Charity Commission for England and Wales

Terrorist Financing: Perspectives on Informal Finance and Charities

Preventing Terrorist Financing without damaging legitimate charitable activity

3 October 2014

Peter Clarke – Board Member Michelle Russell – Director of Investigations, Monitoring and Enforcement

The Regulated Charity Sector in England and Wales

• 164,000 + registered charities• Annual income c.£64 billion• Assets of c.£186 billion• 80% income accounted for by 3% of charities• 78,000 charities with an income of less than £10,000 pa• Only 1,976 charities with an annual income greater than

£1 million• 13,000 operate internationally - annual income c.£10

billion

Vulnerability of Sector – Why is it at Risk

• High levels of public trust because of voluntary and altruistic nature

• Relatively easy to set up• Global presence – money, goods and people• Often depend upon one or two individuals who play a

key and often unsupervised role• Powerful vehicles for bringing people together –

ready made legitimate social network• Different and generally lower levels of regulation in

other parts of the world

Financial & Logistical Support

Financial & Logistical Support

Attack

Training UK & Overseas

Precursors & equipment

Food & Accommodation

Support for Families, Before During & after

Travel Fares, Visas, car hire

Communications & IT

Minor Crime

Business

Charities

Donations

Fraud

Aspects Of Terrorist Financing

RAISING• Street collections • Donations – in person /via website /bank mandate • Appeals – specific and general • Door to door collections and chugging

STORING• Traditional banking• Local cash storage• Pre-payment cards and PayPal

MOVING

• Bank transfers• Cash couriers• Money Service Bureaus: Alternative remittance (e.g. Hawala)• Mobile phone paymentsUSING• Cash• Debit and credit cards• Bank transfers, PayPal• Cheques

The International Response

Financial Action Task Force (FATF) Recommendation 8

Countries should review the adequacy of laws and regulations that relate to entities that can be abused for the financing of terrorism. Non-profit organisations are particularly vulnerable, and countries should ensure that they cannot be misused: (a) by terrorist organisations 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 organisations.

FATF Typology Report 2014: Risk of Terrorist Abuse in Non-Profit Organisations

Key Findings include:

• The NPO sector has interconnected vulnerabilities, and terrorist entities seek to exploit more than one type of vulnerability

• The NPOs most at risk appear to be those engaged in ‘service’ activities, and that operate in a close proximity to an active terrorist threat

• Disruption of abuse, or the mitigation of substantial risk, was dealt with through multiple means including, but not limited to, criminal prosecution. Administrative enforcement, financial penalties, and targeted financial sanctions play important roles in disruption of abuse

The Challenges:

• FATF Recommendation 8: Non-Profit Organisations:• Implementation is not consistent – there are practical challenges

for some countries, and it can be seen as low priority • Challenges in reviewing and assessing the true risk of abuse• What does risked based and proportionate mean in practice?

• Over regulating, restricting the operations of charities, freezing and seizing funds and closing down charities can create problems:

• New organisations are set up and/or take over• Activities go under ground into cash based systems or other

unregulated sectors• Money intended for good causes can be frozen for years• Creates a gap for terrorists to provide aid and relief themselves• Criminals find other ways around obstacles

Our role and the UK approach

• HMG: CONTEST strategy and the 4 “Ps”• A three pronged policy approach:

– The legislative framework in the criminal law that deals specifically with terrorism – law enforcement

– The Financial Sanctions Regime - HM Treasury– The regulatory and legal framework that applies to

all charities – the Charity Commission

• Close down the charity v take out the problem?• The Commission’s counter-terrorism strategy –

4 strands:– Awareness, Cooperation, Oversight and Intervention

Using a Regulatory Framework to support criminal Investigations

• Terrorist activity is a criminal matter but;• An organisation that is set up to and has

purposes to support terrorism would not be recognised as a charity

• The use of a legitimate charity’s funds or other assets for support of terrorist activity is not a proper use of those assets

• The distinction between abuse of a charity by people outside it and instances of abuse for terrorist purposes from within a charity

Where are the risks and common difficulties?

