to comply with Recommendation 8 of the FATF Recommendations.
With the promulgation of the Charities Act, the legal and regulatory gap was significantly
closed.
ACTIONS REQUIRED TO ACHIEVE COMPLIANCE WITH RECOMMENDATION 8
These actions include:
Conducting a review of laws relating to NPOs
Conducting an AML/CTF/PWMD risk assessment of NPOs
2 Jamaica 3rd Round MER 3 With regard to this paper, banking sector means licensed Deposit Taking Institutions licensed, supervised and regulated by the Bank of
Jamaica (the Central Bank of Jamaica) and includes commercial banks licensed under the Banking Act (BA), Financial Institutions (commonly called merchant banks) licensed under the Financial Institutions Act (FIA) and Building Societies licensed under the Bank of Jamaica Building Societies Regulations). The aforementioned suite of Act has been replaced by the Banking Services Act (2014) and which was enacted in September 2015.
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Establishing administrative procedures and requirements for the
supervisory authority and the NPO.
Fully implement a risked-based approach (RBA) to the assessment of NPOs.
Under the RBA there are two obligations for countries and financial
institutions (and designated non-financial businesses and professions
[DNFBPs])4. There are two stages involved under each obligation, that of
risk assessment and risk mitigation. See Appendix V for a full explanation of
the RBA.
In addition to the Charities Act, the Jamaican authorities should provide
further guidance by amending the Bank of Jamaica Guidance Notes on the
Detection and Prevention of Money Laundering and Terrorist Financing
Activities to guide commercial banks, merchant banks, credit unions,
cambios bureau de exchange, money transfer agents and remittance
agencies (issued 2004, latest revision 2009). This Guidance Note has not yet
substantially dealt with the issue of NPOs prior to the aforementioned
Charities Act.
OTHER ACTIONS
The Jamaica authorities—whether through the Principal Acts, Regulations, Rules,
Supervisory Guidelines, Standards of Sound Practice or otherwise—should
contemplate implementing the following:
Implement sanctions that are effective, proportionate and dissuasive but are
not onerous (the result should not negatively impact this sector)
Create a publicly available and current list of all NPOs
4 FATF (2013), Methodology for Assessing Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems, FATF, Paris, www.fatf-gafi.org.
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Ensure that licensed deposit taking institutions (commercial banks,
merchant banks and building societies) establish a current and up-to-date
NPO database
Conduct a National AML/CTF Risk Assessment (NRA) at least annually.
Require NPOs to complete a written declaration of the identity and details of
the natural persons who comprise executive management of the NPO.
Require the beneficial owners and directors of a NPO to file declarations of
asset and income with the relevant authorities and provide a copy of these
declarations to the deposit taking institutions with which they do business.
SUMMARY
ML/TF and PWMD continues to be an area of serious issue for countries and
financial institutions. NPOs are one particular type of customer which pose specific
risks as it concerns FT and PWMD. The FATF has given detailed guidance on NPOs
especially through the issuing of Recommendation 8, and the attendant
Interpretive Note and Methodology. The Jamaican authorities in their attempt to
comply with the Recommendations and Standards set by FATF as it relates to NPOs
have promulgated one principal piece of legislation, namely the Charities Act but
have not amended the Guidance Notes nor have they issued the attendant detailed
guidance to guide the banking sector in their assessment of the NPOs.
This white paper seeks to answer the question as to whether there is a deficiency
in the current legal and regulatory framework for the Jamaican banking sector
when compared with the Guidance given by FATF. When the assessment was done
it was found that Jamaica was largely compliant with the FATF standards.
To close this the gap, Jamaica would have to provide further guidance to the NPO
and banking sector through a revision of the attendant legal and regulatory
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framework. The jurisdiction would also have to develop and establish
administrative procedures and requirements for the supervisory authority and the
NPO. In addition, Jamaica should fully implement the risk-based approach to
AML/CTF and PWMD. Recommendation 1 mandates countries to assess risks and
apply a risk-based approach to implementing measures to prevent or mitigate
ML/TF in relation to areas such as NPOs. The authorities would also have to
implement other measures such as conducting regular NRAs (as per
Recommendation 2) and the establishment of an up-to-date NPO register both by
the Jamaican authorities and the deposit taking institutions.
The full implementation of these actions would result in Jamaica being fully
compliant with the guidance of the FATF as it regards NPOs.
INTRODUCTION AND BACKGROUND
This white paper seeks to provide solutions to advise policymakers at the Central
Bank, Financial Investigations Division (FID) of the Ministry of Finance (MOF),
Ministry of Justice (MOJ) and other stakeholders as it concerns ML, TF and PWMD.
The aforementioned terms are, however, subject to various interpretations:
a. Money laundering (ML) refers to the process by which criminals transform
the proceeds of crime arising to legitimate assets and by disguising its
source in order to make these proceeds appear to be derived from legal
sources. ML is the process of transforming the proceeds of illegal activities
into legitimate capital.5
b. On the other hand terrorist financing (TF) refers to the processing,
provision or collection of assets (usually money) with the intention of using
these assets in full or in part to sponsor or facilitate terrorist activity,
terrorist organizations, terrorist objectives or tPWMD.
5 Peter Alldridge, Money Laundering Law, Forfeiture, Confiscation, Civil Recovery, Criminal Laundering and taxation of the proceeds of Crime 2003.
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In order to prevent the spread of ML/TF, several jurisdictions have sought to
implement measures designed to prevent the spread of ML/TF in their respective
jurisdictions. The policies that are designed to prevent and stem the spread of
ML/TF have been coined AML/CTF and PWMD policies.
