Experts on anti-money laundering (AML) and counter-terrorism financing (CFT) from different parts of the world converged in Vienna, Austria, between May 5- 9, 2019 at the 2nd AML/CFT Experts Hub meeting to exchange reflections on the implementation of Financial Action task Force’s (FATF’s) Recommendation 8 (R8) at the national level. The AML/CFT Expert’s Hub meeting coincided with the FATF’s annual Private Sector Consultative Forum (PSCF) MEETING, hosted by the United Nations Office on Drugs and Crime (UNODC), attended by over 300 private sector representatives, including from the financial sector, civil society, and FATF members and observers. Hub members, including SPACES FOR CHANGE, contributed in a session on Risk Assessment Guidance that the FATF is developing for non-profit organizations (NPOs). SPACES FOR CHANGE is both a member of the Experts Hub on AML & CFT, and the NPO Coalition on FATF.
Globally, the implementation of R8 is weak. Only a few countries like Armenia, Latvia and the United Kingdom have been assessed compliant. Out of FATF’s 40+9 Recommendations, regarded as the global norm on anti-money laundering and countering financing of terrorism. Recommendation 8, revised in 2016, specifically relates to nonprofit NPOs’ susceptibility to terrorist financing abuse. The revised R8 now requires countries to undertake a risk assessment of the NPO sector in order to identify the vulnerabilities of NPOs, the vulnerable NPOs and evaluate the sufficiency of available legislation for counteracting the risks. Consequently, the obligation of countries under R8 is no longer to visit NPOs with more stringent regulation and scrutiny without more, but that countries should demonstrate that they understand the risk that the NPO sector faces and are able to apply counter measures that are targeted at, and proportional to the risks.
Against this backdrop, wide-ranging presentations, discussions and knowledge-sharing sessions at the meeting deepened members’ understanding of the new trends and restrictions affecting civil society organizations, particularly the FATF-related justifications and arguments governments use when proposing restrictive laws. Measures to address terrorism and violent extremism, lie at the core of most restrictive laws, and have had the most significant impact on the civic space. With many governments around the world adopting similar security-related measures that shrink the civic space, violating the rights of civil society actors and human rights defenders, knowing how to respond to them is imperative.
Hub experts shared experiences of sectoral responses, legal counter-arguments and advocacy strategies that have worked in different jurisdictions, highlighting the opportunities for informed engagement in the FATF-related law-making process. Developing counter-legal arguments in particular involves multi-stakeholder partnerships and good strategizing for issue-framing, best practice remodeling and proffering alternative legislative proposals. Depending on the type of AML/CFT measures applied or the stage of implementation in the country, civil society actors may have to adopt an engagement strategy (ies) that is most suitable to the local context. Engagement strategies may take the form of strategic partnerships, constructive criticism, campaign and resistance, tactical silence or a combination of the above.
Dedicated sessions and presentations took a deeper look at national risk assessments, the processes involved and disparate country experiences. A National Risk Assessment (NRA) is a specific requirement of Recommendation 1 of the FATF Standards which set the tone for the Risk-Based Approach to AML/CFT. In line with the revised Recommendation 8, countries need to conduct a risk assessment of NPOs’ exposures to terrorist financing and measures adopted must be commensurate with the identified TF risks. To identify TF risks within the NPO sector, FATF does not prescribe a particular format for doing this. Countries may either conduct a stand-alone/specific assessment of the NPO sector, or as part of a wider national terrorist-financing risk assessment. Countries would typically look at both inherent and residual risk when they conduct risk assessments of NPOs.
So what is the role of civil society organizations in the NRA process? The primary aim is to involve civil society in setting the agenda for strengthening the framework for combatting AML and CFT risks within the country. FATF emphasizes consultation without stating specifically in writing that NPOs should be consulted during risk assessments. The large and often diverse nature of NPOs is also another factor that affects effective consultation. Despite the odds, civil society actors have used different tools to either affect or influence the outcome of their country risk assessments. Germany, Mexico and Argentina have used surveys. In Tunisia, NPOs have worked together with the government to conduct risk assessments. Other tools include preparing shadow reports, conducting shadow risk assessments, and conducting shadow R8 compliance. Using these tools and methods, NPOs have worked to defend the integrity of the sector, avoid over-regulation of the non-profit sector and also build cooperation with national governments to curb illicit financial flows.
Although R8 is mainly a TF recommendation, governments are increasingly conducting a money laundering assessment of the NPO sector. This has been witnessed in countries like Mexico, Nigeria, among others. This prompted a dedicated conversation regarding anti-money laundering laws across countries, the legal challenges arising from the application of those laws to NPOs, and how the potential AML threats affect the sector.
At the Private Sector Consultative Forum (PSCF) held on May 7, 2019, hub members engaged directly with the FATF delegations, particularly contributing to the session seeking NPO input into the ongoing work to develop Guidance for countries on assessing terrorist financing risk. The unique FATF risk requirements relevant to those NPOs that fall under FATF’s functional definition informed the decision to have a separate chapter on NPOs in the FT Risk Assessment Guidance. The consultation elicited feedback from civil society experts on common challenges and good practices in assessing TF risk within the NPO sector.
The second Experts Hub meeting, organized by the International Center for Non-profit Law and the Human Security Collective (HSC), afforded members an opportunity to engage directly with the FATF on anti-money laundering and countering the financing of terrorism (AML/CFT). Far beyond that, the forward-looking plans members shared at the end of the workshop rejigged the group’s commitment towards continuous information exchange, peer review and cross-border learning. With that shared commitment, members are set to take the hub activities to the next level.