auditing the non-profit organizations (npos) aml/ctf...

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

White Paper – Auditing the Non-Profit Organizations (NPOs) Framework in Jamaica

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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.

http://www.bsp.gov.ph/downloads/regulations/attachments/2011/c706.pdf

http://www.cenfri.org/documents/AML/AML_CFTandFinancialInclusion.pdf

http://lnweb90.worldbank.org/ext/epic.nsf/ImportDocs/823A21EF2A4AA930752575DD00351A9

http://lnweb90.worldbank.org/ext/epic.nsf/ImportDocs/823A21EF2A4AA930752575DD00351A9


21

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.

http://www.emeraldinsight.com/journals.htm?articleid=1817094

http://www.fatfgafi.org/documents/documents/guidanceoncapacitybuildingformutualevaluationsandimplementationofthefatfstandardswithinlowcapacitycountries.html

http://www.fatfgafi.org/documents/documents/guidanceoncapacitybuildingformutualevaluationsandimplementationofthefatfstandardswithinlowcapacitycountries.html

http://www.fatf-gafi.org/

http://www.fatf-gafi.org/documents/riskbasedapproach/

http://www.fatfgafi.org/documents/documents/moneylaunderingusingnewpaymentmethods.html

http://www.fatfgafi.org/documents/documents/moneylaunderingusingnewpaymentmethods.html

http://www.fatf-gafi.org/recommendations

http://www.fatf-gafi.org/recommendations


22

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.

http://www.fatf-gafi.org/


23

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.


24

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


25

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


26

Appendix II – Recommendation 8 and the Interpretive Note to Recommendation 8


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.


27

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


28

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


30

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


31

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.


35

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).


36

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


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


37

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?


38

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.


39

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.

auditing the non-profit organizations (npos) aml/ctf...

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