In 1989, the Financial Action Task Force (FATF) against ML, TF and PWMD was
established at a G7 summit in Paris. FATF is the only international body dedicated
solely to identify, deter and prevent ML/TF. Therefore, FATF leads the global
collaborative effort in order to fight AML/CTF. Eight FATF-style regional bodies
(FSRBs) have been established around the world to assist in the fight against
ML/TF.
The FATF-style bodies have adopted the FATF 40 and have a similar mandate as the
FATF and impose their mandate on jurisdictions, which are members of their FSRB.
DESCRIPTION OF THE FINANCIAL ACTION TASK FORCE (FATF) 40 RECOMMENDATIONS
As was aforementioned, FATF is an inter-governmental body that was established with the
objectives of setting standards and promoting effective implementation of legal, regulatory and
operational measures for combating ML, TF and other related threats to the integrity of the
international financial system (See Appendix I for a more comprehensive description of the
objectives of the FATF). In order to guide jurisdictions in their establishment, development,
implementation and assessment of their AML/CTF frameworks, FATF has established and issued
40 Recommendations. These recommendations were first issued in 1990 and revised in 1996,
2003 and 2012 (Typologies exercise). These recommendations are listed in Appendix I attached.
FATF has issued guidance on the treatment of NPOs through Recommendation 8, including the
interpretive notes, Methodology and Immediate Outcome 10.
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DESCRIPTION OF FATF RECOMMENDATION 8 - NPOs
FATF’s definition of NPO is a functional one, based on the activities and characteristics that put
an organization at risk of terrorist abuse, rather than the simple fact that it is operating on a
non-profit basis. Recommendation 8 does not apply to the entire universe of NPOs,6 but only
to those who fall within the following definition:
A legal person or arrangement or organization 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.”7
The aim of Recommendation 8 is to address only those NPOs falling within the FATF definition
(i.e., those primarily engaged in raising or disbursing funds for the carrying out of good works).
Such NPOs are a subset of the broader NPO sector that, by virtue of the activities it undertakes,
faces a greater risk. (See Appendix II for a complete description of this Recommendation and its
Interpretive Note, Appendix III for the Methodology and Appendix IV for the Immediate
Outcome 10).
DESCRIPTION OF THE CURRENT LEGAL AND REGULATORY FRAMEWORK FOR NPOs IN
JAMAICA
The AML/CTF legal framework in Jamaica is primarily based on two pieces of statute, they are
the Proceeds of Crime Act (POCA) 2007 and its attendant Money Laundering Prevention
Regulations and the Terrorism Prevention Act (TPA) 2010 and Regulations. There was a gap in
the Jamaican framework as both the POCA and TPA were void of a section that specifically dealt
with NPOs. However, this gap was closed with the passage of the Charities Act 2013.
6FATF, Combatting the Abuse of Non-Profit Organizations, 2015, available online at http://www.fatf-gafi.org/media/ fatf/documents/reports/BPP-combating-abuse-non-profit-organisations.pdf. 7 FATF, “Interpretive Note to Recommendation 8” in FATF Recommendations, 2012.
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The Charities Act, 2013, is “an Act to make provision for the regulation of charitable
organizations in Jamaica and connected matters.” Some examples of connected matters are
income tax, general consumption tax, special consumption tax, property tax, transfer tax,
customs duty and stamp duty.
The Charities Act further provides for the establishment of the Charities Authority which has
the responsibility of regulating the Charitable Sector. Section 7 of the Act sets out the functions
of the Authority.
In addition to the aforementioned Charities Act, Jamaica has issued the Bank of Jamaica
Guidance Notes on the Detection and Prevention of Money Laundering Terrorist Financing
Activities to guide commercial banks, merchant banks, credit unions, cambios bureau de
exchange, money transfer agents and remittance agencies but the Guidance Notes has not
substantially dealt with the issue of NPOs.
DESCRIPTION OF JAMAICA’S THIRD ROUND MUTUAL EVALUATION/DETAILED ASSESSMENT
REPORT ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM (MER)
2005
Jamaica has been subject to three mutual evaluations. The last completed evaluation was done
in 2005,8 however, at the time of this research Jamaica was undergoing its fourth Mutual
Evaluation.
At paragraphs 369 to 371 of the Third Round MER, the CFATF Assessors stated that:
NPOs in Jamaica are established under a number of statutes or instruments.
NPOs may be established under the Companies Act (under section 16), or
8 It is important to note that at this time the assessment was based on the FATF 40 + 9 Special Recommendations methodology.
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under the Friendly Societies Act, or pursuant to deeds/instruments of
Charitable Trusts.
Both companies and friendly societies are required to maintain accounting
records. Under the Friendly Societies Act, friendly societies are required to
produce annual filings relating to members under section 22 indicating inter
alia the number of members on its roll, including every person who at any
time during the year was a financial member of the society or branch.
The public may access information on any Friendly Society through the
Registrar of Co-operatives and Friendly Societies, through the provisions of
the Access to Information Act. The companies established under the
Companies Act may also be investigated by a nominee of the Minister
pursuant to section 161 of the Companies Act.
The authorities have not conducted a review of the adequacy of the laws
and regulations that relate to NPOs that can be abused for the financing of
terrorism.
While the TPA has been enacted, it does not include NPOs within its ambit.
Section 15 of the TPA defines entities subject to the TPA as including foreign
companies in respect of their business in Jamaica relating to banking,
securities, insurance, investment advice or trusts, financial institutions and
any entity designated by the Minister.
There are no measures in place to ensure that terrorist organizations
cannot pose as legitimate NPOs, including for the purpose of escaping asset
freezing or seizing measures.
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Other than the measures already mentioned for the registration of NPOs
there is no formal oversight of the sector which could ensure that funds or
other assets collected by or transferred through NPOs are not diverted to
support the activities of terrorists or terrorist organizations.
The authorities should implement the requirements of Special
Recommendation VIII taking into consideration the measures set out in the
relevant Best Practices Paper.
