Page 570 - IOM Law Society Rules Book

Non-profit organisations (“NPOs”) and links to terrorist financing

Most countries share the concern over the difficulties in detecting terrorist financing
through misuse of NPOs. It is generally acknowledged that NPOs play a crucial
social and financial support role in all societies, and it is obvious that this role is not
being called into question. Nevertheless, the sheer volume of funds and other assets
held by the charitable sector means that the diversion of even a very small percentage
of these funds to support terrorism would constitute a grave problem. Therefore, the
limited knowledge about the extent to which terrorists may be exploiting the NPO
sector should be considered a matter of serious concern for the whole international
community.

NPOs possess many characteristics that are particularly vulnerable to misuse for
terrorist financing. They 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 exactly in or next to those areas that are most exposed to
terrorist activity. Finally, depending on the country and legal form of the NPO, they
are often subject to little or no regulation (for example, registration, record keeping,
reporting and monitoring) or have few obstacles to their creation (for example, there
may be no skills or starting capital required, no background checks necessary for
employees, etc.)

TYPOLOGIES

Typology 1: Fund raising through informal cash collection techniques

NPOs can be used by terrorists and terrorist organisations to raise funds. Often – but
not always – these organisations have applied for and received a formal charitable or
tax exempt status. Moreover, some of these organisations have been reported to have
used rather aggressive fund raising techniques, sometimes seeking donations from the
public at large, and in other instances focusing on certain target groups, particularly
within specific ethnic or religious communities. As part of the fund raising, the
importance of informal cash collection in many ethnic or religious communities and
the difficulties in accurately monitoring those funds can not be underestimated.
Although it is most likely that the vast majority of these funds are raised and used for
entirely legitimate charitable purposes, the obvious potential for abuse is nevertheless
problematic. The existence or pretence of cash collections can also facilitate the
integration of the proceeds of criminal activities carried out by terrorist groups into
the “legal financial system”. These funds are then represented as legitimate
charitable cash collections for an NPO and thus are a form of money laundering for
terrorist purposes.

Typology 2: The use of NPOs to move funds

NPOs can also be used by terrorists to move funds. In these cases, terrorists exploit
the fact that financial transactions that effectively transfer funds from one geographic
location to another — often across national borders — are regarded as the normal
business of certain types of foundations and charities. In some instances, the legal
form and ostensible purpose of the NPO seems to have been chosen carefully in order