On 26 November 2024, the Registrar of Associations and Foundations, which is part of the Ministry of Interior, issued a new Best Practices Report providing information on the risks faced by Non-Profit Organisations (NPOs) in relation to terrorism financing.
The Report offers examples of practical measures that NPOs can adopt to identify and manage their exposure to such risks. This initiative aligns with international standards, including the Financial Action Task Force (FATF) Recommendations, and Cyprus’s The Associations and Institutions and Other Related Matters Law (No. 104(I)/2017). The report can be found here.
Introduction
Non-Profit Organisations play a vital role in social and economic development, offering critical support to vulnerable populations and addressing global and local challenges. However, their operations may also render them vulnerable to misuse for terrorism financing (TF). Recognising these risks, the Ministry of Interior’s Best Practices Report aims to strengthen the NPO sector by providing actionable guidance to prevent abuse while ensuring their continued contribution to society.
Understanding Terrorism Financing
Terrorism Financing involves the collection, transfer, or use of funds to support terrorist activities or organisations. Unlike Money Laundering (ML), which focuses on concealing the illegal origin of funds, TF may involve both legal and illegal sources of funds. Additionally, ML aims to obscure the source of funds, whereas TF seeks to conceal the destination of funds or the purpose for which they are used. In fact, TF can involve relatively small amounts of money, often bypassing traditional financial systems. Both ML and TF exploit vulnerabilities in financial systems, relying on anonymity and weak oversight mechanisms.
Vulnerabilities in the NPO Sector
While most NPOs operate with integrity, some are at risk of exploitation for TF due to their inherent characteristics, including public trust and international operations. The report identifies several key vulnerabilities in the NPO sector in Cyprus:
- Refugee and Migrant Support: NPOs assisting individuals from conflict zones may unknowingly facilitate misuse of funds, such as for safehouses used by terrorist organisations.
- Politically Exposed Persons (PEPs): Individuals with ties to high-risk TF regions holding leadership or ownership positions in NPOs.
- Fundraising Activities: Donations collected in areas near terrorist organisations or conflict zones.
- Geographical Proximity: Cyprus’s strategic location can increase the likelihood of fund flows to high-risk TF regions.
- Risk Indicators for NPOs.
The report outlines several factors that may indicate an increased risk of TF abuse:
- Governance: Presence of individuals associated with high-risk regions, such as PEPs, among the NPO’s stakeholders.
- Fund Management: Reliance on funds from high-risk areas or anonymous cash donations.
- Operational Focus: Providing support to individuals or groups in high-risk areas.
- Geographical Links: Engagement with regions identified as high-risk for TF.
Recommended Measures for Mitigation
The report recommends that NPOs adopt reasonable measures to minimise their exposure to TF risks. These measures include:
- Verifying Stakeholders: Confirming the identity and credentials of donors, recipients, and associated entities.
- Monitoring Financial Transactions: Ensuring that financial flows comply with regulatory requirements and maintaining transparency.
- Utilising Regulated Channels: Using authorised financial systems for international fund transfers.
Examples of Best Practices
The report provides practical examples of steps NPOs can take to safeguard their operations:
- Conduct public fundraising campaigns transparently and accountably.
- Implement “know your donor” policies, particularly for significant or recurring contributions.
- Strengthen collaboration with NPOs near high-risk regions, ensuring proper due diligence.
- Keep detailed records of all financial transactions to ensure traceability.
The Best Practices Report by the Ministry of Interior marks a critical step in addressing the vulnerabilities of the NPO sector in Cyprus. By offering a clear framework for identifying and managing risks, the report promotes transparency, accountability, and resilience within the sector. NPOs are encouraged to implement the recommended measures to continue their invaluable work while safeguarding against misuse. These efforts will ensure compliance with national and international standards and maintain public trust in the integrity of the sector.
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