The summary of factors underlying the rating in the Third Round Mutual
Evaluation/Detailed Assessment Report Anti-Money Laundering and Combating the
Financing of Terrorism (MER), stated that the “Terrorism legislation does not cover
non-profit organisation and inadequate system for regulating the non-profit
organizations.”
ACTIONS REQUIRED TO ACHIEVE COMPLIANCE (The required legal, regulatory and
administrative frameworks needed to satisfy the requirements of Recommendation 08)
Country requirement:-
Jamaican authorities should conduct a review of the laws relating to NPOs and enact
subsidiary legislation which will augment the Charities Act.
Jamaican authorities should also conduct an AML/CTF Risk Assessment of the NPO
sector identifying the risks and vulnerabilities and adopting appropriate measures in
order to mitigate the same. This assessment should be periodically reviewed based on a
date agreed, in order to ensure that all measures are in place to mitigate and prevent,
inter alia, the NPO sector from, being used as a vehicle for TF and PWMD.
The results of this assessment should be made available to the supervisory authority for
the sector and the NPO entities. These results should be published, and in this regard, it
would be the decision of the government as to the format in which the results of the
assessment are published.
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The Jamaican authorities should establish and keep up-to-date a publicly available and
current list of all legal persons designated as NPOs.
Administrative requirements of the Supervisory Authority for NPOs:
Outreach to the NPO sector should be conducted by the Supervisory Authority by means
of hosting seminars, training sessions and providing information via the media and other
open source means of promotion.
Guidance may be provided to the NPO sector by sourcing training for compliance
officers and front line staff for them to have a better understanding of why they are
required to perform such due diligence.
The supervisory authority and other government agencies should have control measures
in place to ensure that all funds given to NPOs as grants or subventions are fully
accounted for and are spent in a manner that is consistent with the purpose and
objectives of the NPO’s stated activities.
The supervisory authority will be required to monitor the compliance of NPOs, and
adopt proportionate and dissuasive sanctions for violations of the requirements by
NPOs or persons acting on behalf of these NPOs.9
Authorities should investigate and gather information on NPOs through, inter alia,
domestic cooperation, coordination and information-sharing among authorities or
organizations that hold relevant information on NPOs.
Increase cooperation and collaboration between the various AML/CTF stakeholders,
whether through the NAMLAC (National Anti-Money Laundering Committee or other
prescribed authority).
The NAMLAC (or other relevant body) should conduct an annual national AML/CTF risk
assessment (NRA).
9 The range of such sanctions might include freezing of accounts, removal of trustees, fines, de-certification, de-licensing and de-registration. This should not preclude parallel civil, administrative, or criminal proceedings with respect to NPOs
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Appropriate points of contact should be identified and known and procedures to
respond to international requests for information regarding particular NPOs suspected
of TF or other forms of terrorist support, should be identified.
Legislative and Regulatory requirement of the jurisdiction:
Amend or develop laws to legislate for the incorporation and supervision of the NPO
sector which complies with Recommendation 8. These laws must be directed to
mitigating the risk and vulnerabilities identified in the risk assessment of the sector and
not legislation simply adopted to show technical compliance with the recommendation.
However, the intention is not to hinder the growth of the NPO sector by adopting
inflexible legislation.
A supervisory authority should be properly established in law and all persons in the NPO
sector should be aware of the role and functions of the supervisory authority.
The law should further establish proportionate and dissuasive sanctions for violations of
the requirements by NPOs or persons acting on behalf of these NPOs.
Subsidiary regulations are required to be used by the NPOs as a guide to the
interpretation and implementation of the law.
Administrative requirements of the NPO:
NPOs should be licensed or incorporated in order to function as an NPO.
The NPO should maintain all information on:
(i) The purpose and objectives of their stated activities; and
(ii) The identity of person(s) who own, control or direct their activities, including
senior officers, board members and trustees.
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Further to this, the NPO should:
(iii) Require executive management of NPOs to complete a written declaration of the
identity and details of the natural persons who are the ultimately beneficial
owners/directors NPO.
(iv) Require the ultimate beneficial owners/directors of NPOs to provide a copy of
the declaration forms filed with the relevant authorities.
NPOs should be required to develop a compliance program for AML/CTF when setting
up operations. Within the program, policies to promote transparency, integrity and
public confidence in the management of the NPO should be adopted. All staff, whether
permanent or voluntary staff (including managers and directors) must be notified and
become familiar with the NPO’s compliance program and any rules of doing business.
“Know your beneficiaries and associated NPOs” rules should be drafted to guide the
employees in doing business when receiving and paying out funds.
Require NPOs to set up a company accounts in deposit taking institutions (whether
commercial bank or otherwise). Therefore, the NPO should be required to receive funds
in order to capture or properly record all monies coming in and going out of the
organization.
Annual financial statements of the NPO should be filed with the supervisory authority or
incorporating entity. These statements must provide a detailed breakdown of income
and expenditure.
Develop internal audit procedures and send the report to the Internal Audit Committee.
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All records of the NPO should be maintained, for a period of at least five years. This
should include records of domestic and international transactions.10
NPOs will be required upon request by the appropriate authority to make available
information maintained by the NPO.
OTHER ACTIONS
Adopting and fully implementing a risk-based AML/CT approach (RBA) to AML/CT/PWMD.11
Under the RBA there are two obligations: one for Jamaican authorities and one for financial
institutions and DNFBPs in Jamaica. There are two stages involved under each obligation, that
of risk assessment and that of risk mitigation (see Appendix V for a full explanation of the RBA).