IN Money from donors – provenance of funds; reputational risks due to links associations conduct; undue influence over decisions

WITHIN Risks from – activities; links and associations (trustees, employees, volunteers, fundraisers…); when conduct in personal capacity impacts

OUT use of partners (overseas); not just money – links, associations, control - reputational risks; beneficiary influence

Some Challenges for the Regulator and Partners in This Area

• NPOs are part of civil society and it is likely that they and people involved with them will come up in investigations

• Identifying abuse from legitimate activity • Funding that supports both legitimate and illegal

activity • Links between terrorism issues and other crimes • Evidence thresholds• Cash intensive environments • International boundaries and information sharing –

particularly across criminal/civil/tax• Turning intelligence into evidence • Limitations in Powers

Charity Commission Response

• Stepping up our intervention work During 2013-14 cases featuring allegations or concerns relating to extremism/terrorism issues included

- 25 pre investigation assessment cases- 12 investigations- 55 monitoring cases

• Targeted monitoring and supervision- use of proactive compliance visits

• Increased outreach and work with charities to prevent abuse and help make them more resilient

Case Study

BookshopGenuine charitable entity

Mohammed Siddique KHAN

Shezhad TANWEER

Deceased 7/7 bombers

Trustees

Premises used to view extremist

material?

Premises used as meeting place for

the bombers?

Premises used to radicalise the

bombers?

£12.5k charitable funds held in bank account

Charitable funds not used to finance 7/7

The importance of Prevention and The Role of Charities

• Equally important is to prevent abuse happening in the first place and ensure that the sector do enough themselves to safeguard charities from this. This means: • Strong financial controls and good governance• Implementing good general risk management policies and

procedures• Meaningful and effective oversight of activities by trustees• Due diligence:

- Know Your Donor - Know Your Beneficiaries- Know Your Partner

• Monitoring and verifying the end use of funds• Not promoting extremist views inappropriate for charity • Proportionality – not a one-size fits all approach

Live Issues: Conflict Zones

• Charities working in conflict affected areas and where terrorist groups operate (e.g. Syria, Gaza)

• Aid convoys - may be abused for non-charitable purposes and facilitating travel for British foreign fighters

• Charitable appeals and fundraising issues• Other risks

– diversion of funds and aid in country– safety risks including kidnapping – transmission of cash by charity representatives– use of local partners for delivery– effective monitoring end use challenges

Live Issues:

• Charities awareness of duty to report offences under s19 TACT 2000

• Commission alerts:

- the public on safer giving for Syria – ongoing campaign

- charities on convoys, moving cash out of the UK, due diligence and monitoring, distributing aid, people travelling to Syria

• Outreach work with the sector on these issues – our events for charities working internationally

• Perception of bias and targeting

Impact of Financial Sanctions and De-risking by Banks

• Sector concerns in the sector about banks withdrawing or curtailing services to charities - and delays in transfer of funds

• Anderson report highlights “risk that necessary anti-terrorism laws will be given a bad name if they result in avoidable restrictions on the ability of NGOs to conduct vital humanitarian and peace building operations in parts of the world from which terrorism emanates”.

• Recommends dialogue between NGOs and policy makers including in UK

• If charity banking facilities are withdrawn, regulatory concern is ensuring that another provider is secured, the charity can still operate and funds are not at risk

• Our public position - serious regulatory concerns if a charity were not able to operate because of a lack of banking services

• Commission involved in ongoing dialogue with sector, BBA and other Government departments

Final Thoughts

• Allowing legitimate humanitarian work to continue and donors’ money to be used as intended is vital

• A multi-layered approach allows targeted effective action – criminal action is not the only option

• A risk based approach is vital• Close working with agencies is vital• Enabling the sector to learn for the future• Disruption is a good result

Terrorist Financing: Perspectives on Informal Finance and charities

3 October 2014

Peter Clarke – Board Member Michelle Russell – Director of Investigations, Monitoring and Enforcement