Charities that operate on a global scale face genuine financial and reputational concerns. Regardless of a charity's good intentions, even unintentional participation in financial crime may result in serious legal consequences, permanent reputational harm, regulatory penalties, donor funding withdrawal, and interruption to the charity's financial services. All of this influences a charity's capacity to carry out its objective.
Bribery and corruption, terrorist funding, money laundering, and sanctions/export restrictions are all examples of financial crime. Therefore, all charities should be aware of regulations that apply to them as well as regulated financial institutions like banks that are meant to prevent financial crime, especially if they operate in sanctioned or high-risk nations.
In the battle against financial crime and its negative impact on worldwide society, there is a rising tendency for public/private collaborations. To prevent the banking system from being exploited for financial crime, the finance sector, charities, governments, and regulators act collaboratively.
Financial institutions are subject to stricter regulatory requirements due to the possibility for criminals to utilize financial institutions to launder and transfer illegal money and support terrorism. Banks are required to conduct due diligence processes to obtain information on their customers, including charity, such as;
• Locations where they operate
• Who they work with
• Who owns them?
• The source of their money
Foundations that work globally, including in high-risk or sanctioned countries, may be expected to do more enhanced due diligence. Requests to evaluate governance rules, processes, and training materials used to control financial crime risks may fall into this category.
Charities should be familiar with the regulatory framework and international recommendations on Anti-Money Laundering (AML), anti-bribery and corruption (ABC), counter-terrorism funding (CTF), sanctions, and export restrictions. All of this leads to the Know Your Customer (KYC) regulations that banks must follow to prevent criminals and terrorists from accessing financial services.
Banks will require their clients, including charities, to have due diligence systems in place to guarantee that both the bank and the client are meeting their regulatory duties and, as a result, avoiding financial crime.
Charities are subject to duties as a consequence of their registration with the Charity Commission and legal obligations as corporations, such as those imposed by the Companies Act 2006 and numerous financial crime statutes and laws. The law against financial crime encompasses but is not limited to:
• Corruption and bribery (Bribery Act 2010)
• Laundering of funds (Charities Act 2011 and charities should be conscious of the responsibilities of their banks under the Money Laundering Regulations 2017)
• Terrorism (under the Terrorism Act of 2000 and the Proceeds of Crime Act of 2002), and
• Penalties (various including UK, EU, UN, USA sanctions regulations).
Charities must thus have a comprehensive financial crime strategy or suite of policies in place to address the law that applies to them and the operational risks they face.
A policy's job is to establish an organization-wide, predetermined plan of action and risk limitations. It serves as a reference for recognized organizational strategy, goals, and operational standards.
The policy should be a significant document that is crucial to how a charity runs; it should fundamentally drive the organization's activities. This relationship is made possible by process (or operational frameworks), which give the organization clear and straightforward plans of action for implementing the policy. Procedure delegated responsibilities and provided clear decision-making procedures and action plans. The policy is operationally reflected in the procedure.
While a policy represents a charity's risk tolerance, goals, and operational standards and procedures outline how a policy is executed and assigns responsibility; workers must be taught to ensure they completely grasp what they must do to be compliant.
A risk-based approach may be used to determine the specifics of the policy, the specifics of the method, and who receives what training—charity workers on the ground in sanctioned countries and conflict zones.
Due Diligence is Essential
A charity, like a bank, must do due diligence on the persons and firms with which it does business. Due diligence is critical for reducing financial crime, and a bank will expect a charity to have diligence measures in place. Charities must consequently implement risk-based procedures to ensure they have sufficient information about donors, beneficiaries, workers, volunteers, connected organizations/member organizations, partners, and suppliers. A risk-based strategy implies that the larger the hazards, the greater the amount of due diligence necessary.
Charities, for example, should understand where contributions originate from and why any limits are imposed. Charities should get to know the individuals and organizations with which they collaborate and keep an eye out for odd situations. Terrorists and other criminals have previously utilized charities to transfer funds to affiliated organizations. Charities that operate in sanctioned or otherwise high-risk nations must ensure that they follow all relevant sanctions and export control rules. There may be extra financial crime concerns, including corruption if the organization is engaging with a "politically exposed person." Charities must also be confident that their partners, even if they are members of the same family or federation, are running their finances according to the charity's standards and their statutory duties.