In addition to the Charities Act, the Jamaican authorities should provide further guidance by
amending the Bank of Jamaica Guidance Notes on the Detection and Prevention of Money
Laundering and Terrorist Financing Activities to guide commercial banks, merchant banks,
credit unions, cambios bureau de exchange, money transfer agents and remittance agencies
(issued 2004, latest revision 2009). This Guidance Note has not yet substantially dealt with the
issue of NPOs prior to the aforementioned Charities Act.
The Jamaican authorities should enact, primary legislation, subsidiary legislation (regulations
and/or rules), guidelines or otherwise, in order to implement the following:
Ensure that deposit taking institutions establish a methodology for determining
NPOs that is consistent with the methodology developed by FATF.
Ensure that deposit taking institutions establish a current and up-to-date NPO
database.
10 Such records should be sufficiently detailed to verify that funds have been spent in a manner consistent with the purpose and objectives of the organizations. 11 Recommendation 1 of the FATF40 and its associated Interpretive Note, Methodology and guidance for the banking sector substantially treats with this issue.
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CONCLUSION
FATF was established at 1989, at the G7 Summit in Paris fulfilling a pledge given at the Toronto
Summit of 1988. Since its establishment the FATF has been the only international body
dedicated solely to identify, deter and prevent ML/TF/PWMD. FATF is, therefore, at the
forefront of the fight against ML/TF and PWMD. FATF has provided tremendous guidance on
several high-risk groups in their 40 recommendations, one of which is NPOs. In this regard,
FATF’s guidance includes Recommendation 8 and its attendant Interpretive Notes and
Methodology. Jamaica, Caribbean countries, as well as many other jurisdictions, continue to
grapple with these issues and continue to formulate strategies to enhance their disparate
frameworks in order to meet the requirements of FATF Recommendation 8.
When the results of the third round MER of Jamaica were assessed it was discovered that the
regulatory framework did not substantially address the FATF requirements as it regards NPOs.
The Jamaican jurisdiction, in order to comply with the requirements of FATF has promulgated
one principal Act, the Charities Act to meet the requirements of Recommendation 8. The
Charities Act substantially ameliorated the aforementioned ML/TF/PWMD deficiencies as it
concerns NPOs.
The white paper seeks to answer the question as to whether there is still a deficiency in the
current Legal and Regulatory framework for the Jamaican Banking Sector when compared to
the Guidance given by FATF. Although the Jamaican jurisdiction has significantly closed the gap
in its current framework as it concerns NPOs—to more comprehensively treat the issue of
NPOs—Jamaica needs to review and augment the current legal and regulatory framework as it
concerns NPOs. Jamaica also needs to establish and develop administrative procedures and
requirements for the supervisory authority and the NPO sector. In addition, Jamaica should
fully implement the RBA to AML/CT and PWMD specifically with respect to NPOs. In addition to
this principal recommendation Jamaica can also seek to implement other initiatives such as to
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update/revise the Guidance Notes, regularly perform (possibly annually) NRAs and establishing
a current/updated and publicly available NPO database.
If the Jamaican jurisdiction adopts the actions posited by this white paper, then the
requirements of FATF Recommendation 8 would be more comprehensively dealt with.
BIBLIOGRAPHY AND REFERENCES
Bangko Sentral Ng Philipinas (2011), Updated Anti-money laundering rules and
regulations, Office of the Governor, circular No 706.
www.bsp.gov.ph/downloads/regulations/attachments/2011/c706.pdf
Bester, H., et al (2008), Implementing FATF Standards in Developing Countries and
Financial Inclusion: Findings and Guidelines. The FIRST Initiative. The World Bank,
Washington, DC, United States of America.
www.cenfri.org/documents/AML/AML_CFTandFinancialInclusion.pdf.
CFATF (2015), Mutual Evaluation/Detailed Assessment Report, Anti-Money Laundering
and Combatting the Financing of Terrorism. Ministerial Finial – Jamaica.
Chatain, P-L., et al (2009), Preventing Money Laundering and Terrorist Financing: A
Practical Guide for Bank Supervisors, The World Bank, Washington, DC, United States of
America.
http://lnweb90.worldbank.org/ext/epic.nsf/ImportDocs/823A21EF2A4AA930752575DD
00351A9
De Koker, L. (2006), Money laundering control and suppression of financing of terrorism:
some thoughts on the impact of customer due diligence measures on financial
exclusion, Journal of Financial Crime, vol 13(1). Emerald. pp. 26-50.
White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica
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De Koker, L. (2009) Identifying and Managing Low Money Laundering Risk: Perspectives
on FATF's Risk-Based Guidance, Journal of Financial Crime, vol 16(4), pp. 334-352.
De Koker, L. (2009), The Money Laundering Risk Posed by Low-Risk Financial Products in
South Africa: Findings and Guidelines”, 2009 Journal of Money Laundering Control, vol
12(4), pp. 323-339, www.emeraldinsight.com/journals.htm?articleid=1817094
FATF (2008), Guidance on Capacity Building for Mutual Evaluations and
Implementation of the FATF Standards within Low Capacity Countries, FATF, Paris.
www.fatfgafi.org/documents/documents/guidanceoncapacitybuildingformutualevaluati
onsandimplementationofthefatfstandardswithinlowcapacitycountries.html
FATF (2009) Guidance on the Risk-Based Approach to Combat Money Laundering and
Terrorist Financing – High Level Principles and Procedures (series of Guidance published
between June 2007 and October 2009 by the FATF in collaboration with the professions
that is subject to AML/CFT obligations under the international Standards) , FATF, Paris.
www.fatf-gafi.org); www.fatf-gafi.org/documents/riskbasedapproach/
FATF (2010), FATF Report on Money Laundering Using New Payment Methods, FATF,
Paris.
www.fatfgafi.org/documents/documents/moneylaunderingusingnewpaymentmethods.
html
FATF (2012), International Standards on Combating Money Laundering and the
Financing of Terrorism & Proliferation, FATF, Paris, www.fatf-
gafi.org/recommendations.
