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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.
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.
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.
What is the link between charities and terrorism?
Charities are also victim of terrorists, as underlined by the 2014 report of the Financial Action Task Force (FATF) titled "Risk of Terrorist Abuse in Non-Profit Organizations." Terrorists exploit charities as a means of concealing their illicit activities, taking advantage of the perceived credibility of these organizations to finance their operations while escaping suspicion. The FATF explains that some charities operating in resource-poor conflict zones are easy prey for terrorist groups. New charities are also more fragile due to a lack of legal and financial knowledge. Most charities are small-scale and can easily fly under the radar.
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Money LaunderingWed 15 March 2023
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