CHARITIES
The risks of financial crime David Potts considers the varied dangers that charities face from financial crime and how they can do their best to avoid them. David Potts Director of Operations, AIA
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harities can face financial crime risks due to the nature of their activity, especially when operating internationally or in areas of economic and social upheaval. These risks must be assessed and controlled in order to avoid providing a vehicle for illicit funds or criminal activity. Charitable organisations working internationally often face acute challenges which make them more vulnerable to financial crime, including fraud, theft, looting, money laundering and terrorist financing. All charities are at risk of fraud and cybercrime and should take practical actions to protect themselves from harm: ● One in 13 people fall victim to fraud each year (see bit.ly/3D44QDO). ● Cybercrime is on the rise, exacerbated by the pandemic (see bit.ly/30h7HuL). ● The average organisation loses 5% of revenue to fraud each year (see bit.ly/3bZBzOM). ● Under 9% of charities have fraud awareness training in place (see bit.ly/3ofPMN5). If organisations are fraud aware and resilient, this helps to maintain public trust and confidence. Also, money which is lost to fraud and cybercrime cannot as a result be spent on charitable causes.
Types of financial crime Fraud, theft and looting
Author bio
David Potts is director of operations at the AIA.
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Some charities working internationally face an increased risk of fraud, theft and looting because of the complexity of working across borders, where there may be fewer controls or where local conditions make it more challenging to apply controls. Moving funds overseas can often increase these risks because of conversion to other currencies, conversion of cash into goods and back again and, in some areas, unregulated local customs and practices and the absence of formal banking systems.
Money laundering
This usually involves the receipt of illicit funds which are then paid out into the legitimate economy, perhaps in different amounts, to different people and in different forms and currencies. For example, in order to transfer illicit funds overseas and disguise their origin, donors may make donations to charities and apply specific restrictions regarding which partner or project is to be funded. Charities can accept donations with conditions attached, but only if those conditions are compatible with the charity’s purposes, priorities and activities and are not illegal.
Terrorist financing
Charities working internationally may be operating in unstable or challenging territories, where the risks of abuse for terrorist purposes are higher. For example, proscribed groups may be active in the area or there may be financial sanctions in place. The Terrorism Act 2000 includes duties to report any suspicions or beliefs regarding terrorist financing offences.
Common risks
The UK government’s National Risk Assessment of Money Laundering and Terrorist Financing 2020 indicates that there has not been a significant change in the vulnerabilities or mitigations f the charity or wider non-profit organisation sector to terrorist financing since the 2017 National Risk Assessment. These vulnerabilities are not spread equally across the sector. Rather, among the large number of charities which operate internationally, a significantly higher risk continues to face the ISSUE 120 | AIAWORLDWIDE.COM