Protecting against terrorism and money laundering
Charities are at risk of being misused by individuals or other organisations to finance or support terrorist activity or assist money laundering. It is wise to be aware of the risks, and to take appropriate precautions.
The following information is designed to:
- build awareness of the nature of the risk
- outline some principles a charity can use to help reduce this risk
- assist charities to understand and comply with legal requirements in relation to terrorism financing.
The charitable sector is large and diverse, with as many as 27,000 operating in New Zealand. By comparison, the scale of known terrorist links to charities operating in New Zealand is assessed as being small. However, when considering risk, it is important to note that:
- there is evidence of charities being misused in other countries
- the terrorist activity may have catastrophic consequences for the very people the charity is trying to help
- some parts of the charitable sector are more likely to be misused than others.
How do terrorists and money launderers use charities illegally?
Terrorist activity requires financial support, concealment or opportunities for recruitment, whereas money launderers aim to legitimise money sourced in illegal activities.
Some of the common techniques used include:
- raising funds in the name of the charity or charitable purposes and then redirecting the funding with or without the knowledge of the charity
- using the charity as a legitimate front for transporting cash or other financial support from one place to another
- using charity vehicles or premises to transport or hide people, cash, weapons or terrorist propaganda
- using a charity partner who distributes aid or relief as a front to conceal other illegal activities or recruitment for terrorism
- offering large donations in cash or foreign currency with the opportunity to earn interest over a period of time, conditional on returning the principal in New Zealand currency.
Less common techniques
Some of the less common techniques used include:
- those within the charity "skimming" off money from legitimate collections for terrorist purposes
- the establishment of a sham charity.
What can we do to make sure we comply with New Zealand law?
As a starting point, a charity must comply with New Zealand law and the laws of any foreign countries in which they operate. Non-compliance (whether through ignorance or otherwise) may lead to a charity and its officials being liable to prosecution and criminal penalties.
For more information, see the NZ Police information sheet on Best Practice Guidelines for Financial Institutions (external link) [PDF, 527 KB]. If you are concerned please report any suspicious activity to the NZ Police.
Why is this issue important to charities and what are the consequences?
The consequences of becoming involved in terrorist financing or money laundering are significant, and can include the loss of reputation, status, registration under the Charities Act 2005 and donor confidence.
Also, individuals or organisations, including charities, may face criminal charges if they facilitate the funding of, or provide financial support to a terrorist individual, organisation or act or if they engage in money laundering.
Section 13(5) of the Charities Act 2005 (external link) states that an entity does not qualify for registration as a charitable entity if -
- the entity is a designated terrorist entity as defined in section 4(1) of the Terrorism Suppression Act 2002; or
- the entity has been convicted of any offence under sections 6A to 13E of the Terrorism Suppression Act 2002.
Section 32(1)(e) of the Charities Act 2005 (external link) states that Charities Services may remove an entity from the register if the entity has engaged in serious wrongdoing or any person has engaged in serious wrongdoing in connection with the entity.
Section 4(1) of the Charities Act 2005 (external link) defines serious wrongdoing as including:
- an unlawful or a corrupt use of the funds or resources of the entity; or
- an act, omission, or course of conduct that constitutes a serious risk to the public interest in the orderly and appropriate conduct of the affairs of the entity; or
- an act, omission, or course of conduct that constitutes an offence; or
- an act, omission, or course of conduct by a person that is oppressive, improperly discriminatory, or grossly negligent, or that constitutes gross mismanagement.
Section 8 of the Terrorism Suppression Act 2002 (external link) states that a person could face up to 14 years’ imprisonment if they provide funds to an entity known to carry out terrorist acts.
Section 243 of the Crimes Act 1961 (external link) states that a person could face up to 7 years’ imprisonment for engaging in a money laundering transaction.
Why do terrorist organisations or money launderers target charities?
Terrorists or money launderers may target charities because they:
- enjoy high levels of public confidence
- are diverse in nature, providing a broad range of activities and reaching all parts of society
- may depend on one or two individuals who play a key, and often unsupervised role, particularly with smaller charities
- may have a global presence that provides a framework for national and international operations and financial transactions
- often have complex financial operations including multiple donors, investments and currencies, often receiving and using cash, having to account for high volume of small transactions and using informal money transfers
- may regularly work within or near those areas that are most exposed to terrorist activity
- may have complex programmes of operation and pass funds through intermediary partner organisations to deliver their services
- may have unpredictable and unusual income and expenditure streams, so suspicious transactions may be harder to identify.
How should we assess the risk to our organisation from criminal activity?
A risk-based approach
Charities should identify the specific risks to their organisation (for example, how a terrorist may be able to infiltrate a charity and/or fraudulently access funds) and, on that basis, form an opinion on the overall level of risk their organisation may be subject to (for example, high, medium or low). This assessment should inform a charity's decision on the level of compliance required with the principles of good practice [PDF, 527 KB]. (external link) Charities face a higher risk if they:
- conduct or contribute to aid programs or projects overseas; and/or
- donate funding to other charities, NGOs or projects overseas; and/or
- work with, or provide funding to, other charities that conduct programs or projects overseas.
It is important to note, however, that charities may still be misused even where aid or assistance is directed to beneficiaries within New Zealand. The risks will increase in situations where charities:
- use alternative remittance services or pay for goods or services in cash rather than using formal financial mechanisms (such as electronic funds transfers); and/or
- engage other individuals or organisations to deliver aid without conducting screening processes; and/or
- are not able to provide direct oversight over programs or projects.
It is important that charities regularly review their risks, particularly when there are significant changes to the focus or scope of the activities of a charity.
For further information in regards to the prevention of money laundering and terrorist financing please see the Department of Internal Affairs – Anti-money laundering and counter financing of terrorism website (external link) which contains additional useful links on the subject.