Australia’s first risk assessment of charities and non-profit organisations has revealed that the sector that is built around helping the most vulnerable is being targeted by criminals.

Minister for Justice Michael Keenan and Assistant Minister to the Treasurer Michael Sukkar today released the joint report by the Australian Chatities and Non-profit Commission (ACNC) and AUSTRAC: “Australia’s non-profit organisation sector: money laundering and terrorism financing risk assessment” in Melbourne on 28 August 2017. Financial institutions report suspicious transactions to Austrac (as most Australians will now be aware after Austrac suing Australia’s biggest bank: CBA, for civil penalties for failing to report over 53,000 suspicious transactions).

The report identified a ‘medium’ risk level with regards to money laundering and terrorism financing within the sector, after evaluating approximately 257,000 registered non-profit organisations in Australia. “The report found significant links between registered Not-for-Profit Organisations (NPOs) and members of Australia’s most serious and organised crime groups,” Mr Keenan said. The greatest criminal threats facing the NPO sector are fraud and theft of resources, with a low level of money laundering and tax evasion also detected.

Between 2012 and 2016, 735 investigations were conducted into suspicious criminal misuse – nearly all of these investigations related to fraud or theft of resources. In that same time 249 Suspicious Matter Reports (SMRs) were submitted for suspected money laundering or criminal misuse with a total value of $57.8 million. There were also 28 SMRs related to terrorism financing involving NPOs, with a total value of $5.6 million.

What this shows is that NPOs have the capacity to quickly raise and camouflage the movement of large amounts of funds offshore to support individuals or groups engaged in foreign conflict.

Assistant Minister Sukkar said that the risk assessment would allow NPOs to assess their level of vulnerability, strengthen their controls, and report suspicious and criminal activity to relevant NPO regulators or law enforcement agencies.

The review of the ACNC Act, which will commence later this year, provides further opportunity to examine the regulatory framework for the charity sector.

This report identifies the main criminal, money laundering and terrorism financing threats currently facing NPOs. It highlights key vulnerabilities that are exploited for criminal misuse, or to support or promote terrorism and its financing. It also addresses an international requirement to identify the subset of NPOs at high-risk of terrorism financing misuse.

Money Laundering

Money laundering enables almost all serious and organised Crime in Australia. it is a key risk to Australia’s economy And tax revenue.

Criminals launder money to legitimise proceeds from committing crimes (referred to as ‘predicate crimes’). Money laundering enables criminals to accumulate and hide wealth, avoid prosecution, evade taxes, increase profits through reinvestment, and fund further criminal activity.

the money laundering process has three stages:

  • Placement occurs when illicit funds or assets are introduced into the formal nancial system.
  • Layering involves moving, dispersing or disguising illegal funds or assets to conceal their true origin.

Integration is the movement of illicit funds back into the legitimate economy.

 

 

NPOs can be used mainly during the first two stages. NPO resources can be used to ‘place’ illicit funds into the financial system, then ‘layer’ the funds through multiple finnancial transactions and commingling with legitimate finance.

In this report, ‘criminal misuse’ refers to money laundering activity as well as the commission of underlying predicate crimes.

Terrorism financing

The terrorism financing process usually involves three distinct stages:

  • raising funds through donations, self-funding, legitimate business or criminal activity
  • transferring funds to a terrorist network, organisation, cell or individual, or between such entities
  • using funds for direct and indirect costs associated with terrorist activity.

Funds also need to be ‘stored’ during the terrorism financing process. storage methods might include hiding cash in a private residence or in a ‘sandooq’ (cash box), or depositing funds in a bank account or other financial product.

NPOs can be used at all three stages of terrorism financing. They may provide cover for raising funds and can be used to transfer resources abroad disguised as aid. NPOs that operate in, or close to, conflict zones can be vulnerable to siphoning of funds by terrorist groups and be used to distribute resources to support terrorist groups.

FJM Note:  I doubt that relevant criminals are forming their own NPO’s to launder and finance terror. It appears that it is legitimate NPOs that are being used and, it seems, insufficiently good governance and compliance to ensure that funds contributed are not distributed to illicit recipients. I’ve reproduced material from the report above, but I must say that it is difficult to get a real ‘handle’ on what is going on. It should be remembered, though, it is financial institutions reporting ‘suspicious’ transactions and they don’t know what the truth behind the matter is. Some NPO transactions look suspicious in that funds come in and then go out but they are legitimate. But there does seem to have been an investigation into these suspicious transactions and identified a ‘medium’ level of risk.

[Minister’s Media Release; Austrac Media Release; Austrac Report on the Non Profit Organisations; FJM; LTN 163, 28/8/17; TM August]

About the author