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FATF (2013), Methodology for Assessing Compliance with the FATF Recommendations
and the Effectiveness of AML/CFT Systems, FATF, Paris, www.fatf-gafi.org.
FATF (2013), National Money Laundering/Terrorist Financing Risk Assessment, FATF,
Paris.
FATF (2013), The Use of the FATF Recommendations to Combat Corruption, FATF, Paris.
FATF (2014), Guidance on the Risk-Based Approach – The Banking Sector, FATF, Paris.
FATF (2014), Risk of Terrorist Abuse in Non-Profit Organisation, FATF, Paris.
FATF (2014), Combatting the Abuse of Non-Profit Organisation (Recommendation 8),
FATF, Paris.
FATF (2015), Emerging Terrorist Financing Risks, FATF, Paris.
International Monetary Fund (2012), Revisions to the Financial Action Task Force (FATF)
Standard – Information Note to the Executive Board, Washington DC, United States of
America.
Peter Alldridge, (2003), Money Laundering Law, Forfeiture, Confiscation, Civil Recovery,
Criminal Laundering and taxation of the proceeds of Crime, 2003.
Schmid, Juan Pedro (2015), How Much Anti-Money Laundering Effort is enough? The
Jamaican Experience, Inter-American Development Bank, Country Department,
Caribbean Group, Policy Brief, No. IDB-PB-242.
Study Guide for the CAMS Certification Examination, Fifth Edition, (2012). Association of
Certified Anti-Money Laundering Specialists.
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United Nations, (2004), United Nations Convention Against Corruption, United Nations
Office on Drug and Crime.
Appendix I – Objectives of FATF and Table Listing FATF 40 Recommendations
(Included for ease of reference and convenience of reader)
Objectives of FATF
FATF has several objectives including the12:
Promotion of Anti-Money Laundering, Countering the Financing of Terrorism and the
Proliferation of Weapons of Mass Destruction AML/CFT networks;
Monitoring the implementation of the FATF Recommendations among FATF members.
Implementation is monitored through a two-pronged approach;
o An annual self-assessment exercise where member countries are required to fill out
detailed standard questionnaires on the status of their compliance with the
Recommendations. This information is then compiled and analyzed, and provides
the basis for assessing the extent to which the Recommendations have been
implemented by both individual countries and the group as a whole.
o Each member country is examined by FATF on the basis of an on-site visit conducted
by a team of three or six experts in the legal, financial and law enforcement fields
from other member governments. The experts write a report assessing the extent to
which the evaluated country has moved forward in implementing an effective
12 Study Guide for the CAMS Certification Examination, Fifth Edition, 2012.
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system to counter AML/CFT and to highlight areas in which further progress is still
required.
THE FINANCIAL ACTION TASK FORCE (FATF) 40 RECOMMENDATIONS
DESCRIPTION
RECOMMENDATION
A - AML/CFT POLICIES AND COORDINATION
Assessing risks and Applying a risk-based approach 1
National Cooperation and coordination 2
B - MONEY LAUNDERING AND CONFISCATION
Money Laundering Offence 3
Confiscation and Provisional measures 4
C - TERRORIST FINANCING AND FINANCING OF PROLIFERATION
Terrorist Financing Offence 5
Targeted Financial Sanctions related to Terrorism and Terrorist
Financing
6
Terrorist Financing Sanctions related to proliferation 7
Non-Profit Organizations 8
D - PREVENTATIVE MEASURES
Financial institution secrecy laws 9
Customer Due Diligence 10
Record Keeping 11
Politically Exposed Persons 12
Corresponding Banking 13
Money or Value Transfer Services 14
New Technologies 15
Wire Transfer 16
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Reliance on Third Parties 17
Internal Controls and foreign branches and subsidiaries 18
Higher-Risk Countries 19
Reporting of Suspicious Transactions 20
Tipping-Off and Confidentiality 21
DNFBPs: Customer Due Diligence 22
DNFBPs: Other Measures 23
E - TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND ARRANGEMENTS
Transparency and Beneficial Ownership of Legal Persons 24
Transparency and Beneficial Ownership of Legal Arrangement 25
F - POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES AND OTHER INSTITUTIONAL
MEASURES
Regulation and Supervision of Financial Institutions 26
Powers of Supervisors 27
Regulation and Supervision of DNFBPs 28
Financial Intelligence Units 29
Responsibilities of Law Enforcement and Investigative Authorities 30
Powers of law enforcement and investigative authorities 31
Cash Couriers 32
Statistics 33
Guidance and Feedback 34
Sanctions 35
G - INTERNATIONAL COOPERATION
International Instruments 36
Mutual Legal Assistance 37
Mutual Legal Assistance : Freezing and Confiscation 38
Extradition 39
Other Forms of International Cooperation 40
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Appendix II – Recommendation 8 and the Interpretive Note to Recommendation 8
(Included for ease of reference and convenience of reader)
DESCRIPTION OF FATF RECOMMENDATION 08 - NPOs
1. According to Recommendation 0813, Countries and financial institutions and
countries should review the adequacy of laws and regulations that relate to entities
that can be abused for the financing of terrorism. Non-profit organizations are
particularly vulnerable, and countries should ensure that they cannot be misused:
(a) By terrorist organizations posing as legitimate entities;
(b) To exploit legitimate entities as conduits for terrorist financing, including for the
purpose of escaping asset-freezing measures; and
(c) To conceal or obscure the clandestine diversion of funds intended for legitimate
purposes to terrorist organizations.
