3 steps for developing anti-money laundering and combating terrorism finance policies

3 steps for developing anti-money laundering and combating terrorism finance policies

In an era marked by unprecedented global connectivity and rapid technological advancement, the landscape of financial crimes, particularly money laundering and terrorism financing, has evolved at an alarming pace. For non-profit leaders navigating this complex terrain, understanding the intricacies of Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) is not just a regulatory necessity but a critical strategic imperative.

Charity leaders should stay informed, hence this blog aims to be an insightful resource, shedding light on the dynamic challenges posed by globalization and digitalization. As the need for vigilance intensifies, leaders in the non-profit sector must embrace a forward-thinking approach to effectively combat these financial threats. Join us on this journey as we delve into the nuances of AML/CTF, offering insights and empowering non-profit leaders to shape a secure and resilient future for their organizations and its mission.

Recent Development of AML/CTF in Singapore

The recent cases of money laundering in Singapore have heightened the need for charities to review its AML/CTF internal policies. To prevent terrorists or money launderers from exploiting the vulnerabilities of charities, the Commissions of Charities in Singapore advises that charities have vigorous financial controls in place. Charities are also encouraged to conduct regular reviews of their internal controls, policies and procedures, key programs, and partnerships to protect themselves from actual or alleged abuse of fraud, money laundering, or support for terrorism.

A) Why charity leadership should be aware of AML-CTF:

Digitalization's Impact on Money Laundering and Terrorism Financing

The proliferation of digital financial systems, such as online banking, mobile payment apps, crowdfunding platforms, digital currencies, and cloud computing, has significantly transformed the banking and finance landscape. While these innovations offer convenience and efficiency, they also present unique opportunities for criminals to exploit vulnerabilities in the digital realm for money laundering and terrorism financing.

1. Increased Anonymity and Cross-Border Transactions

Digitalization allows for increased anonymity in financial transactions, making it challenging to trace the origins and destinations of funds. Cryptocurrencies, in particular, offer a level of anonymity that traditional banking systems do not provide, allowing illicit actors to transfer funds across borders with reduced scrutiny.

2. Emergence of Pseudo Charities and Crowdfunding Platforms

The digital landscape has witnessed the rise of pseudo-charities and crowdfunding platforms that may not undergo stringent regulatory oversight. These organizations or entities that present themselves as charitable or non-profit but may not genuinely engage in charitable activities or may have questionable motives. They may use the appearance of a charitable organization to deceive people and may not allocate funds as promised. Such examples include fake disaster relief and phony animal rescue groups. Criminals can exploit these platforms to solicit funds under the guise of charitable activities, thereby concealing the true nature of the transactions.

Regulatory bodies worldwide are grappling with the challenges posed by digitalization in combating money laundering and terrorism financing. Adapting traditional AML/CTF frameworks to effectively monitor and regulate the dynamic digital financial space remains an ongoing challenge.

3. Sophisticated Cyber Techniques

Cybercriminals use sophisticated techniques like hacking, phishing, and malware to compromise financial systems and launder illicit funds. These techniques enable them to exploit weaknesses in digital security measures, creating avenues for money laundering and the financing of terrorist activities. Cyber-laundering and cyber-terrorism are two trends that are becoming increasingly prevalent.

4. Dark Web and Virtual Currencies

The emergence of the dark web, accessible through specialized browsers, serves as a marketplace for illegal activities where transactions are often facilitated using virtual currencies. Criminal entities exploit these hidden platforms to launder money and finance terrorism anonymously.

5. Cross-border movement of funds

For example, cities like Singapore or Dubai, are global financial hubs with a robust banking sector and significant foreign investments. This status attracts high-net-worth individuals and global citizens seeking residency, but it also poses risks as it can be an attractive destination for those looking to exploit the financial system for illicit purposes. New residents might donate to charities or causes as a way to appear lawful while, in reality, using these donations to conceal the illegal origins of their wealth.

B) Future-focused Leadership’s Response to Protect the Charity

Leaders in the charity sector need to understand these trends to ensure robust risk mitigation strategies. Charities must leverage advanced technologies themselves, employing or using secure digital platforms for donation processing while simultaneously implementing stringent Anti Money Laundering/Counter Financing Terrorism (AML/CTF) measures.

Here are 5 steps the board and management of charities should consider to future-proof against such risks:

1. Due Diligence process:

a. Setting a threshold for material amount: Ascertain the threshold on what constitutes as a substantial/large donations for your organization and have a system to flag out contributions beyond the threshold set.
b. Know your Donor (KYD): Where material, check on the new donor against your donor database or possibly check against the list of blacklisted donors from global sources or relevant jurisdiction. In Singapore, sources such as Singapore Statutes Online and MAS’s COSMIC digital platform provides potential financial crime concerns that non-profit leaders should refer to and stay updated on the developing landscape in this area.

2. Records and Reporting:

a. Maintain a records and reporting mechanism to track the flow of funds, ensuring accountability and transparency in fund utilization.

b. Reporting Suspicious Transactions: If the donation is deemed suspicious, charities should lodge a Suspicious Transaction Report (STR) if there is a reasonable suspicion of money laundering or terrorist financing activity during the course of the charities’ due diligence process or operations. Singapore charities can lodged their STR with the Singapore Police Force.

c. Collaboration:  Exchange information and report any suspected illicit activities through collaboration with regulatory authorities, financial institutions, and law enforcement agencies.

3. Educating Staff and Supporters:

a. Provide ongoing training and awareness programs to board, staff, donors and volunteers regarding AML/CTF obligations and the identification of suspicious transactions.

b. Resources: Familiarise staff and supporters to resources developed to protect charities from abuse related to AML/CTF like “Protecting Your Charity Against Money Laundering And Terrorism Financing” and refer to the Red Flag Indicators given below.

C. Role of board in the development and monitoring of the AML/CTF policies

Appropriate policies and procedures are needed to ensure that the charity board and management employ the best course of action and a systematic method to enhance governance practices in the areas of:

a. Transparency: decisions and actions are open to public scrutiny

b· Accountability: decision-makers take responsibility for their decisions and actions

c· Inclusivity: stakeholders (supporters and donors) see their legitimate needs being considered

d· Effectiveness and efficiency: resources are used wisely by determining the thresholds material to good governance

e· Responsiveness: decisions are made promptly while keeping with the changes in the philanthropic and regulatory environment

f· Compliance: regulatory requirements are met and enforced impartially

We hope that this blog helps forward-thinking leaders to effectively protect their charities and combat emerging financial threats related to AML/CTF.

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