Charities can face financial crime risks due to the nature of their activity, especially when operating internationally or in areas of economic and social upheaval. These risks must be assessed and controlled in order to avoid providing a vehicle for illicit funds or criminal activity.
Charitable organisations working internationally often face acute challenges which make them more vulnerable to financial crime including fraud, theft, looting, money laundering and terrorist financing.
All charities are at risk of fraud and cybercrime and should take practical actions to protect themselves from harm:
If organisations are fraud aware and resilient this helps to maintain public trust and confidence. Additionally, money which is lost to fraud and cybercrime cannot as a result be spent on charitable causes.
Some charities working internationally face an increased risk of fraud, theft and looting because of the complexity of working across borders, where there may be fewer controls or where local conditions make it more challenging to apply controls.
Moving funds overseas can often increase these risks because of conversion to other currencies, conversion of cash into goods and back again and, in some areas, unregulated local customs and practices and the absence of formal banking systems.
This usually involves the receipt of illicit funds which are then paid out into the legitimate economy, perhaps in different amounts, to different people and in different forms and currencies.
For example, in order to transfer illicit funds overseas and disguise their origin, donors may make donations to charities and apply specific restrictions regarding which partner or project is to be funded. Charities can accept donations with conditions attached, but only if those conditions are compatible with the charity’s purposes, priorities and activities and are not illegal.
Charities working internationally may be operating in unstable or challenging territories, where the risks of abuse for terrorist purposes are higher. For example, proscribed groups may be active in the area or there may be financial sanctions in place.
The Terrorism Act 2000 includes duties to report any suspicions or beliefs regarding terrorist financing offences.
The UK National Risk Assessment of money laundering and terrorist financing includes a chapter covering charities: https://t.co/AWS9TGgYtu— Charity Commission (@ChtyCommission) October 28, 2017
The UK government's National risk assessment of money laundering and terrorist financing 2020 indicates that there has not been a significant change in the vulnerabilities or mitigations of the charity or wider non-profit organisation sector to terrorist financing since the 2017 NRA.
These vulnerabilities are not spread equally across the sector. Rather, among the large number of charities which operate internationally, a significantly higher risk continues to face the small number of charities that operate in or in close proximity to conflict zones. These charities are likely to be exposed to the greatest risk of abuse through misappropriation of legitimate donations by individuals, including nationals stripped of their citizenship due to their prior or continued links or association with terrorist groups, or individuals acting as a partner to the charities themselves. Other inadvertent forms of abuse occur though skimming, incidental theft or opportunistic looting.
In the context of the global public health crisis in 2020, the Financial Action Task Force (FATF) has highlighted the crucial work of charities around the world to combat Covid-19 and its effects. The UK government also continues to recognise the work of charities in providing vital services, as well as the difficulties faced in providing that assistance.
If you suspect a fraud or other financial crime has occurred, you must act promptly.
Following these five simple steps can help you reduce the risk of falling victim to financial crime while working abroad.
The Charity Commission for England and Wales has produced a range of resources covering this area. See ‘Protecting charities from harm: compliance toolkit’.
The Prevent Charity Fraud website contains resources to help charities prevent, detect and respond to fraud.
Cyber Security for Small Organisations interactive training from the National Cyber Security Centre.
Further information is available on AIA's Charities Hub.
For other financial crime and fraud resources AIA members in practice can login to view guidance.
Charity Fraud Awareness Week (18 – 22 October 2021) is an award-winning campaign run by a
partnership of charities, regulators, law enforcers, representative and umbrella bodies, and other
not-for-profit stakeholders from across the world.
The purpose of the week is to raise awareness of fraud and cybercrime affecting the sector and to
create a safe space for charities and their supporters to talk about fraud and share good practice.
(1) HM Government and UK Finance (July 2019). Economic Crime Plan 2019-22. Office for National Statistics (3 February 2021). Crime in England and Wales: year ending September 2020.
(2) INTERPOL (August 2020). Cybercrime: COVID-19 Impact, press release.
(3) Association of Certified Fraud Examiners (2021). Report to the Nations: 2020 global study on occupational fraud and abuse.
(4) Charity Commission and Fraud Advisory Panel (October 2019). Preventing Charity Fraud: Insights & Action. Charity Commission and Fraud Advisory Panel (October 2019). Preventing Charity Fraud: Insights & Action.
The Association of International Accountants (AIA) will not be liable for any reliance you place on the information in this material and you should seek independent advice if unsure.