DESCRIPTION OF THE FATF INTERPRETIVE NOTE TO RECOMMENDATION 08 – NPOs
2. FATF gives further guidance through the Interpretive Note on Recommendation 08.
According to the Interpretive Note:
a. Non-profit organizations (NPOs) play a vital role in the world economy and
in many national economies and social systems. Their efforts complement
the activity of the governmental and business sectors in providing essential
services, comfort and hope to those in need around the world. The ongoing
international campaign against terrorist financing has unfortunately
demonstrated, however, that terrorists and terrorist organizations exploit
13 FATF (2012), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, FATF, Paris, www.fatf-
gafi.org/recommendations.
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the NPO sector to raise and move funds, provide logistical support,
encourage terrorist recruitment, or otherwise support terrorist
organizations and operations. This misuse not only facilitates terrorist
activity, but also undermines donor confidence and jeopardizes the very
integrity of NPOs. Therefore, protecting the NPO sector from terrorist abuse
is both a critical component of the global fight against terrorism and a
necessary step to preserve the integrity of NPOs.
b. NPOs may be vulnerable to abuse by terrorists for a variety of reasons.
NPOs enjoy the public trust, have access to considerable sources of funds,
and are often cash-intensive. Furthermore, some NPOs have a global
presence that provides a framework for national and international
operations and financial transactions, often within or near those areas that
are most exposed to terrorist activity. Depending on the legal form of the
NPO and the country, NPOs may often be subject to little or no
governmental oversight (for example, registration, record keeping,
reporting and monitoring), or few formalities may be required for their
creation (for example, there may be no skills or starting capital required, no
background checks necessary for employees). Terrorist organizations have
taken advantage of these characteristics of NPOs to infiltrate the sector and
misuse NPO funds and operations to cover for, or support, terrorist activity.
OBJECTIVES AND GENERAL PRINCIPLES
The objective of Recommendation 8 is to ensure that NPOs are not misused by terrorist
organizations: (i) to pose as legitimate entities; (ii) to exploit legitimate entities as
conduits for terrorist financing, including for the purpose of escaping asset freezing
measures; or (iii) to conceal or obscure the clandestine diversion of funds intended for
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legitimate purposes, but diverted for terrorist purposes. In this Interpretive Note, the
approach taken to achieve this objective is based on the following general principles:
(a) Past and ongoing abuse of the NPO sector by terrorists and terrorist
organizations requires countries to adopt measures both: (i) to protect
the sector against such abuse, and (ii) to identify and take effective
action against those NPOs that either are exploited by, or actively
support, terrorists or terrorist organizations.
(b) Measures adopted by countries to protect the NPO sector from terrorist
abuse should not disrupt or discourage legitimate charitable activities.
Rather, such measures should promote transparency and engender
greater confidence in the sector, across the donor community and with
the general public, that charitable funds and services reach intended
legitimate beneficiaries14. Systems that promote achieving a high
degree of transparency, integrity and public confidence in the
management and functioning of all NPOs are integral to ensuring the
sector cannot be misused for terrorist financing.
(c) Measures adopted by countries to identify and take effective action
against NPOs that either are exploited by, or actively support, terrorists
or terrorist organizations should aim to prevent and prosecute, as
appropriate, terrorist financing and other forms of terrorist support.
Where NPOs suspected of, or implicated in, terrorist financing or other
forms of terrorist support are identified, the first priority of countries
must be to investigate and halt such terrorist financing or support.
14 Beneficiaries refers to those natural persons, or groups of natural persons who receive charitable, humanitarian or other types of assistance through the services of the NPO.
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Actions taken for this purpose should, to the extent reasonably
possible, avoid any negative impact on innocent and legitimate
beneficiaries of charitable activity. However, this interest cannot excuse
the need to undertake immediate and effective actions to advance the
immediate interest of halting terrorist financing or other forms of
terrorist support provided by NPOs.
(d) Developing cooperative relationships among the public, private and NPO
sector is critical to raising awareness and fostering capabilities to
combat terrorist abuse within the sector. Countries should encourage
the development of academic research on, and information-sharing in,
the NPO sector to address terrorist financing related issues.
(e) A targeted approach in dealing with the terrorist threat to the NPO
sector is essential given the diversity within individual national sectors,
the differing degrees to which parts of each sector may be vulnerable
to misuse by terrorists, the need to ensure that legitimate charitable
activity continues to flourish, and the limited resources and authorities
available to combat terrorist financing in each country.
(f) Flexibility in developing a national response to terrorist financing in the
NPO sector is also essential, in order to allow it to evolve over time as it
faces the changing nature of the terrorist financing threat.
MEASURES
Countries should undertake domestic reviews of their NPO sector, or have the capacity
to obtain timely information on its activities, size and other relevant features. In
undertaking these assessments, countries should use all available sources of
information in order to identify features and types of NPOs, which, by virtue of their
activities or characteristics, are at risk of being misused for terrorist financing. Countries
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should also periodically reassess the sector by reviewing new information on the
sector’s potential vulnerabilities to terrorist activities.
There is a diverse range of approaches in identifying, preventing and combating terrorist
misuse of NPOs. An effective approach, however, is one that involves all four of the
following elements: (a) outreach to the sector, (b) supervision or monitoring, (c)
effective investigation and information gathering and (d) effective mechanisms for
international cooperation. The following measures represent specific actions that
countries should take with respect to each of these elements, in order to protect their
NPO sector from terrorist financing abuse.
(a) Outreach to the NPO sector concerning terrorist financing issues
i. Countries should have clear policies to promote transparency, integrity and
public confidence in the administration and management of all NPOs.
ii. Countries should encourage or undertake outreach programmes to raise
awareness in the NPO sector about the vulnerabilities of NPOs to terrorist
abuse and terrorist financing risks, and the measures that NPOs can take to
protect themselves against such abuse.
iii. Countries should work with the NPO sector to develop and refine best
practices to address terrorist financing risks and vulnerabilities and thus
protect the sector from terrorist abuse.
iv. Countries should encourage NPOs to conduct transactions via regulated
financial channels, wherever feasible, keeping in mind the varying capacities
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of financial sectors in different countries and in different areas of urgent
charitable and humanitarian concerns.
