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
Fraud
Business
Travel Fares,
Visas, car hire
Support for
Families, Before
During & after
Minor Crime
Communications
& IT
Food &
Accommodation
Charities
Donations
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 payments
USING
• 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
Deceased 7/7 bombers
Mohammed
Siddique KHAN
Shezhad
TANWEER
Bookshop
Genuine charitable entity
Charitable
funds not used
to finance 7/7
Premises used to
view extremist
material?
Premises used as
meeting place for
the bombers?
Trustees
Premises used to
radicalise the
bombers?
£12.5k charitable
funds held in
bank account
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