As funds flow into the hands of charities, an unsettling question arises: is your donation inadvertently fueling money laundering activities? While the noble intentions behind charitable giving inspires positive change, criminals have exploited the realm of benevolence, using it as a strategic front to legitimize the proceeds of their illegal activities. What can be done to stop them? And what's the impact on today's world?

Charities embody the symbol of compassion, enriching our collective human experience by providing a platform for individuals to express empathy, solidarity, and a shared commitment to alleviate suffering and promote justice.
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Informations négatives et sources médiatiques

Unfortunately, the growing demand for international aid has led to an increase in the number of charities, creating an environment ripe for exploitation by unscrupulous individuals. These criminals often take advantage of urgent situations to infiltrate and launder money through donation systems, damaging the reputation of charities, and reducing the effectiveness of their projects.

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The methods employed are varied, and their inventory is constantly expanding, thanks in particular to the many opportunities offered by the internet.
In most situations, if no proper investigation is carried out, either by financial institutions or through criminal proceedings, the fraudulent origin of the funds remains carefully concealed.

How are charities used to launder money?

To encourage donations, many countries have introduced tax incentives or tax breaks for the recipient organization or donors. This has created an ideal breeding ground for abuse. According to an OECD report titled "Release of Report on Abuse of Charities for Money-Laundering and Tax Evasion," , the most common money laundering methods are :

  • 1

    An organization registered as VAT-exempt that carries out taxable activities

  • 2

    Issuing receipts for payments that are not actual donations

  • 3

    Issuing receipts to people working for the beneficiary organization

  • 4

    Terrorist financing schemes that use charities to raise or transfer funds to support terrorist organizations

  • 5

    Misappropriation of funds collected for personal use

  • 6

    Manipulating the value of donated goods

  • Examples include the case of the Vatican Bank, which was accused of money laundering and corruption linked to donor accounts due to a lack of transparency in its operations. In the 1980s, during the bankruptcy of Banca Ambrosiano, discoveries were made concerning missing funds in certain accounts. The affair revealed obscure fund transfers, secret accounts, and suspicious financial transactions involving the Vatican Bank. In response to these revelations, Pope John Paul II ordered an internal investigation which led to reforms within the bank and the introduction of measures to improve financial transparency.

    How do charities benefit criminals and money launderers?

    The increasing use of legitimate companies is a trend also observed in traditional criminal organizations. As the Europol's 2005 report on organized crime in the European Union has shown, organized crime groups are increasingly taking advantage of the benefits of legal corporate structures to conduct or conceal their criminal activities and launder their illicit capital. Here are just a few examples

    • 1

      Appearance of legitimacy: the first criterion is the exploitation of the reputation of charities to launder dirty money by abusing the trust of the public and of the authorities. Transactions carried out in the name of a charitable organization appear legitimate, thus escaping suspicion.

    • 2

      Anonymity : anyone can make a donation anonymously via online platforms, and as long as there is no investigation, anonymity will remain in effect.

    • 3

      Property transactions: criminals transfer a property purchased with dirty money to a charity, enabling them to disguise the illegal origin of the money. Properties can then be resold or rented out to launder further funds.

    • 4

      Opaque fund flows: criminals use charitable organizations to disguise the origin of illegal funds by making donations, transfers, or financial transactions through these entities (international transactions, multiple cash flows, and cross-border partnerships make it more difficult to detect illegal activities). These complex flow of funds make it difficult to trace transactions, thus facilitating the money-laundering process.

    • 5

      Tax benefits : making a donation provides access to tax benefits. Criminals may overstate the amount they donate to charity, enabling them to reduce their tax bill and launder money illegally.

    Today, charities and social support organizations are part of the foundation of our societies, and are steadily growing as demand continues to increase.Unfortunately, criminals are well entrenched in these systems. As things stand, the public is losing confidence in these entities, and it's important and urgent to put financial security back at the heart of these projects by increasing vigilance.

    How to prevent the misuse of charities

    The FATF has issued recommendations for non-profit organizations (NPOs) in 2015 and they promote a 3-step approach:

    1 Risk analysis:
    The organization must follow a risk-based approach. Most of the efforts and resources required should be devoted to the riskier activities. An organization should follow this approach when working with a new partner or environment.

    2. Risk mitigation:
    The best way to prevent the risk of money laundering is to put in place sound governance and financial management. This includes internal financial controls and due diligence for incoming and outgoing transfers. There is no one-size-fits-all approach to due diligence, and it depends on the circumstances. As an example of a risk-based approach, an organization working in a crisis zone should analyze the political structure and foreseeable security consequences.
    charity money laundering kyc

    It should then define the risk for employees working in such a context, but above all analyze the methods of detour that could arise due to the lack of stability and security. Charities should strive to avoid working in areas where government authority is so weak that the strong presence of extremist clans or informal organizations increases the risk of money laundering.

    3. Self-regulation
    The non-profit sector can have a representative who will try to preserve the integrity of the sector and the reputation of its members, and provide them with advice. For example, an independent body could be set up within the sector to verify certain elements of the non-profit association, such as :

    Charities and AML

    société caritative blanchissement d'argent impact
    Despite these recommendations, there are still a number of cases that can be considered "sensitive". An important case in point is the earthquake in Turkey in 2023. At the time, the country was in great financial demand, as repairs and reconstruction required a lot of funds. Many criminals took advantage of the situation as Turkish authorities were mobilizing to deal with the earthquake crisis, and as a result, the monitoring and control of suspicious financial activities was impacted.

    There was everything from fake donation requests via social networks, to fictitious aid companies that simulated activities in order to inject illegal funds into their charities, or via the purchase of real estate in their name to transform illegal funds into tangible assets.

    The importance of compliance in charitable systems

    Money laundering is a global problem that calls for increased surveillance and transparency, and the case of charities is a good example. Charities are essential to today's society, but they are also an opportunity for the ill-intentioned. The urgency of the demand allows criminals to be less controlled and therefore more likely to slip through the net, and the location of donations, which are often international, allows criminals to better conceal themselves in the mass because of inadequate transmission of information between the various players.

    the symbiotic relationship between charities and anti-money laundering measures underscores the vital need for transparency and cooperation. By fostering a global environment of collaboration and vigilance, we not only protect the integrity of charitable contributions but also fortify the collective impact of our altruistic efforts. The ongoing pursuit of a secure and transparent charitable landscape is instrumental in preserving the true essence of giving.
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