(b) Supervision or monitoring of the NPO sector
Countries should take steps to promote effective supervision or monitoring of their NPO sector.
In practice, countries should be able to demonstrate that the following standards apply to NPOs
which account for (1) a significant portion of the financial resources under control of the sector;
and (2) a substantial share of the sector’s international activities.
i. NPOs should maintain information on: (1) the purpose and objectives of their
stated activities; and (2) the identity of the person(s) who own, control or
direct their activities, including senior officers, board members and trustees.
This information should be publicly available either directly from the NPO or
through appropriate authorities.
ii. NPOs should issue annual financial statements that provide detailed
breakdowns of incomes and expenditures.
iii. NPOs should be licensed or registered. This information should be available
to competent authorities.
iv. NPOs should have appropriate controls in place to ensure that all funds are
fully accounted for, and are spent in a manner that is consistent with the
purpose and objectives of the NPO’s stated activities.
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v. NPOs should follow a “know your beneficiaries and associate NPOs15” rule,
which means that the NPO should make best efforts to confirm the identity,
credentials and good standing of their beneficiaries and associate NPOs.
NPOs should also undertake best efforts to document the identity of their
significant donors and to respect donor confidentiality.
vi. NPOs should maintain, for a period of at least five years, records of domestic
and international transactions that are sufficiently detailed to verify that
funds have been spent in a manner consistent with the purpose and
objectives of the organisation, and should make these available to
competent authorities upon appropriate authority. This also applies to
information mentioned in paragraphs (i) and (ii) above.
vii. Appropriate authorities16 should monitor the compliance of NPOs with the
requirements of this Recommendation.24 Appropriate authorities should be
able to apply effective, proportionate and dissuasive sanctions for violations
by NPOs or persons acting on behalf of these NPOs.
(c) Effective information gathering and investigation
i. Countries should ensure effective cooperation, coordination and information
sharing to the extent possible among all levels of appropriate authorities or
organizations that hold relevant information on NPOs.
15 Associate NPOs includes foreign branches of international NPOs. 16 Appropriate authorities refers to competent authorities, including accrediting institutions, and self-regulatory organisations.
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ii. Countries should have investigative expertise and capability to examine
those NPOs suspected of either being exploited by, or actively supporting,
terrorist activity or terrorist organizations.
iii. Countries should ensure that full access to information on the administration
and management of a particular NPO (including financial and programmatic
information) may be obtained during the course of an investigation.
iv. Countries should establish appropriate mechanisms to ensure that, when
there is suspicion or reasonable grounds to suspect that a particular NPO: (1)
is a front for fundraising by a terrorist organisation; (2) is being exploited as a
conduit for terrorist financing, including for the purpose of escaping asset
freezing measures; or (3) is concealing or obscuring the clandestine diversion
of funds intended for legitimate purposes, but redirected for the benefit of
terrorists or terrorist organizations, this information is promptly shared with
relevant competent authorities, in order to take preventive or investigative
action.
(d) Effective capacity to respond to international requests for information about an
NPO of concern Consistent with Recommendations on international cooperation,
countries should identify appropriate points of contact and procedures to
respond to international requests for information regarding particular NPOs
suspected of terrorist financing or other forms of terrorist support.
RESOURCES FOR SUPERVISION, MONITORING, AND INVESTIGATION
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Countries should provide their appropriate authorities responsible for supervision,
monitoring and investigation of their NPO sector with adequate financial, human and
technical resources.
Appendix III – Methodology for Assessing Technical Compliance with Recommendation 8 (Included for ease of reference and convenience of reader)
Countries should:
(a) Review the adequacy of laws and regulations that relate to entities that can be abused for
the financing of terrorism, including NPOs;
(b) Undertake domestic reviews of their NPO sector, or have the capacity to obtain timely
information on its activities, size and other relevant features using all available sources of
information, in order to identify the features and types of NPOs that are particularly at risk of
being misused for TF or other forms of terrorist support by virtue of their activities or
characteristics; and
(c) Periodically reassess their NPO sector by reviewing new information on the sector’s
potential vulnerabilities to terrorist activities.
Countries should conduct outreach to the NPO sector concerning TF issues.
Countries should have clear policies to promote transparency, integrity, and public
confidence in the administration and management of all NPOs.
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Countries should apply the following standards to NPOs which account for (i) a
significant portion of the financial resources under the control of the sector; and (ii) a
substantial share of the sector’s international activities. Such NPOs should be required
to:
(a) Maintain information on: (i) the purpose and objectives of their stated activities;
and (ii) the identity of person(s) who own, control or direct their activities, including
senior officers, board members and trustees. This information should be publicly
available either directly from the NPO or through appropriate authorities;
(b) Issue annual financial statements that provide detailed breakdowns of income and
expenditure;
(c) Have controls in place to ensure that all funds are fully accounted for, and are spent
in a manner that is consistent with the purpose and objectives of the NPO’s stated
activities;
(d) Be licensed or registered17;
(e) Follow a “know your beneficiaries and associated NPOs” rule; and
(f) Maintain, for a period of at least five years, records of domestic and international
transactions18, and the information in (a) and (b) above, and make these available to
competent authorities upon appropriate authority.
17 Specific licensing or registration requirements for AML/CFT purposes are not necessary. For example, in some countries, NPOs are already registered with tax authorities and monitored in the context of qualifying for favourable tax treatment (such as tax credits or tax exemptions).
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Competent authorities should monitor the compliance of NPOs, and should be able to
apply proportionate and dissuasive sanctions for violations of the requirements by NPOs
or persons acting on behalf of these NPOs19.
