FATF Recommendation 8th

Among the objectives of the Financial Action Task Force — FATF — is the establishment of common standards and benchmarks for the correct implementation of legal and operational measures aimed at preventing money laundering and the financing of terrorism. To achieve this goal, FATF issued its 40 Recommendations, and in this article, we will address the eighth recommendation of FATF.

FATF, in its Eighth Recommendation, encourages reviewing the adequacy of national laws and regulations related to non-profit organizations, with the aim of addressing their vulnerabilities to being used in terrorist financing operations. Among the possible vulnerabilities considered by the Eighth Recommendation are:

• the exploitation of trusted entities as vehicles for terrorist financing, including the objective of avoiding countermeasures and financial sanctions — Recommendation 7th —;
• terrorist organizations posing as non-profit organizations;
• the concealment or cover-up of the diversion of legitimate funds to terrorist organizations.

FATF, in the Interpretative Note accompanying the Eighth Recommendation, has established a definition of a Non-Profit Organization. It defines it as “a legal person or entity or organization primarily engaged in raising or disbursing funds for charitable, religious, cultural, educational, social, or fraternal purposes, or to carry out other types of ‘good works’”.

The aim of Recommendation 8 is to strengthen the protection of non-profit organizations, attempting to protect them from abuse by terrorists or terrorist organizations. To achieve this, the Interpretative Note has established a series of objectives and general principles that should guide the implementation of this standard:

• Develop a risk-based approach that adopts specific and proportionate measures to address identified risks.
• Establish a joint national response that addresses the abuse non-profit organizations may suffer from terrorist organizations.
• Promote the use and implementation of dynamics that foster transparency and accountability in non-profit organizations.
• Develop a close collaborative relationship between the private and public sectors with non-profit entities, to understand the risks faced by these organizations.

FATF understands that most non-profit organizations are low-risk, which is why it focuses on the need for countries to develop a plan to identify which entities or activities may pose a higher risk of terrorist financing. Once these organizations are identified, FATF sets forth four key pillars that should guide the measures of each country:

1. Ongoing outreach on terrorism financing issues. States should undertake outreach and training programs that deepen the understanding of the vulnerabilities of non-profit organizations. Furthermore, close work with these organizations should be encouraged to develop practices that mitigate the risks of terrorist financing.
2. Monitoring and oversight of non-profit organizations.
3. Effective information exchange and investigation. States must ensure effective cooperation between different authorities and competent organizations that possess relevant information about non-profit organizations — such as financial, tax, or beneficial ownership information —.
4. Additionally, FATF emphasizes the need to establish information exchange systems as well as international cooperation mechanisms that respond to international requests.