Authorities should be able to investigate and gather information on NPOs, including
through:
(a) Domestic co-operation, co-ordination and information-sharing among authorities
or organizations that hold relevant information on NPOs;
(b) Full access to information on the administration and management of particular
NPOs (including financial and programmatic information); and
(c) Mechanisms to ensure that relevant information is promptly shared with
competent authorities, in order to take preventive or investigative action, when
there is suspicion or reasonable grounds to suspect that a particular NPO is: a front
for fundraising by a terrorist organisation; or being exploited as a conduit for TF,
including for the purpose of escaping asset freezing measures; or concealing or
obscuring the clandestine diversion of funds intended for legitimate purposes, but
redirected for the benefit of terrorists or terrorist organizations.
Countries should identify appropriate points of contact and procedures to respond to
international requests for information regarding particular NPOs suspected of TF or
other forms of terrorist support.
Appendix IV – Immediate Outcome 10
(Included for ease of reference and convenience of reader)
Characteristics of an effective system
18 Such records should be sufficiently detailed to verify that funds have been spent in a manner consistent with the purpose and objectives of the organisations. 19 The range of such sanctions might include freezing of accounts, removal of trustees, fines, de-certification, de-licensing and de-registration. This should not preclude parallel civil, administrative, or criminal proceedings with respect to NPOs
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Terrorists, terrorist organizations and terrorist support networks are identified and deprived of
the resources and means to finance or support terrorist activities and organizations. This
includes proper implementation of targeted financial sanctions against persons and entities
designated by the United Nations Security Council and under applicable national or regional
sanctions regimes. The country also has a good understanding of the terrorist financing risks
and takes appropriate and proportionate actions to mitigate those risks, including measures
that prevent the raising and moving of funds through entities or methods which are at greatest
risk of being misused by terrorists. Ultimately, this reduces terrorist financing flows, which
would prevent terrorist acts.
Note to Assessors:
Assessors should also consider the relevant findings on the level of international cooperation
which competent authorities are participating in when assessing this Immediate Outcome.
Core Issues to be considered in determining if the Outcome is being achieved
How well is the country implementing targeted financial sanctions pursuant to (i)
UNSCR1267 and its successor resolutions, and (ii) UNSCR1373 (at the supra-national or
national level, whether on the country’s own motion or after examination, to give effect
to the request of another country)?
To what extent, without disrupting legitimate NPO activities, has the country
implemented a targeted approach, conducted outreach, and exercised oversight in
dealing with NPOs that are at risk from the threat of terrorist abuse?
To what extent are terrorists, terrorist organizations and terrorist financiers deprived
(whether through criminal, civil or administrative processes) of assets and
instrumentalities related to TF activities?
To what extent are the above measures consistent with the overall TF risk profile?
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Appendix V – Description of the FATF Risk-Based Assessment Methodology20
Obligations and Decisions for Countries
Risk Assessment
Countries should identify and assess the ML/TF risks for the country;
Countries should designate an authority or mechanism to co-ordinate actions to
assess risks;
Countries should keep the risk assessments up-to-date;
Countries should have mechanisms to provide information on the results of the
risk assessment(s) to all relevant competent authorities and self-regulatory
bodies (SRBs), financial institutions and DNFBPs.
Risk Mitigation
Based on their understanding of their risks, countries should apply a risk-based
approach to allocating resources and implementing measures to prevent or
mitigate ML/TF.
Countries which decide not to apply some of the FATF Recommendations requiring
financial institutions or DNFBPs to take certain actions, should demonstrate that:
There is a proven low risk of ML/TF; the exemption occurs in strictly limited and
justified circumstances; and it relates to a particular type of financial institution
or activity, or DNFBP;
20 FATF (2013), Methodology for Assessing Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems, FATF, Paris, www.fatf-gafi.org.
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A financial activity (other than the transferring of money or value) is carried out
by a natural or legal person on an occasional or very limited basis (having regard
to quantitative and absolute criteria), such that there is a low risk of ML/TF.
Where countries identify higher risks, they should ensure that their AML/CFT
regime addresses such risks, including through:
Requiring financial institutions and DNFBPs to take enhanced measures to
manage and mitigate the risks; or
Requiring financial institutions and DNFBPs to ensure that this information is
incorporated into their risk assessments.
Countries may allow simplified measures for some of the FATF Recommendations
requiring financial institutions or DNFBPs to take certain actions, provided that a
lower risk has been identified, and this is consistent with the country’s assessment
of its ML/TF risks. Supervisors and FSRBs should ensure that financial institutions
and DNFBPs are implementing their obligations under Recommendation 1721.
Obligations and Decisions for Financial Institutions and DNFBPS
Risk Assessment
Financial institutions and DNFBPs should be required to take appropriate steps to
identify, assess, and understand their ML/TF risks (for customers, countries or
geographic areas; and products, services, transactions or delivery channels). This
includes being required to:
Document their risk assessments.
Consider all the relevant risk factors before determining the level of overall risk
and the appropriate level and type of mitigation to be applied.
Keep these assessments up to date.
21 Reliance on Third Parties.
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Have appropriate mechanisms to provide risk assessment information to
competent authorities and SRBs.
Risk Mitigation
Financial institutions and DNFBPs should be required to:
Have policies, controls and procedures, which are approved by senior
management, to enable them to manage and mitigate the risks that have been
identified (either by the country or by the financial institution or DNFBP).
Monitor the implementation of those controls and to enhance them if necessary.
Take enhanced measures to manage and mitigate the risks where higher risks
are identified.
Countries may only permit financial institutions and DNFBPs to take simplified
measures to manage and mitigate risks, if lower risks have been identified, and the
relevant criteria are met. Simplified measures should not be permitted whenever
there is a suspicion of ML/TF.